Xi Jinping

Why Modi’s India is warming to China

When Xi Jinping arrives in India today, he will find in Narendra Modi a leader much more open than in the past to working with China

PUBLISHED : Wednesday, 17 September, 2014, 4:20am
UPDATED : Wednesday, 17 September, 2014, 9:40pm

President Xi Jinping should find the “handshake across the Himalayas” a lot warmer than usual when he starts his India trip today.

As India prepares to overcome the reflexive suspicion of its giant neighbour and open the floodgates to Chinese capital, and Xi respond by opening the chequebook, relations between the two Asian giants are set for, as India’s National Security Adviser Ajit Doval puts it, an “orbital jump”.

From Hindi-Chini bhai bhai (India and China are brothers) to Chindia, rhetoric flies thick and fast when it comes to China and India, as a way of sugarcoating a fraught relationship. But the words of the former spymaster, who was in Beijing last week to finalise the details of Xi’s trip, mirror a deeper churning in India’s strategic outlook in favour of China at a time when China is also gravitating towards India.

“With the incredibly rapid growth of bilateral trade and recent partnerships such as the BRICS (Brazil, Russia, India, China, South Africa), India’s importance to China has risen to a new level. China considers India as one of its most important strategic partners,” says Guo Suiyan, associate professor at the Institute of South Asian Studies in the Yunnan Academy of Social Sciences.

China and India began a cautious détente after shutting each other out for two decades over a border war in 1962 in which India suffered a humiliating defeat. Over the years, they have gradually escalated engagement, especially in trade, but relations have been dogged by mutual suspicion stemming from a contested border and overlapping territorial claims. There are now signs of change.

“India’s strategic circles have noted that the Chinese government has been trying to reach out to India. This has prompted a reassessment of our China policy,” says Jagannath Panda, a research fellow at the Institute for Defence Studies and Analyses in New Delhi.

Though India’s foreign policy has a strong strain of continuity and a reassessment of China has been on for some time, it has picked up pace since Narendra Modi’s rise to power in May. The reasons have as much to do with the new prime minister’s economic priorities as much as his worldview.

Modi came to power largely on the promise of fixing a broken economy. It was his stellar management of the western state of Gujarat and his investor-friendly reputation that propelled his ascent in national politics as India’s once-mighty economic growth slipped under 5 per cent.

Central to the so-called Modinomics is attracting foreign investment and creating manufacturing jobs for millions of young Indians. Between 2004 and 2011, China generated 16 million manufacturing jobs on top of an existing 112 million, says Free University of Brussels professor and author of China and India: Prospects for Peace, Jonathan Holslag. India, in contrast, only created 3 million jobs on an initial total of 11 million. This unemployment problem will only worsen over the years as 6.5 million Indians are expected to join the labour force every year until 2030.

India’s creaking infrastructure and notorious bureaucratic sloth aren’t helping either, forcing even Indian industrialists to look elsewhere. Chinese investment in India amounted to US$657 million in 2012 compared to US$723 million of Indian investment in China. It’s not for nothing that Modi has been asking the world to come and manufacture in India, promising them “red carpet, not red tape”.

China forms an integral component in this jobs focus. As chief minister of Gujarat, Modi successfully drew Chinese capital to his state. Now that he is expected to replicate his so-called Gujarat model of development across the country, he has moved rapidly to remove regulatory hurdles to facilitate Chinese investment on a wider scale. In a country where suspicion of China runs deep, that would require all of Modi’s famed administrative prowess but he has already made substantial progress.

Indian media recently reported that the ministry of commerce and industry has asked the home and external affairs ministries to formulate a clear strategy on China and identify the sectors and regions where Chinese investment is perceived as a security threat. The remaining sectors, according to the commerce ministry, should be thrown open to Chinese investment with a clear-cut policy.

The Financial Express cited a commerce ministry official as complaining that this lack of clarity has meant that India drew only US$313 million of Chinese investment between April 2000 and April 2014 compared with US$20 billion from the UK and US$12 billion from the US.

Perceived security threat is the reason why India’s “strategic assets” such as railways and ports have so far been off-limits for Chinese businesses. After coming to power, Modi has removed the 49 per cent cap of foreign direct investment in railways and made it clear that Chinese investment will be sought in this sector.

