Recent visit of India’s Prime Minister Dr Manmohan Singh to People’s Republic of China is likely to open up new vistas of mutual cooperation and better understanding in political, economic, cultural, defence and other areas of mutual benefit for both countries. This is Prime Minister’s first visit to India’s great neighbour since he took over as Prime Minister after the fall of NDA government in May 2004. During the intervening period between May 2004 and Prime Minister’s recent visit, many Chinese leaders, including President Hu Jinato and Prime Minister Wen Jiabao, have already visited India in the recent past. This is an indication of mutual feeling and keen desires on both sides to futher concretize their friendly relations and boost bilateral economic cooperation.
Fruitful Visit
Prime Minister Manmohan Singh began his maiden three-day visit to China on 13 January with hopes of pushing forward bilateral relations through comprehensive economic engagement and developing cooperation in various areas including defence and security.
The festering boundary issue was expected to figure prominently in the talks, though no breakthrough was likely. But significant progress could be expected in the economic engagement between the two countries as a high level business delegation was accompanying the Prime Minister.
Noting that China is India’s largest neighbour and a focal point of its ‘Look East’ policy, the Prime Minister said in a statement before his departure that “we attach high priority to strengthening our relations with China.” He recalled that the two countries had established a Strategic and Cooperative Partnership for Peace and Prosperity when Premier Wen visited India in April, 2005.
During President Hu’s visit to India in November 2006, the two countries laid down a ten-pronged strategy to qualitatively upgrade bilateral ties. Stating that both India and China shared a desire to enhance their relationship both bilaterally and at the global level, India’s Prime Minister said that he looked forward to his discussions with the Chinese leadership on the entire gamut of ‘our relationship.’ He also said: “We are engaged in the process of giving substantive content to our partnership through comprehensive economic engagement and developing mutually beneficial cooperation in the areas of science and technology, culture, education, defence and security, and increasing people-to-people contacts.”
India’s Foreign Secretary Shivshankar Menon, briefing reporters on the visit, said on 11 January that there would be discussions on an entire range of bilateral issues and ways to take forward a concurrence of views on regional and global issues.
According to Tsinghua University’s Yan, the simple fact that the Indian premier was visiting China showed real progress: “It was very difficult to get the Indian prime minister to visit China and it took two years and followed visits to India by Wen and Chinese President Hu Jintao. The current visit shows India is seriously considering a stronger strategic relationship with China. Now the relationship is moving in a positive direction rather than a negative one.”
Coinciding with Indian Prime Minister’s visit, China has taken some small but significant steps to normalize its ties with India. On 14 January 2008, Beijing indicated its willingness to support New Delhi’s aspirations for a permanent seat on the UN Security Council, pledged to promote bilateral ties in civil nuclear energy, expressed a desire to deepen military ties, and showed a new understanding of concerns about the danger of terrorism and unfolding situation in Pakistan.
Besides, China also renewed its commitment to abide by the 2005 agreement not to include populated areas within the purview of any settlement of the border dispute after having chaffed at it. The new approach revealed in the deliberations Prime Minister Manmohan Singh had with Chinese premier Wen Jiabao has been welcomed by the Indian side as marking a recognition of India’s rise as a political and economic power and Beijing’s resultant desire for engagement.
The Chinese premier Wen said after the release of the Joint statement in Beijing on 14 January: “We are partners, not rivals. We each have our own strengths. We must learn to respect each other, trust and understand each other without asking ‘who would outdo whom’.”
The Indian Prime Minister seemed equally enthused by the outcome as he said the “constructive” and “forward looking” talks gave him cause for “optimism for the future of our ties”. He further said, “The profound changes taking place in the world present both our countries with a historic opportunity to work together towards a 21st century that is conducive to peace and development.”
There have been no radical shifts, but none were expected either, especially of the Chinese who have never been known for dramatic turns in diplomacy, preferring the incremental approach instead.
