How to Get China Right

Many Indians ask me how India can avoid a bloody nose if it cozies up to Japan. Some were surprised when Prime Minister Narendra Modi denounced some unnamed Asian country’s “expansionist” ways and said the continent could not have “18th century” ways of behaviour. “How can he expect China not to react badly?” I was asked.

These concerns are not without reason. China is probably in a decent position to carry out a punitive military expedition against India in many parts of the border, if only because of superior infrastructure to back its soldiers. It is economically four times the size of India and in a better state to sustain a conflict.

But these fears are overblown.

The right view is that however close India may get to Japan, it will not matter that much to China. Beijing is genuinely nervous when India and the United States start going kitchi-koo as that would pose a serious strategic threat. But no other combination really gets them worried. Japan and India, for example, are simply too far away to help each other if push were to come to shove.

What Beijing wants is evidence that it is being granted a relationship that is not grossly discriminating or demeaning to it. And that is what Modi seems to be ready to offer when Xi Jinping comes to New Delhi in mid September: a loosening of the invisible barriers that exist against Chinese investment in India.

Officially, Chinese FDI into India is less than one billion dollars. And that is largely because of the barriers put in place by a deeply suspicious Indian political and security establishment against anything Beijing. “Far from satisfactory,” is the expression used by Chinese ambassador Wei Wei to describe the economic relationship. It is one of the key differences between South Asians and East Asians that the former merge economic and security relations while the latter don’t. So Pakistan won’t grant India MFN because Kashmir is not solved while India turns up its nose at Chinese investment because bilateral security ties are in tatters.

In contrast, even as the Chinese battle with Vietnam and Japan over islands in the South China Sea and Sea of Japan it continues to trade and investment them on a huge scale. Taiwan and China are an even better example: one is the supposed “rebel province” of the other but they are economically joined at the hip. Taiwan is a massive investor in China. Beijing effortlessly separates economic issues from security relations. And its public generally does as well — even the bouts of anti-Japanese sentiment have a very brief impact on business.

So that is what India should offer to China. Unlike Japan, we can’t have a strategic relationship. But we can have a more comprehensive economic relationship. Half a loaf, but one that is potentially very lucrative.

Xi Jinping has a host of huge Chinese firms who specialise in infrastructure who are fretting as their domestic market is drying up. They see the Indian market the perfect place to get new growth and new profits. But first they have to get through the front gate. Xi is happy if these state-owned behemoths are happy. They represent a key interest group who are wary of his next generation of reforms.

Winning China in other words is about sending two messages. One, that India will remain politically opposed to China’s territorial positions in various parts of Asia, not least because it reflects on its own border problems. Two, that India is prepared to do business with China in a manner that gives both countries a stake in the bilateral relations. Beijing will also be more comfortable if they believe they have some kind of economic footprint in India. This helps reassure the Middle Kingdom that they are dealing with something normal and potentially purchasable.

If Xi gets even the first steps towards this, I fully expect Beijing will acquiesce to whatever takes place between India and Japan.

Modi, in any case, used the same “expansionist” charge while he was campaigning in the Northeast. The Chinese diplomats I met afterwards felt this amounted to nothing and were quite enthusiastic about Modi being elected.

Copyright © 2014 the Hindustan Times

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