China-India Brief #23

Guest Column

India and China: Uncertainty and Risk

By Rajesh Basrur

Rising tensions between China and Japan and between China and the Philippines have been closely watched in New Delhi. A major exercise by the Chinese Navy in the Lombok Strait on the eastern edge of the Indian Ocean in January-February 2014 has added to Indian concerns about Beijing’s intentions. The April 2013 Sino-Indian troop confrontation in the Daulat Beg Oldi area along their border took mutual suspicions a notch higher and subsequent confidence building efforts have not yielded much. It is legitimate to ask: where is the relationship heading? The picture is mixed. While strategic tensions continue to remain significant, economic and other forms of cooperation between them are simultaneously increasing. Policy makers need to address the uncertain zone between these contradictory trends.

On the conflict side of the equation, the border dispute is not about to end. On the contrary, it may exacerbate if there is a political upsurge in Tibet of the kind that occurred in 2008, which fuelled Chinese nationalism and hardened Beijing’s position on territorial disputes. On the Indian side, compromise is equally unlikely as weak coalition governments seek to demonstrate resolve against external threats. Periodic border frictions stem from the lack of a clearly demarcated Line of Actual Control (LAC) – a form of shadow boxing that raises the prospect of unanticipated escalation arising from localized decision making. As the rising powers expand their strategic horizons, the security dilemma – in which each side’s efforts to protect its interests are viewed as threatening by the other – is intensifying. The Chinese Navy makes forays into the Indian Ocean; the Indian Navy into the South China Sea. Though there is no alliance building, a balance of power game is evident. China is embedding itself in South Asia by means of trade, investment and arms transfers. India is fashioning security linkages through joint military training and exercises with, among others, Singapore, Vietnam and Japan.       

But the competitive trend is exaggerated. While the border is abrasive, both sides have been quick – at least since a long face-off in 1986-87 – to come to the negotiating table. National sensitivities have been mutually recognized: China observes restraint on Kashmir, while India does likewise on Tibet and Taiwan.  Naval threats are less serious than they appear. India’s strategic reach east of the Indian Ocean is likely to remain limited given the limited size and resources of its navy. China’s navy may be more powerful, but it is effectively bottled up in the east by Japan and the United States. Finally, the strategic linkages each has forged in the other’s backyard are no more than containment and counter-containment “lite.” Bangladesh and Sri Lanka are hardly likely to invite Indian wrath by offering China military bases. The prospects of Vietnam and the Philippines doing the same are just as remote.

On the positive side, China and India have powerful incentives to cooperate. Their economic relationship has grown rapidly, with trade growing from US$133 million in 1988 to US$65 billion in 2013. Even more compelling is the strategic interdependence wrought by their possession of nuclear weapons. Skirmishes aside, nuclear weapons powers forswear major war. India is often said to have limited deterrence capacity, but that is only in the minds of those who believe that India will not have truly reliable capability vis-à-vis China unless its missiles can hit Beijing and Shanghai from land or sea, preferably both. The underlying assumption that Beijing will not be deterred by India’s already existing ability to strike Guangzhou, Chengdu, Kunming and other large population centres is dubious at best. Mutual nuclear deterrence is already in place.

Yet it would be overly optimistic to believe that stability will prevail. Between threat perceptions and the compulsions of interdependence lies a grey area of considerable risk. The lessons of nuclear history are instructive in this regard. Every hostile relationship between nuclear powers has at some point been characterized by high tension and confrontation. In three cases, there has been marginal combat: occasional dogfights between American and Chinese combat aircraft along the Vietnam-China border in the 1960s; border clashes between Soviet and Chinese troops in 1969; and the India-Pakistan conflict in Kargil in 1999. The other two hostile nuclear dyads have experienced significant crises without combat. The United States and the Soviet Union were involved in serious confrontations in 1961 (Berlin) and 1962 (Cuba), and the United States and North Korea witnessed major tensions and the risk of war in 1994 and 2006.

Nuclear rivals learn soon enough that confrontations do not bring gain. But it is easier to learn what does not work than to figure out what does. Two patterns are visible from the history of nuclear rivalries thus far. The first is recurring crisis, as experienced by the United States and the Soviet Union, the United States and North Korea, and India and Pakistan. The second is partial stabilization, which occurred between the Soviet Union and China (with persistent tension) and between the United States and China (with a détente of sorts after 1970). For India and China, the first option is one to beware of and the second something they may have to settle for. Yet the fact that a major crisis under the nuclear shadow has yet to occur more than a decade and a half following the India’s 1998 tests is a positive sign and an indication that a third option is available: eschewal of confrontation altogether.