On 15 January 2008, Chinese president Hu Jintao told visiting Indian Prime Minister that he would like to see relations climb much higher than that envisaged by the joint declaration signed by the two countries in Beijing on 14 January. Displaying his enthusiasm about the engagement across the Himalayas going far beyond the routine diplomatic and official levels, President Hu called for more high-level exchanges between Beijing and New Delhi in order to “consolidate political and social foundations of the bilateral ties”. The Chinese president indicated he wished to see ties go beyond government-to-government engagements and develop into a social interaction among the two nations “that share common facets of civilization”.
The uncharacteristic Chinese enthusiasm about Indian PM’s visit was reflected by the fact that two state-run television channels provided live telecast of Singh’s speech at the Chinese Academy of Social Sciences, a decision which would have come after discussions at a high political level.
At a press briefing on 15 January in Beijing, Chinese foreign ministry spokesman Qin Gang quoted the Chinese president as saying that he wanted closer co-operation between the two countries at the multilateral level in order to cope with new and emerging global challenges while safeguarding the rights and interests of developing countries. China, which joined India in countering some of the moves of Western nations at the World Trade Organization and during the recent conference on climate change at Bali, now wants greater coordination between the two nations to take on what it often describes as ‘unilateralism and hegemonism’ of the Western world.
While addressing the Chinese Academy of Social Sciences on 15 January, Indian Prime Minister Manmohan Singh said India and China could help dislodge the West as the centre of global economic gravity if they avoid confrontation and forge a closer partnership.
Stating that the two countries could come together by following what he called the ‘Asian Way’, Prime Minister of India said: “We will do it the Asian Way – avoiding confrontation and building trust, confidence and consensus. It is only in an environment of peace that prosperity in Asia can be sustained. India and China have an important role to play in building peace, security and stability in the region.”
Reiterating his theme for the democratization of world bodies like UN Security Council, Prime Minister of India said that there was too much at stake for the two countries to remain mired in old disputes.
Stating that both countries were at an exciting point in history when the centre of gravity of the world economy was moving towards Asia, he said the world economy could largely be about Asia in the 21st century just as it was all about western nations in the 20th century.
He further added: “When countries of the size of China and India, together accounting for 2.5 billion people, begin to unshackle their creative energies, it impacts the whole world. The world knows it and is watching with interest. The greatest danger to development comes from extremism of all types, whether in the garb of religion or on the pretext of righting historical wrongs.”
Talking about the Strategic and Cooperative Partnership for Peace and Prosperity that was established by the two nations in 2005, Singh said: “We recognize the obligation to put behind us disputes and problems that have troubled our relations in the past. India-China relations influence global and regional trends. India was keen to learn from China’s success in creating physical infrastructure and devising strategies to provide productive employment outside the agriculture sector and poverty alleviation. Some of the areas of potential cooperation between the two countries are science and technology, public health, education, institution building, water resources management and disaster management.”
Unveiling his vision of the future of Sino-Indian relations, visiting Indian Prime Minister suggested that India and China must cooperate in creating a world of positive externalities and mutual prosperity, rather than one based on balance of power calculations and animosity. This involved India and China working together closely to ensure a global order in which our simultaneous development would have a positive influence not only on our own economies but also on the rest of the world.
On the concluding day of Indian Prime Minister’s visit, China hailed the visit of Prime Minister Manmohan Singh, saying it would have a ‘long-term and significant’ impact on the bilateral relations. Chinese Foreign Ministry spokesman Qin Gang told reporters in Beijing on 15 January: “The time is not long (period of visit), but the content is rich.”
Describing the documents and MoUs signed during Indian PM’s visit for cooperation in different fields as a ‘milestone’, Qin said, “It is a signal of the big step forward in the history of bilateral relations. This visit is going to have a long-term and significant impact on the bilateral relations which will be very important for future development of bilateral ties.
Boost to Economic Ties
Economic ties between India and China have registered phenomenal growth in recent years. Prime Minister Manmohan Singh, addressing a group of businessmen, represented by FICCI and CII who had accompanied him on his visit, told them on 14 January that China should be allowed to develop a stake in India by way of investments in industrial and infrastructure sectors as this could help deepen bilateral ties between the two fast-growing Asian economies.
