Why India wants to avoid having to choose between China and Japan

Despite recent moves to strengthen its ties to Tokyo, the authorities in New Delhi have strong reasons to want to keep a balance between Asia’s big three

PUBLISHED : Saturday, 23 September, 2017, 7:02pm
UPDATED : Saturday, 23 September, 2017, 11:16pm

Prime Minister Shinzo Abe of Japan evidently had a good trip to India last week.

In recent months there has been a determined effort by Japan, and its many friends resident in India, to bring these two Asian giants closer and close ranks against the third and increasingly assertive Asian giant.

The Doklam crisis gave Japan a great opportunity to win goodwill in India and it seized the opportunity with both hands by becoming only one two countries, alongside the United States, that openly supported India during the stand-off.

Suddenly editorials and commentaries in India are waxing eloquent about a new strategic relationship to counter China. We may be jumping to conclusions a bit too hastily.

Following Abe’s visit, India extended a tender to supply its navy with submarines by a month to allow new bidders to enter the fray.

Many commentators suggested this extension would allow the Japanese combine of Mitsubishi and Kawasaki to offer a bid to supply their Soryu class submarines.

The vessels are Japan’s largest and first air-independent propulsion submarines. Indian naval officers who have been aboard them say they are state-of-the-art equipment, with a price tag to match at US$1.5 billion each.

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But going by the experience of the contract to supply the Indian Navy with ShinMaywa US-2 amphibious aircraft it is premature to believe that this relationship will really go beyond statements and self-serving economics.

At the very last moment the Japanese decided that it could only sell the US-2 without its weapons and electronic suite, as Japanese laws would not permit it to be exported to India when fully armed.

Since India was looking for an aircraft that could perform more than just a transport role, the Japanese rethink means the deal is yet to be concluded.

The Soryu class submarine is a lot more lethal, so unless both countries scale down their legal barriers substantially – India may also have to alter its stipulations to accommodate Japan’s concerns – this particular “strategic” relationship is not really going anywhere.

The geo-politics and geographies of the two countries are entirely different. A deep sea separates Japan and China. Japan is also a treaty ally of the USA and is protected by the USA’s extensive military presence on its soil.

India on the other hand shares a long contested border with China and has over a quarter of a million heavily armed troops and a huge and modern air force deployed against an equally powerful PLA. In many places the forces are eyeball-to-eyeball.

War is a hair trigger away and this is no kabuki play. The big question for India is whether it wants any part in this drama.

The scars that blight Japan and China relations are old and deep ones, and even the fact that the countries are close economic partners has not erased them.

India will do well to skirt away from this conflict and focus on serving its own interest.

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For two countries that so distrust each other, Japan and China do a lot of business together. Total trade between China and Japan was almost US$303 billion in 2015. By contrast Indo-Japanese bilateral trade is a little under US$13.5 billion.

China imports more from Japan than any other country, and many of those goods are indispensable to China’s economic advance – hi-tech components to fuel its export machine and capital equipment for its expanding industries.

Since 2000 total Japanese FDI has been almost US$1 trillion – of which US$122.4 billion was in China. During the same period the total Japanese FDI in India was about US$25.7 billion.

India has a propitious demographic window from now till about 2060 when it must transform itself into a modern and prosperous nation.

After that, the demographic situation will start turning adverse with an ageing population and an increasing dependency ratio.

So not only is time money, but money is also time. From an Indian point of view, we need to look for credit to build our nation.

Right now the only countries with the cash reserves to bankroll India’s plans are China and Japan. China has reserves amounting almost US$4 trillion and Japan has a little more than US$1 trillion. Only they can lead to the fruition of many of our plans.

The kind of investments India needs to build its infrastructure are huge and very long-term in their nature. The private sector is not capable of such long-term investments.

It is therefore the governments of both the countries that India needs as an economic partner.

The start of work on India’s first high-speed railway linking Mumbai and Ahmadabad – built with Japanese technology and engineering, and fully financed by Japan at a low interest rate of just 0.1 per cent – is a typical instance of what India expects.

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India, however, is not open to the kind of Chinese investments made in Sri Lanka and being planned in Pakistan. India will not pick up the tab for pump-priming Chinese industry.

India has far too much experience with foreign assistance not to look gift horses in the mouth.

Both China and Japan made it big by accessing the US market with their competitive advantage. They exported cheaply and earned great wealth.

India, by contrast, is hamstrung with archaic labour laws and a relatively unproductive labour ethos.

And it hobbles along as a high-cost producer.

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It cannot become an economy built by trade surpluses. It still needs huge infusions of capital to transform it into a middle-class society.

In the present scheme of things, the USA is too broke to provide India with capital. It offers India a “partnership” high on rhetoric and low on substance. India needs partners who can put their money where their mouths are.

For now only China and Japan can provide the economic partnerships India needs. We need not make a this-or-that choice.

We can offer both of them investment destinations for their huge reserves, which at present earn them very little.

Mohan Guruswamy is the chairman of the Centre for Policy Alternatives in New Delhi