If they are to move toward the third option, Beijing and New Delhi would do well to begin by recognizing the existence of their respective security dilemmas; minimizing the risk from these dilemmas, for instance by formalizing the LAC and by nuclear confidence building; and looking for ways to give each other reassurance through “costly” signals that indicate a willingness to make meaningful concessions, notably on the border. Barring this, they may have to reckon with the second best option.

Rajesh Basrur is Professor of International Relations and Coordinator, South Asia Programme at the S. Rajaratnam School of International Studies, Nanyang Technological University (NTU).

The views expressed in this article are solely those of the author and do not necessarily reflect the position or policy of the Lee Kuan Yew School of Public Policy or the National University of Singapore.

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News Reports

Bilateral relations

China offers to keep momentum of border talks
The Hindu, February 25
At the sixth Annual Defence Dialogue China offered to send its Defence Minister Chang Wanquan to India in the second half of this year to maintain momentum of talks on the border issue and foster understanding between the two defence establishments. This will be the third straight year that the Defence Ministers will hold a structured meeting. Defence Minister A.K. Antony visited China last year and Chinese Minister of National Defence Guang Li had come to India in the preceding year.

Chinese companies face visa problems: Envoy
Zee News, February 26
Chinese companies seeking working visas for their employees in India were facing problems, as there was inordinate delay in getting them. Consul-General of the People’s Republic of China in Kolkata Wang Xuefeng said, “The complicated visa process in India discourages Chinese people from visiting this country. The Chinese companies are facing problems as four to five months are being taken to get them.”

China, India agree joint military training
Global Times, February 27
China and India have agreed to hold a joint army training exercise named “Hand-in-Hand 2014,” and to organize joint navy training in due time. The agreement was reached during a meeting between the two countries within their Defense and Security Consultation program in New Delhi on February 24. “The armies of China and India have conducted three joint training exercises in recent years, which have helped the two sides enhance mutual understanding and trust, and learn from each other on military building,” Chinese Defense Ministry spokesman Yang Yujun told a regular press briefing. He said the meeting also saw discussion of the security situation in South Asia, the China-India relationship, bilateral military ties and cooperation.

At CBSE schools, study Mandarin from Std VI
The Times of India, February 27
The Indian Central Board of Secondary Education has decided to offer Mandarin language as an elective right from Standard VI to all affiliated schools from the immediate academic session on. In letters to schools, Director Sadhana Parashar explains the new policy was made “since Mandarin is spoken by a large population of the world” and “in view of China emerging as one of the major global economies”.

India strongly condemns terrorist attack in Kunming, China
Global Times, March 3
India strongly condemned the terrorist attack in Kunming in which 29 people were killed and over 130 injured, saying New Delhi opposes terrorism in all its forms and manifestations. The External Affairs Ministry said in a statement, “We extend our condolences to the bereaved families and wish an early recovery to those who were injured.”

India sets dates for world’s biggest election
The China Post, March 6
India announced it would stage a five-week election from April 7 that is expected to bring Hindu nationalist Narendra Modi to power on a platform of economic revival. Voting for the 543-member parliament is set to take place in nine phases until May 12 with counting scheduled four days later on May 16, when the ruling Congress party faces a likely defeat. The biggest election in history will see 814 million adults eligible to vote, from the remote Himalayas in the north to India’s tropical southern tip — 100 million more than last time in 2009.

China to develop all round strategic partnership with India
The Economic Times, March 6
Allaying concerns over the massive rise of its defence budget, China said it is “firm” to develop an “all round strategic partnership” with India. China’s planned budget for 2014 stands at US$132 billion, a 12.2 per cent increase from the year before. “The signal we have sent to our friendly neighbour India is peace and win-win cooperation,” said Chinese Foreign Ministry spokesman Qin Gang.

China’s defence spending will widen ‘asymmetry’ with India, say analysts
The Hindu, March 7
China has announced a 12.2 percent hike in military spending to $132 billion in 2014, the biggest increase in three years. China’s spending is now second only to that of the United States. Last month, India announced a 10 percent hike in its military spending, but due to the weakening rupee, India’s effective defence spending in dollar terms actually declined from the previous year, from $37.5 billion to $36.2 billion. Brig. (Retd.) Arun Sahgal, Director of the Forum for Strategic Initiative, warned that there is a “yawning gap emerging in the conventional capabilities between China and India.”

China’s rail network nears Indian border
Times of India, March 7
China is extending its Qinghai-Tibet rail line to the Panchen Lama’s hometown in Tibet, Xigaze. China hopes to bring more tourists to Panchen Lama’s hometown and enhance his world image to counter the Dalai Lama’s. The Xigaze region also borders Nepal, Bhutan and India’s Sikkim. The extension line will take passengers from Lhasa to Xigaze.