Arguing that an economic stake in India would encourage China to engage with India, Prime Minister said: “How do we make it profitable for China to engage with India, as we would like to be profitable in our engagements with China?” Posing to the Indian business delegation, many of whom griped about an opaque pricing mechanism and hidden subsidies which they held was the reason for India’s huge and expanding trade deficit with China, Prime Minister suggested that focusing upon mutual investments could help India develop the kind of leverage with China that it acquired with US following huge investments by American companies.
Bilateral trade between New Delhi and Beijing is rapidly growing, clocking US $38.7 billion in 2007. But so are worries over a worsening trade deficit, which stood at a huge $9.2 billion. Indian businessmen have also complained about lack of opportunities to invest in China, leading many to fear that the trade, which was expected to be a catalyst for improved ties, may generate negative vibes.
The Indian Prime Minister sounded sensitive to these concerns, but without being excessively indulgent. He focused, instead, on the scope for collaboration: “The rise of China and India should be viewed as an international public good by the global community, since it offers new opportunities to sustain global growth. At a time when there are concerns about a global economic slowdown, China and India can sustain global growth through their own development.
According to some analysts, the underlying philosophy behind the PM’s view that China should be encouraged to develop a ‘stake’ in India is that broadening economic ties will reduce prospects of confrontation. This view is shared by some strategists as well that in the case of Pakistan, the military and political establishment has been chary of enhanced economic cooperation with India for these very reasons.
Working together seems a historic necessity for the two great neighbours to work together. There will be areas of competition, and there will be areas for cooperation. There is enough space in the world for both countries to continue to grow and address development aspirations of their peoples.
The UPA government, heeding anxieties of Indian business, dodged Chinese insistence for a Regional Trade Agreement (RTA) and displayed its activism in getting Beijing’s approval for Jet Airways plan to start flights connecting Mumbai to San Fransisco via Shanghai. The message was clear: while government would buffer business against aggressive mercantile practices of the Chinese, the former ought to prepare itself for the competition.
The Prime Minister exhorted Indian business to ‘think big’, saying: “Indian business is ready to face the brave new world of globalization. China is an important part of the brave new world. We must engage China and learn to both compete and cooperate.”
On 14 January India and China agreed to raise the target for two-way trade by 50 per cent pegging it at $60 billion for 2010. The radical revision of the target came even as Prime Minister Manmohan Singh called for a ‘level playing field’.
Taking up the case of Indian business against China’s aggressive mercantile practices which have resulted in India running a huge and still-growing trade deficit, Indian Prime Minister favoured removal of non-tariff barriers, administered exchange rates and a strengthening of an Intellectual Property Rights regime by the Chinese authorities.
His advocacy came at the India-China Economic Trade and Investment Summit after chairpersons of CII and FICCI, Sunil Mittal and Habil Khorakiwala, led a chorus of complaints against unfair trade practices of the Chinese. The Prime Minister also called for developing “profitable business models that factor in our complementarities and competitive strengths”.
Talking to newspersons in Beijing on 15 January, both Mittal and Khorakiwala strongly contested the suggestion that their constituencies needed protection of government because they were unable to hold their own against the Chinese competition. The CII chief said fears that Chinese goods will swamp the Indian market forcing Indian enterprises to down their shutters have not come to pass.
Indian business community’s lament was endorsed by commerce minister Kamal Nath who mentioned specific instances such as the Chinese decision to levy a huge cess on coking coal that India imports. He continued, “There was no such cess in 2005 and today, it is as high as 25%. On the other hand, we are exporting iron ore for their need at an export duty realization of only 1%.”
The minister who had taken up the matter with his counterpart, Chen Jian, further said: “We lowered this duty at their request and it is now for the Chinese side to reciprocate in the area of coking coal.” He said that he had also protested to Chen about the continued Chinese refusal to allow import of vegetables and fruits from India despite an agreement.
