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| Sunday, 2 May 2004 |
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India and China: Dancing elephants by Michael Vatikiotis/New Delhi and Murray Hiebert/Washington IT HAS NOT BEEN the easiest of relationships. Asia's two largest nations fought a vicious border war in 1962. Most of the almost 4,000-kilometre border between the two countries has not been formally delineated. Both sides have developed long-range nuclear-missiles that could target one another's cities. While the two countries vie for the favours of foreign investors, trade and investment between the neighbours have fallen well short of potential. Times are changing. Today, India and China have taken noteworthy steps to work together, while companies from both sides are beginning to exploit each other's huge markets and special skills. The new developments were kicked off by a visit to Beijing last June by Indian Prime Minister Atal Behari Vajpayee. That led to the formation of joint groups to work on border issues and study economic cooperation; it also yielded a border-trade agreement, laying the foundations of a possible free-trade pact. As part of that agreement, India recognized China's rule in Tibet and China dropped its recognition of the disputed Indian territory of Sikkim as an independent state, two significant concessions. Most recently, Chinese Defence Minister Cao Gangchuan visited India last month, and the two sides agreed to hold joint military exercises later this year. "We believe that conditions today are conducive to developing a multi-faceted cooperation between China and India", says Brajesh Mishra, Vajpayee's influential national security adviser. Mishra, who leads the Indian team on the border talks, compares the two Asian powers to France and Germany after World War II. "We see no reason why India and China cannot maintain political harmony with a degree of economic competition", he says. To business, that means greater confidence and new opportunities. Two-way trade between India and China, though a small percentage of both countries' over-all foreign trade, has been growing at a rate of almost 50% a year since 1999. Trade was valued at more than $6 billion last year and is set to exceed $10 billion in 2004-05. Initial business forays into China are already paying off for some Indian companies. Three years ago New Delhi-based JK Industries struck a deal to produce tyres in Guangzhou for export to India and 60 other countries. The deal has been successful, and JK is now producing tyres in China for sale in the Chinese market as well. "China cannot be wished away", says JK Industries Chairman Hari Shankar Singhania. "Rather, we must use complementarity; taking what we need in India, and looking at markets that we can exploit there". For India, closer ties also promise a market for its software-development skills - complementing China's capability in electronic hardware. India's Infosys and Tata have already set up software-writing centres in China. China's Huawei in India China has also started to look seriously at India as a business opportunity. Telecoms giant Huawei Technologies made its first sale in India by sending two employees to a trade show, says Richard Lee, manager of its international promotions department. Today, the company has a 700-strong R&D centre in Banlgalore, in which it has invested $60 million. Lee says the company plans to invest further in the centre, which works primarily on software that guides calls and data through its telecoms equipment. "We're still recruiting more people to work there", Lee says. "It's one of the most important R&D centres outside China". India isn't one of Huawei's largest markets, but it's growing fast. In six years there, Huawei has won contracts with five Indian mobile and fixed-line operators, and last year made just under $40 million in revenues from the Indian market. That doesn't put India among its top five overseas markets, but Lee says it's heading there. "With such a large population, with the teledensity not so high, it's a huge potential market". That's been well noted in Beijing. "India is increasingly important in China's Asian policy", says Ding Kuisong, vice-chairman of the China Reform Forum, a think-tank attached to the Communist Party school, China's elite training centre for party officials. Ding points to India's rapid economic growth and argues, "This makes it important for China to look south. This is an opportunity to do business". In fact, Beijing started to pay more attention when New Delhi tested a nuclear device in 1998; it started rethinking alignment with Pakistan after Islamabad initiated a vicious conflict with India in Kashmir in 1999. But what most alarmed Beijing, analysts say, was when New Delhi an Washington began to forge a strategic relationship a year later - in what was seen as a move to contain China. "India's engagement with the U.S. forced China to look at India differently", says C. Raja Mohan, professor of South Asian studies at Jawaharlal Nehru University in New Delhi. One hope in New Delhi is that a better understanding with Beijing, which has close ties with the Pakistan government, will help pressure Pakistan into a negotiated settlement on Kashmir. If that fails, the promise of India's economy will continue to be overshadowed by insecurity and the threat of war. While internal reform and deregulation are needed to unlock India's potential, diplomacy could hold the key to international confidence in India as a stable investment environment. There are also common economic challenges that closer ties could help to