Xi Jinping plans India visit in post-election outreach
The Hindu, March 8
China’s President Xi Jinping has expressed his desire to visit India later this year on what would be his first trip to the country after taking over last year. The proposed visit is being framed by officials as signalling Beijing’s intent to take ties forward with the new dispensation in New Delhi that will be in place after the Lok Sabha elections. Beijing, for its part, has made clear it is keen to establish a good rapport and take ties forward with the new government that comes to power, regardless of the outcome of the elections.

India’s Mars mission to reach Red Planed in 200 days: space agency
The Hindu, March 8
India’s maiden Mars mission, launched in November last year, is likely to reach the Red Planet in 200 days, the state-owned space agency has said. “If everything goes as planned, MOM (Mars Orbiter Mission) will get inserted into its Martian orbit around, exactly after 200 days from today,” the Indian Space Research Organization (ISRO) said in a posting on its social networking. If the Mars mission reaches its destination, then India would become the world’s sixth country after the United States, Russia, Europe, Japan and China to achieve such a feat.

India Drowns in Red Tape as Chinese Ships Break Ice in Arctic
New Indian Express, March 9
Bureaucracy is impeding India’s rivalry with China in the Arctic region. The Cabinet has asked the Ministry of Earth Sciences to rework its research proposal, citing an icebreaker as too expensive an acquisition. Meanwhile, China already has two research vessels in the polar region. China and India both have shipping and resources interests in the Arctic but India’s failure to acquire an icebreaker could set back its plan to explore the region by two to three years. Both China and India became observers in the Arctic Council in 2013.

News Reports

China and India in the Region

US to engage with India, China for regional stability: David Shear
The Economic Times, February 26
The relations between India and China has broad influence on Asia’s security and the US will continue to engage with them to encourage regional stability, the nominee for the Pentagon’s top policy post for the Asia-Pacific region said. Shear said, “We are pleased to see high-level visits over the last year as well as increased economic and commercial engagement, and we will continue our engagement with both countries to encourage positive contributions to Asian stability and security.” He also noted that as with the US, China’s military modernisation presents both challenges and opportunities for India. He also said, the Indo-US defence relations play a key role in advancing strategic bilateral partnership,

Russia prepares for naval drills with China, India, ASEAN
Turkish Weekly, February 26
Russia’s Pacific Fleet will take part in three large-scale international naval exercises in the next six months, including joint drills with the navies of India, China and member states of the Association of Southeast Asian Nations. According to Capt. 1st Rank Roman Martov, Russia and India are holding talks on preparation for INDRA-2014 naval exercises scheduled to be held in the Sea of Japan in summer.

India’s naval chief resigns after latest mishap
The Wall Street Journal, February 26
India’s naval chief Admiral D. K. Joshi resigned, taking “moral responsibility” for a series of accidents that struck the navy the past year, including a recent submarine mishap that has left two crewmembers missing. The resignation and the accidents come as India – the world’s biggest importer of weapons – is working to upgrade its defence capabilities to face a more assertive China, as well as its long time rival, Pakistan.

India: Drawn to the Shanghai Cooperation Organisation
The Diplomat, February 27
Dmitry Fedorovich Mezentsev, Secretary-General of the Shanghai Cooperation Organisation, visited New Delhi on a two-day visit from February 23 to 25. While the visit failed to attract any meaningful media attention, it highlights the importance of the SCO in India’s larger relations with Central Asia and South Asia. The trip comes against the backdrop of a momentous change in Afghanistan that will see an almost complete withdrawal of foreign combat troops from the country as uncertainty about the future grows in the landlocked country. The visit also comes at a time when New Delhi is more keen than before to become a full member of the six-member group. India enjoys the status of an observer state at the SCO.

Chinese firms eye 1bn dollar airport project in Nepal
The New Indian Express, February 27
Five Chinese and two Spanish joint venture firms are vying for a $1 billion contract upgrading the Gautam Buddha Airport at Bhairahawa close to the India-Nepal border, which aims to bring millions of Buddhist tourists to Lumbini within a decade. With the unique geo-political positioning of Nepal between India and China growing Chinese influence in the Himalayan nation through various infrastructure-related projects is coming under growing scrutiny of India and the West.