The focus of the Indian Prime Minister, however, remained on collaboration and complementarities, when he said: “India and China are today the fastest growing large economies in the world. We should remember that China, India and Europe had almost equal shares of world income in the early 18th century. As the 21st century unfolds, both India and China stand poised to regain their weight in global economy.
Elaborating on his plea for partnership, he said: “We will need to work together to ensure that we contribute to, even as we benefit from, the economic resurgence and integration of Asia. Our two economies are becoming engines of economic growth and must use our natural and human resources, technology for the common benefit of the region.”
Still, there is recognition that Chinese practices were the main factor behind India’s adverse trade deficit. This also explains why India is fighting shy of signing a Regional Trade Agreement even when projection on the volume of bilateral trade was drastically revised by Singh and the Chinese premier on 14 January 2008.
In 2005, both the countries decided to aim for a $40 billion dollar volume by 2010. Now they have set their sights higher, confident of clocking $60 billion with no change in timeline. Indian business seems certain that the soaring volumes will benefit China more if the skew is not corrected.
Trade between India and China has reached a new tipping point. Now, it is only a matter of a year or tow before India-China bilateral trade overtakes that between India and its largest trading partner, the United States.
According to a Chinese official, in 2007, total trade volume between India and China had touched $38.5 billion and was growing at a rate of close to 50 per cent. India’s trade with the US may be marginally more than that but is growing at less than 20 per cent, and with the slowdown in the US economy intensifying, it could decelerate further. So it seems inevitable that China takes over from the US very soon as India’s largest trading partner.
Interestingly, the surge in India’s imports from China is led by capital goods equipment, both mechanical and electrical. The massive infrastructure capacity build-up, especially in power, is driven by Chinese imports.
Reliance Power is poised to be the biggest importer in 2008, especially after the massive Rs 11,000-crore public issue by RPL has gone through recently. In fact, it might only require a few big orders to be placed by RPL and other private power companies in the next few months to make China surge ahead of the United States.
Whatever suspicion the State actors might have against the growing engagement with China, it is the Market agents who are driving the agenda now. Prime Minister Manmohan Singh has recognized this in his assertion that “India has no option but to engage China and give China a stake in India”.
The Prime Minister has also expressed his worry over India’s growing trade deficit with China. Trade deficit was about $1 billion five years ago. It has soared to $11 billion in 2007, growing ten times. This deficit is only a sign of the robustness of the Indian economy. Since the imports are led largely by capital goods and intermediates, there is a lot of value getting added in the domestic economy.
The more legitimate apprehension is that about 40 per cent of India’s exports to China consist of raw material, such as iron ore, slag, chemicals, and so on. The trade composition can change if greater understanding is reached between the two nations. The Chinese commerce minister has spoken about China sourcing agri-products from India on a bigger scale. This opens up an interesting possibility for the future. China has one-third India’s arable land and is dependant on imports for food. With food inflation in China soaring to over 30% in recent times, China would want to diversify its sources of value-added food import. India has a great opportunity there.
All these special arrangements could be worked out in a calibrated preferential trade agreement between the two countries. At present, the government’s view is that a PTA/FTA with China should not be signed unless the two sides fully understand each other.
A joint taskforce under the chairmanship of a commerce ministry official has gone into the pros and cons of signing a PTA with China. The Indian business associations, which were part of the taskforce, are still wary about the non-transparency inherent in the Chinese economy, especially its cost structures. However, once a fuller understanding of each other is gained by the two sides, a mutually beneficial agreement in trade and services could be considered, officials say. Another view is that a preferential trade agreement is not needed because trade between the two economies is already growing at an average 45 per cent plus in recent years.
Trade between India and China stood at less than $1 billion in 1992 when the Indian economy was opened up to greater global trade and investment. In fifteen years, the total trade volume has touched $38.5 billion. It is very evident where economic engagement between the two emerging Asian economies is headed!
