Trade-driven dragon cozying up to India

Chinese President Xi Jinping’s three-day visit to India, the main leg of a recent tour of Central and South Asia, sheds new light on China’s emerging approach to its neighbors, particularly Asia’s other giant. Recent subtle changes in Sino-Indian relations could prove to be enormously consequential for the world in the coming decades.
Under Xi, China is adopting a new grand strategy which can be called “dual rebalancing”: Implementing bold domestic reforms to regain economic momentum while overhauling China’s global posture and diplomacy, focusing on sources of risk in its near abroad. The Silk Road Economic Belt, which is focused on Central Asia, and the 21st Century Maritime Silk Road, which concentrates on the countries bordering the Indian Ocean’s shipping lanes, are leading initiatives on China’s foreign-policy agenda. Their success will depend, in large part, on whether China gets support from other great powers, specifically Russia in Central Asia and India in South Asia.
China understands that India’s position on the world stage has been strengthening since the beginning of this century. India’s new Prime Minister Narendra Modi has promised to bring India’s economy out of a half-decade funk, enhance the living standards of his country’s have-nots, and boost the country’s standing as a global power. The trick for Chinese policy is to reconcile Modi’s ambitions with China’s strategic goals.
Since Modi came to power, India has been basking in the adulation of major powers like Japan and the United States. Partly motivated by a desire to counterbalance China’s rising geopolitical influence, Japan and the US have sought to draw India into a multilateral alliance consisting of democratic countries in the Asia-Pacific region. Indeed, Japanese Prime Minister Shinzo Abe has vowed to forge a “democratic security diamond” with the US, Australia, and India. During Modi’s visit to Japan in early September, Abe offered to invest $35 billion in Indian infrastructure projects over five years, accelerate negotiations on civil nuclear deals, and boost bilateral maritime security cooperation. The two sides agreed to build up a “Special Strategic and Global Partnership,” leaving Chinese strategists to wrestle with the implications of deeper India-Japan ties.
Likewise, despite an on-again off-again relationship with India since Bill Clinton’s presidency, the US continues to view the country as a “natural ally.” US Cabinet members — Secretary of State John Kerry and Secretary of Defense Chuck Hagel — both visited India in recent months to try and woo Modi by promising improved economic and strategic ties. In the last three years, the US has surpassed Russia as India’s largest arms supplier.
Modi’s government is desperate to diversify its sources of advanced weapons and become self-reliant in defense production. Barack Obama’s administration is now expected to do whatever it can to strengthen relations with India during Modi’s upcoming visit to Washington.
As Nicholas Burns, a former Under-secretary of State, has argued, US strategic interests in the century ahead will align more closely with India’s than with those of any other continental Asian power, making India central to America’s strategic rebalancing toward Asia.
During Xi’s visit, the two leaders signed 15 agreements in the fields of trade, finance, and culture. Xi committed China to invest $20 billion in India over the next five years, particularly to modernize India’s decrepit and overused railway system. This compares with just $400 million, or 0.18 percent of India’s inward foreign investment, in Chinese investment from 2000 to 2014.
China also promised to establish two industrial parks, in Gujarat and Maharashtra, as well as provide greater market access to Indian products, in an effort to allay India’s worries over the widening bilateral trade deficit, which has soared from $1 billion in 2001 to more than $40 billion today. Modi’s efforts to revive market-oriented reform and improve the country’s business environment will help to attract Chinese corporations eager to capitalize on India’s vast labor force, varied skill base, and geographical advantages.
In addition, China wants to strengthen cooperation with India in regional and global affairs. India is likely soon to gain full membership in the Shanghai Cooperation Organization, the club of Central Asian and Asian states formed after the breakup of the Soviet Union. India’s “Connect Central Asia policy,” and its efforts to build a North-South Transit Corridor, would benefit development in Central Asia, a region of major concern to China, because it abuts the restless Chinese province of Xinjiang.
As major aid providers and investors in Afghanistan, China and India also have common interests in stabilizing that country, and countering religious extremism and terrorism after NATO troops leave. Moreover, the two countries share similar interests in reshaping global economic governance, particularly by further strengthening cooperation among the BRICS (Brazil, Russia, India, China, and South Africa) and ensuring that climate change is addressed in a way that does not impede growth.
But India’s lingering bitterness over the 1962 war with China remains. On many occasions, Modi has voiced suspicions about China’s growing footprint in disputed border areas. India’s sensitivity to potential Chinese encirclement is similar to China’s fears of encirclement by the US and its allies. That is why China is unlikely to develop its relations with India and Pakistan (with which China still values its all-weather partnership) on separate tracks, as the US did during the Bush administration.
Xi’s visit to India strongly suggests that China is determined to engage with Modi in ways that are intended to inhibit the bilateral rivalry from intensifying. But, despite Xi’s investment pledges, it is far from certain that Asia’s two giants, both with growing global aspirations, can bridge the differences that continue to burden their relationship.
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©Project Syndicate