Pak set to get Chinese submarines amid sub crisis in India
The Times of India, March 1
India’s submarine crisis comes just around the time China has begun arming two other neighbours, Pakistan and Bangladesh, with submarines. China is set to sell up to six submarines to Pakistan by the end of 2014. It is also set to sell two Type 035G Ming-class diesel-electric submarines to Bangladesh by 2019. Islamabad is expected to buy China’s S20 or Yuan-class diesel-electric submarine (SSK). At present, the Pakistani Navy operates five French submarines; three Agosta 90B (Khalid-class) submarines purchased in the 1990s and two ageing Agosta 70 (Hashmat-class) boats dating from the late 1970s.

China completes tunnel to link Pak, plans another
The Times of India, March 2
China has completed constructing one of its longest tunnels which will help build a link with Pakistan. Sources say it is part of China’s efforts to prepare the relatively backward Xinjiang to take advantage of the China-Pakistan economic corridor. Economic development is hoped to soften the on-going bloody movement among the Uygur Muslims there. It has also announced plans for building the world’s longest undersea tunnel measuring 123km to link the northern city of Dalian to east coast Yantai.

‘Military clashes cannot be ruled out between China and Japan’
The Indian Express, March 3
National Committee of the Chinese People’s Political Consultative Conference member Qian Lihua said, “At present we cannot completely rule out the possibility of clashes in East Asia, but it is not decided by China.” According to him, the Chinese army will not stir up a war but will fight back if provoked. His comments come amid reports that Japan is forming a new amphibious force to deal with any invasion of the islands held by it in the East China Sea.

Chinese study centres in Nepal cause of concern: SSB
Zee News, March 3
The Sashastra Seema Bal, a paramilitary force that guards India’s frontier with Nepal, has expressed concern over the emergence of Chinese study centres in the neighbouring country allegedly indulging in anti-India propaganda. It has also agreed with the Nepal police to create a joint task force to address trans-border crimes and the menace of fake Indian currency notes being prevalent in border areas.

BIMSTEC leaders vow to jointly combat terrorism
The Hindu, March 4
Leaders from the seven-nation BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation) vowed to jointly combat the growing threat of terrorism, transnational crimes and drug trafficking and agreed to intensify efforts to enhance connectivity and cooperation in areas like trade, energy and environment. The third BIMSTEC Summit Declaration, issued at the end of the meeting of leaders from India, Bangladesh, Sri Lanka, Thailand, Myanmar, Bhutan and Nepal, said the members recognised the threat that terrorism poses to peace, stability and economic progress and agreed for closer cooperation in combating all forms of terrorism and transnational crimes.

China hikes defence spending citing regional ‘threats’
The Hindu, March 5
China announced its biggest hike in military spending in three years, with its defence budget set to cross $ 130 billion in the coming year. Chinese military analysts explained the 12.2 per cent hike as driven by the need to counter a “high risk security environment” in the region, marked in recent months by rising territorial tensions with many neighbours. Recently India announced a 10 per cent hike in military spending during the interim budget. On account of the weakening rupee, however, India’s effective defence spending in dollar terms actually fell from 2013, down to $ 36.2 billion from $ 37.5 billion.

Despite killings, China to go ahead with economic corridors with India, Pakistan
Times of India, March 6
China plans to go ahead with plans to build two economic corridors to China and another to India via Myanmar and Bangladesh, even after an increase in terrorist activity, which is regarded as a major bottleneck in the corridors project. The Bangladesh-China-India-Myanmar economic corridor begins at Kunming, where terrorists from Xinjiang have demonstrated their ability to infiltrate. The China-Pakistan link begins in Xinjiang itself and enters Taliban-controlled areas in Pakistan.

China to extend Tibet rail to town near Nepal border
The Hindu, March 6
China will complete the extension of the high-altitude Qinghai-Tibet railway line to Shigatse, a town near the Nepal border, by October. The Lhasa-Shigatse (Xigaze in Chinese) line will extend over 253 km, carrying trains at 120 km per hour through valleys and over three bridges that run across the Brahmaputra river, or Yarlung Zangbo as it is known in China. The line will reduce the travel time from Lhasa to the border town from over five hours to two hours, enabling China to move resources more quickly to remote Tibetan areas. Chinese officials say the line is being built to boost development. The rail network will also boost China’s mobilisation capabilities in remote Tibetan areas. China has proposed extending the line from Shigatse to the border with Nepal. The Chinese side has also thought to have offered financial support to extend the line into Nepal, although Kathmandu has, so far, responded cautiously to the offer in light of India’s sensitivities.