The booming trade relationship between New Delhi and Beijing is causing its own problems, though. In particular, India’s growing trade deficit with China (which reached $10 billion last year) has become an increasing source of friction. Nervousness about China’s investment into key Indian infrastructure and manufacturing has limited the relationship as well. Seema Desai, an analyst at the London-based Eurasia Group, in a 14 January report wrote: “India has national security guidelines in place for screening FDI (foreign direct investment) proposals, and a number of proposed investments from China—for instance, by telecom companies Huawei Technologies and ZTE—have been blocked. An early proposal to single out China, Pakistan, and Bangladesh for security screening has been altered to avoid naming specific countries, but the broad thrust of policy is still suspicious of Chinese investments in ports, manufacturing, and telecom.”
Joint Communique
The two nations, in a joint statement issued in Beijing on 14 January, after talks between visiting Indian Prime Minister Manmohan Singh and his Chinese counterpart Wen Jiabao, decided to give a major push to their ties by signing 11 wide-ranging agreements, tripling a trade target within four years and deepening a defence engagement that was till a few years ago unthinkable between the wary Asian neighbours. It was also decided not to let their five-decade border dispute cloud the growth in their relationship and instructed their officials to set a deadline for ‘arriving at an agreed framework of settlement’ to the problem.
Prime Minister Manmohan Singh later called the statement “an important milestone in the evolution of our relations”. The most important decision taken was no doubt to set an ambitious two-way trade target of $60 billion by 2010 – reflecting their confidence to make business the primary idiom and pivot of rapidly expanding ties.
Both countries declared in what they grandly called “A Shared Vision for the 21st Century” that it was time the two Asian giants – who account for a third of humanity – built “a relationship of friendship and trust” while being “sensitive to the concerns and aspirations” of one another.
The joint statement said their countries were “firmly committed to resolving outstanding differences, including on the boundary question, through peaceful negotiations. The two sides reiterate that India-China friendship and common development will have a positive influence on the future of the international system. India-China relations are not targeted at any country, nor will it affect their friendship with other countries.”
The agreements signed cover a wide spectrum, from economic planning to housing, health and culture in measures that are expected to give a foundation to their relationship that has often been seen through the prism of their dragging boundary dispute and perceived economic rivalry as their respective economies become the fastest growing in the world.
Declaring that Sino-Indian relations were of “global significance”, Manmohan Singh said he and Wen Jiabao had agreed to deepen “the mutual understanding and trust between our armed forces” – another significant decision between armies that not too long ago engaged in eyeball-to-eyeball confrontation on icy Himalayan slopes.
Among other decisions taken during Manmohan Singh’s visit, the foreign minister of India will travel to China in the first half of this year while his Chinese counterpart will journey to New Delhi in the latter half to maintain the momentum of their diplomatic engagement. Other senior leaders from both countries would also exchange visits.
Asserting that India-China relations were not targeted at any country nor would it affect their friendship with other nations, the Joint Statement further added: “The two sides are convinced that it is time to look to the future in building a relationship of friendship and trust, based on equality, in which each is sensitive to the concerns and aspirations of the other.”
Military Cooperation
While Indian Prime Minister was engaged in serious parleys with Chinese leaders during the course of his recent visit, a senior aide to Prime Minister said that both countries were engaged in talking of concrete matters, suggesting that the two nations were ready to move beyond mere declaration of intent. There was also an expectation of deepening of military cooperation, following the success of recent joint military exercise.
India and China announced on 14 January to hold their second joint military exercises sometime in 2008 and welcomed the ‘progress’ in negotiations on the boundary issue. Building on the goodwill generated by the landmark handshake between the world’s two powerful armies in December 2007 in Kumming in China, the two leaders decided to have a second military exercise in India.
Being optimistic in this regard, Indian Prime Minister said: “We have agreed to continue to deepening mutual understanding and trust between our armed forces and welcome the successful first exercise in Kumming.” The two sides also expressed readiness to forge closer strategic and economic partnership by taking advantage of important opportunities for growth and development of the two Asian giants. Recalling Chinese Premier Wen’s visit to India in April 2005, when the two countries established the strategic and cooperative partnership, Prime Minister of India said it had left a deep impression in India.
