An Asian Century?

Amid border disputes and a strategic rivalry, China and India seek to improve economic ties and develop mutual trust

“India is ready for business,” Narendra Modi told a group of Chinese entrepreneurs at the India-China Business Forum held in Shanghai on May 16, 2015, during which the Indian prime minister called for a “harmonious partnership” between Asia’s two largest nations.

The forum was part of a three-day visit to China by Prime Minister Modi which dominated media headlines in both countries. During the visit, China and India signed 20 bilateral agreements and 26 business deals. Valued at US$32 billion, the agreements cover a vast range of areas including infrastructure, high-speed rail (HSR), energy, aerospace technology, education, research centres and industrial parks.

Modi’s trip, a reciprocal visit following Chinese President Xi Jinping’s visit to India last year, is believed by many analysts to serve to “reset” a bilateral relationship which media commentators have for years likened to a rivalry of “elephant vs. dragon.”

Reset

Indeed, the relationship between the world’s two most populous countries has long been overshadowed by a brief but bloody border war in 1962 which, despite a Chinese victory, failed to dissipate enduring tensions surrounding a disputed border in the region which China calls South Tibet and India calls the state of Arunachal Pradesh. India’s continued asylum and support for the Dalai Lama and his entourage, which Beijing considers a separatist movement, is also a thorny issue.

Moreover, ongoing strategic engagements with each others’ adversaries have also led to mutual suspicion over both sides’ strategic intentions. While New Delhi considers China’s long-standing partnership with Pakistan and its recent efforts to improve ties with Nepal and Sri Lanka an effort to encircle India, Beijing is looking warily at India’s broadening partnership with countries such as the US, Japan and Vietnam, particularly in the context of the South China Sea.

However, as two rapidly growing emerging economies, China and India also share a growing portfolio of common interests when it comes to reshaping the international economic order. Modi has spoken of replicating China’s development model in India, focussing on building infrastructure and increasing manufacturing capacity, and India has much to gain from a more amicable relationship with China. In turn, India also serves as an important market for China’s products and investment, and its booming service sector could potentially serve as a model for upgrading the tertiary sector of China’s economy.

In the run-up to Modi’s visit to China, both countries appeared to be making efforts to tone down the frosty, even openly hostile tone that has in recent years dominated bilateral engagements. It is reported that President Xi’s repeatedly delaying his state visit to Pakistan since assuming power, even declining an invitation to attend a military parade in Islamabad on Pakistan’s National Day on March 23, was part of a wider effort to avoid further alienating India.

Although Xi’s eventual visit to Islamabad in April, during which China signed agreements worth US$46 billion, caused irritation in New Delhi, the fact that Xi had already visited India in September 2014 was interpreted as a sincere effort by Beijing to improve bilateral ties.

Meanwhile, in preparation for Modi’s trip to China, India also backed down on various issues that were causing consternation in Beijing. On May 2, a scheduled meeting between ruling Bharatiya Janata Party (BJP) president Amit Shah and the Dalai Lama in Dharamsala was cancelled at the last minute by the BJP leader, a move viewed as designed to placate Beijing.

In a May 2 interview with Time magazine prior to his visit, Modi also played down tensions along the border between China and India, stressing that “not a single bullet has been fired for over a quarter-century.” Modi added that both countries are showing great maturity and a commitment to economic cooperation.

Modi’s trip to China was also carefully orchestrated by both sides. Xi’an, capital of Shaanxi Province and the first stop on Modi’s itinerary, appeared to be deliberately selected for symbolic reasons beyond the presence of the Terracotta Warriors. Not only is Xi’an Xi Jinping’s hometown, it was also an ancient gateway where Buddhism was introduced to China from India via the Silk Road.

Emphasising cultural ties between the two ancient civilisations and citing former Chinese leader Deng Xiaoping’s saying that the 21st century could only be the “Asian Century” if India and China worked together, Xi has called for the “revitalisation” of both nations, with China and India leading the charge to realise Deng’s goal.

Analysts believe that the embellished rhetoric of closer ties and the stress placed on partnership above division reflect mutual pragmatism in achieving both countries’ respective strategic goals.

Pragmatism

Despite disagreements and rivalry in the field of security and geopolitics, China and India share many common interests in the areas of trade, investment, and finance.

Both countries have aspired to have a larger say in the management of the international financial system. India has joined the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB), formerly referred to as the BRICS Development Bank, both of which are China-led initiatives.

This point was highlighted by Xi in his meeting with Modi, during which the Chinese president called upon India to increase its cooperation with China within the AIIB to guide the international order in “a more just and reasonable direction.”

In addition, despite his well-documented nationalism, Modi’s core electoral promise was to foster economic development. With a GDP currently five times that of India’s, China plays an important role in India’s economic, trade and investment landscape. As bilateral trade volume increased from US$4.95 billion in 2002 to US$70.6 billion in 2014, China has become India’s largest trading partner.

Although trade with India accounts for only a small portion of China’s US$4 trillion trade volume, the country has taken on a more significant role against the backdrop of stagnation in Chinese exports to the developed world. For example, Chinese exports to India increased by 23 percent in the first quarter of 2015.

For New Delhi, a US$48 billion trade deficit with China is also a matter that needs urgent attention. By attracting investment from China, Modi hopes to rebalance bilateral trade through the government’s “Make in India” campaign.

While Beijing has promised to improve market access for Indian software, pharmaceutical, food and textile companies, Modi called on Chinese companies to take advantage of “India’s potential” and assured that he would pay “personal attention” to Chinese business operations in India during his trip.

Among the deals struck between the two countries was the establishment of several industrial parks, and Chinese companies such as Alibaba (e-commerce), SANY (heavy machinery), Xiaomi (electronics) and Harbin Electric (power) all expressed interest in Modi’s “Make in India” and “Digital India” projects.

Balancing

China’s apparent enthusiasm for investing in India is consistent with its grand “One Belt, One Road” initiative, which has now been placed at the centre of China’s global diplomacy.

Chinese strategists argue that against the backdrop of the US’s “Pivot to Asia,” which focusses on security and geopolitics, China should focus on economic development and seeking regional integration that promotes a win-win situation while avoiding direct “zero-sum” security conflicts, an area in which the US enjoys a distinct advantage.

With India among the US’s major strategic partners in Asia, China’s rolling out the red carpet for Modi appears to follow that rationale. In a joint statement issued on May 15, both sides pledged to maintain peace and stability in contested border areas by establishing military-to-military hotlines and agreeing on border personnel meeting points.

After his May visit to Russia, another major partner of India, as well as Belarus and Kazakhstan, during which Xi Jinping successfully persuaded Russian President Vladimir Putin to integrate his “Eurasian Union” doctrine with China’s Belt and Road programme, China’s president also tried to alleviate Indian concerns surrounding the strategic goals underlying these initiatives.

During his meeting with Modi, using one of the most-repeated diplomatic phrases of his administration, Xi said that China and India can achieve “mutual benefit and a win-win result” by connecting China’s Belt and Road initiative with India’s “Act East” policy. Modi responded by saying that India is willing to enhance cooperation with China, and Beijing is now conducting a feasibility study in India regarding the establishment of a high-speed rail line to link Delhi with the southeastern city of Chennai.

Xi and Modi, both seen as strong, assertive leaders in their home countries, shook hands in Beijing over a pledge to allow one third of humanity to live in peace and prosperity. Whether they can deliver on this grand plan remains to be seen.