China is responding in kind. Liu Youfa, China’s consul-general in Mumbai, has told local media that Chinese firms are eyeing over US$50 billion worth of investments in modernising the Indian railways and running high-speed trains. Xi, he said, would bring with him US$100 billion of investment commitments over five years, nearly three times as much as the US$35 billion secured by Modi on his recent Japan trip.

Japan’s close ties with India are a matter of concern for Beijing, which fears the United States and Japan are trying to pull India into their sphere of influence to contain China.

China will also announce the setting up of two industrial parks specialising in cars and power equipment. Talks are on for two more, specialising in textiles and food processing. Apart from a major boost to jobs and foreign investment, these mega investments are also meant to allay Indian concerns over a skewed trading relationship.

China is India’s biggest trading partner with two-way trade totalling nearly US$70 billion, but India’s trade deficit with China has crossed US$40 billion from just US$1 billion in 2001-02. India also complains about the quality of trade as China buys mostly raw materials from India but sells it finished goods.

According to Holslag, India’s current attitude towards China is similar to China’s attitude towards Japan in the ’70s. “Like China back then, India is desperate for foreign investments to catch up and willing to show more pragmatism towards territorial disputes,” he says, but adds that it may not work out the way India expects.

“China is not yet ready to support a manufacturing boom elsewhere because it is not yet a high-income country and awaits a decade of difficult economic reforms itself.”

But many in India believe a rapidly ageing Chinese population and the country’s decision to move up the value chain and ship out labour-intensive jobs create a rare opening for job-hungry India.

Economics apart, Modi’s China thrust is also a product of his Hindu nationalistic politics that draws inspiration from Asian nationalism. This ideological tilt is the prime source of his attraction to Japan and Singapore as well. It’s also fashioned by his sense of injury over his treatment by the West for his alleged role in a 2002 pogrom against Muslims in Gujarat. While most Western countries, especially the US, wouldn’t give him visa, he has travelled freely in Asia in past years.

China, which he sees as his economic role model and has visited four times, in particular rolled out the red carpet. In a rare show of deference, China even acceded his request in 2011 and freed most of the Indians arrested on charges of diamond smuggling in Shenzhen. China and Modi have long liked each other and make no bones about it.

“There are two factors pushing India towards China. The idea that we need the US in a unipolar world is out. With China’s rise, Russia’s resurgence and the global financial crisis, multipolarity has returned to India’s foreign policy outlook,” said Zorawar Daulet Singh, co-author of India-China Relations: The Border Issue and Beyond. “This ongoing shift away from a US-centric foreign policy has gained momentum as a result of Modi’s Asia-centric views. He plainly rejects the US approach of containing China. In the previous dispensation under Manmohan Singh, there was a degree of reticence vis-à-vis China for fears of US retaliation. Under Modi, there is greater assertiveness.”

The accent on Asia in itself is not altogether new for India. Since 1991, it has pursued a “Look East Policy” to court countries closer home. But here again, there’s been a perceptible change of pace and focus since Modi came to power. External Affairs Minister Sushma Swaraj put it succinctly last month when she declared in Hanoi: “It’s time to not just look but to act. We’ll have an Act East policy.”

This renewed interest in the periphery is also creating greater opportunities for collaboration, particularly because some of Xi’s signature projects are transnational corridors such as the “New Silk Road” that seek to recreate ancient land and sea trading routes.

“For the first time, both countries are in symmetry on the Dengist maxim that stability at home and peace in the immediate common neighbourhood are essential to their modernisation programmes,” says Sourabh Gupta, a senior research associate at Washington-based consultancy Samuels International. “The Chinese were already committed to it. Now New Delhi is coming around to the idea that these corridors are in its national interest.”

According to Gupta, this new engagement will be evident in the coming months as India takes membership of the China-led Shanghai Co-operation Organisation and accepts China’s offer to become a founding member of the Asian Infrastructure Investment Bank (AIIB), with which Beijing plans to fund these corridors.

“For the first time, the periphery is at the core of the relationship between China and India, opening up the Great Game of co-operative possibilities rather than geopolitical checkmating,” says Gupta.