address. Both countries face rising demand for energy and insufficient domestic reserves. Chinese and Indian oil companies are already competing for stakes in overseas oil fields - a recent $600 million acquisition in Angola by Indian oil company OVL, a 100% subsidiary of the state-owned Oil and Natural Gas Company, was won after a fight with a Chinese bidder. Competition for resources will drive up the energy costs for both countries, notes James Clad, an official at the US government's Overseas Private Investment Corporation and contributor to a new book, The India-China Relationship: What the United States Needs to Know. Working together, Clad notes, the two countries could cooperate to exploit Central Asian supplies of oil and gas and work to build pipelines from places like Kazakhstan, Iran and Bangladesh. Stark Differences Both sides are also keen to push for closer regional cooperation. India has hinted that it wants to join China's Shanghai Security Cooperation Organization; China for its part is asking for observer status at the South Asian Association for Regional Cooperation. The two countries also claim to have reduced military deployments along their common border. All the same, mutual suspicions and stark economic differences constrain just how close the two countries can get. To begin with, India's economy "still has a long way to go" to catch up with China's, Inder Jit Singh, an economist at the National Defence University in Washington who has worked on both China and India during a long career with the World Bank, told a recent conference on India-China relations at George Washington University. Singh pointed out that India still lags far behind China on literacy and the development of the workforce. China has invested much more in developing its infrastructure, including roads, railways and power stations, one reason foreign investors have shown more interest in China than India. China's exports total some $300 billion a year, while India's reach only $50 billion. Foreign investment in China accounts for 4% of GDP; India lags at less than 1%. Then there's the matter of security. It was only five years ago that China helped Pakistan build a solid-fuel missile plant south of Islamabad, and Pakistan continues to develop missiles with Chinese assistance. China for its part maintains that it has helped persuade Pakistan to pursue a dialogue of peace with India. "We have given up the idea of using Pakistan to check India strategically", maintains Ding Kuisong. A senior Pakistani diplomat backs that claim, and discloses that "China is counselling us to resolve the problem in Kashmir". Ashley Tellis, an Indian specialist at the Carnegie Endowment for International Peace and until recently adviser to the US ambassador to India, believes India and China will continue to be regional competitors in the area of security. "In the area of wealth production, India and China will be more cooperative", Tellis said at the Washington conference. "But in security relations they'll tend toward zero sum". Regional experts say that more engagement, rather than confrontation, lies ahead. "It will always be a fragile and tender relationship", says Frank Wisner, a former US ambassador to India who is now a senior executive at American International Group. Because of this, he maintains, "the impulse will be to accommodate each other". China is helping to sweeten the mutual attraction by addressing Indian competitive fears. "We are seeing less and less dumping of Chinese products", notes S. Narayan, economic adviser to the Indian prime minister. However, if India and China are set for closer ties and more cooperation, one big question is whether this undermines India's newly minted strategic relationship with the US. With closer ties, will India and China gang up on the US? Harry Harding, dean of the Elliott School of International Affairs at George Washington University, doubts it. He pointed out at the India-China conference that, despite talk of such an alliance with Russia after the collapse of the Soviet Union and the rise of the US as the sole superpower, "neither India nor China dared to take on the US, Both needed the US". In many areas, Harding argued, all three countries work together to pursue common goals such as stopping cross-border terrorism. In other cases, two countries have concerns about the third. For example, the US and China are concerned about India's possible nuclear proliferation, Harding says. India and the US, on the other hand, are concerned about "China's military in Asia". The same sentiment about including rather than excluding the US can be heard in Chinese circles. "We have to put the US in the equation", says the senior Chinese diplomat. "By doing so, we can coordinate our efforts for common security in the region". How the coming together of Asia's largest nations will affect their neighbours in Southeast Asia depends on how well the 10 disparate countries do in cobbling together their own vision and identity in the next few years. Both China and India are pushing for closer economic and political ties with the region. "If, and it's a big if, Southeast Asia can get its act together, the upside implications are obvious: two growth centres and reduced risk of geopolitical conflict", says a senior Southeast Asian diplomat. "But if South-east Asia ... cannot get its act together then it may well be squeezed flat as the two giants grow and embrace; or torn apart if they grow in different directions". Ben Dolven in Shanghai contributed to this article Courtesy: Far Eastern Economic Review |
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