Border Talks
On 15 January 2008 China favoured an ‘equitable and fair’ solution to the boundary issue with India in the overall interests of both countries, saying it should not be allowed to hamper progress in bilateral ties. Chinese Foreign Ministry spokesman Qin Gang told reporters in Beijing at the end of Prime Minister Manmohan Singh’s three-day visit that both sides believed that they should proceed from the perspective of overall interests of the two countries to find an equitable and fair solution acceptable to them,. The two sides also agreed that before settling the boundary issue, they should maintain peace and tranquillity in the border areas and “not to let the border issue to be an obstacle to the development of bilateral ties.”
The visiting Indian Prime Minister had expressed confidence that the political parameters and guiding principles agreed by the two countries in April 2005 to seek a settlement of the boundary question would guide them to a “mutually satisfactory solution of this issue.” While talking to scholars at the Chinese Academy of Social Sciences in Beijing on 15 January the Indian Prime Minister said that the boundary between the two countries was peaceful and “we are both determined to keep it so.”
As the current situation prevails, India seems satisfied with the results so far and feels convinced that the potential for India-China relations is great and would be realized. The Special Representatives of the two countries, India’s National Security Advisor M K Narayanan and Chinese Vice Foreign Minister Dai Bingguo, met in Beijing on 14 January to take forward the dialogue process during informal negotiations. The two sides have so far held 11 rounds of talks on the vexed issue.
Describing Indian PM’s visit and talks in Beijing as a ‘reflection of the political will’ of both sides to ‘press ahead’ with their bilateral ties, Chinese spokesman Qin said India and China view their ties from a strategic and long term perspective.
Future Prospects
The ongoing trends of improvement in Sino-India relations augur well for both countries in particular and world in general. Much of this optimism is reflected n the Joint Statement issued in Beijing on 14 January 2008. The seven-page document covers issues such as their fast-growing economic ties, defense cooperation, antiterrorism efforts, and climate and energy policies. Noting that India and China “are the two largest developing nations on earth representing more than one-third of humanity,” the document goes on to note that the countries with a history of mutual suspicion are now “convinced that it is time to look to the future in building a relationship,” and that “China-India friendship and common development will have a positive influence on the future of the international system.”
The Chinese Premier Wen minced no words when he said: “This vision expresses our common ground concerning major international and regional issues and will serve as important guidance for the growth of our relations.” The Indian PM called it “an important milestone in the evolution of our relations. It reflects not only our common perceptions but also our desire to purposefully cooperate in the future.”
However, the upbeat talk masks continuing tensions between the two countries. A border dispute dating from 1962 when India and China fought a brief high-altitude Himalayan war in India’s northeastern state of Arunachal Pradesh still bedevils the two countries. China’s closeness to India’s arch-rival Pakistan is a major issue, too. As M.D. Nalapat, professor of geopolitics at Manipal University has put it: “The major block for Indian cooperation with China is China’s close relationship with the Pakistan army.
Both India and China are ancient and matured nations. Their mutual cooperation is almost a sine qua non for establishing peace and ensuring in South and Central Asia in particular and world in general. Lofty ideals couched in flowery language expressed through joint statements and bilateral declarations are rendered meaningless unless both sides display serious and genuine concern for implementing those ideals in letter and spirit. History proves that Chinese are hard bargainers and tough negotiators and expecting India to elicit concessions from China without sacrificing much will be misnomer.
Real skills of India will be tested when border issue is settled amicably, which for the time being appears to be a distant reality. However that does not mean not to engage in China. China has many trump cards to keep India tied down to regional politics of South Asia. India should also keep its trump cards to impress upon China the urgency and necessity of continuous engagement with India without dabbling into ‘pressure tactics.’
By Dr. Arvind Kumar