Route of hope beckons
The Daily Star, March 6
The framework agreement for the Bangladesh, China, India, Myanmar Economic Corridor (BCIM-EC) looks likely to be signed in December, according to Bangladeshi foreign ministry officials. A combined report based on sector-wised studies is likely to be produced at the upcoming intergovernmental meeting in Chittagong in June. The K2K (Kunming-Ruili-Bhamo-Lashio-Mandalay-Tamu-Imphal-Sylhet-Dhaka-Kolkata) route, which is 2,800 km long and part of the historic Silk Route, offers the best condition to be used as the corridor, according to a concept paper on the BCIM-EC. The paper outlines the growing competition between China and India on political and economic fronts and the Myanmar refugee issue as areas of concern at country level.

Bangladesh a ‘firewall’ against terror: China
The Hindu, March 6
China said that Bangladesh “really matters” to Beijing as it is an “important developing country” with a booming economy. According to Chinese ambassador Li Jun, China wants to contribute to Bangladesh’s development as the country was contributing to global peace and regional stability. Unlike Western countries, he said, China would be “non-interfering in internal affairs”. He also made it clear that the China-Bangladesh relationship would not be “at the cost of Bangladesh-India relations.”

Dalai Lama leading Senate prayer will ‘influence’ Beijing-Washington ties
Global Times, March 7
The Dalai Lama will lead the US Senate in prayer as he meets leaders of Congress. The Dalai Lama will later meet leaders of both the Senate and House of Representatives, said Kaydor Aukatsang, a spokesman for the Office of Tibet. “This will certainly affect the Sino-US relationship as China always opposes foreign leaders meeting with the Dalai Lama,” said Xin Qiang, a deputy director of the Center for American Studies at Fudan University. China has viewed this meeting between the Dalai Lama and Obama as a “gross interference in China’s internal affairs” and said the move severely violated basic norms governing international relations and caused grave damage to China-US relations, foreign ministry spokesman Qin Gang said.

Chinese President to visit Latin America, attend BRICS summit: FM
Global Times, March 8
President Xi Jinping will visit Latin America this year, while China and Latin American countries are making efforts to launch a cooperation forum, Chinese Foreign Minister Wang Yi said. Recently the summit of the Community of Latin American and Caribbean States (CELAC) adopted a special statement, supporting the establishment of a China-CELAC forum. “In 2014, we’ll work hard to have this forum formally launched and hold its first ministerial conference,” Wang said.

Russian interests in Ukraine’s Crimea ‘legitimate’, India says
The Times of India, March 8
India believes Russia has “legitimate interests” in Ukraine — a position that is opposed to the stand of the west on the latest crisis. Interestingly, China has opposed Russia’s intervention in Crimea, deviating from a long-standing support to Moscow in the UN Security Council. A statement by ministry of external affairs said India is “concerned at the subsequent escalation of tension, especially in view of the presence of more than 5000 Indian nationals, including about 4000 students, in different parts of Ukraine”. However, when questioned, national security adviser Shivshankar Menon said, “There are legitimate Russian and other interests involved and we hope they are discussed and resolved.” While China supported Russia on issues like Syria and Libya, it also called for respecting the sovereignty of these countries.

News Reports

Trade and Economy

BNP Paribas downgrades China, Korea equities; upgrades India, Indonesia
Reuters, February 26
Chinese and Korean equities have been downgraded to “underweight” from “neutral” and “overweight” respectively by BNP Paribas in its Asia Ex-Japan portfolio, citing a structural slowdown in the former and margin pressures on the latter. The investment bank also upgraded Indian and Indonesian equities to “overweight” from “underweight” by increasing its positions primarily in rate-sensitive stocks like banks, and India’s largest cigarette maker ITC.

China lifts foreign currency deposit rates cap
The Hindu, February 26
In a move to further liberalise foreign currency deposits, China’s central bank said it will remove interest rate ceilings on smaller foreign-currency deposits in Shanghai Free Trade Zone from March 1st as part of long-anticipated financial reforms. Deposits of less than USD 3 million owned by businesses and agencies registered in the zone or by individuals who have worked in the zone for more than one year will receive the same rate of interest, according to the Shanghai branch of the People’s Bank of China.

China to face up to economic risks for emerging countries
Global Times, February 27
China will not be impacted by the recent fluctuation in some emerging markets caused by the United States’ tapering of its quantitative easing (QE) policy, and will face up to any external and internal risks, economists said. Recent sell-offs in many emerging markets accelerated following the tapering. Some emerging economies, such as Indonesia, South Africa, Argentina, Turkey and India, suffered sharp capital outflows and fluctuations of exchange rates. China, one of the emerging countries and the second largest economy, is able to cope with the risks and contribute to the stability of global economy, said Wang Jian, an economist with the Federal Reserve Bank of Dallas. While it is true that the capital is flowing back to developed markets from emerging markets after the tapering, the capital will flow back to the emerging economies with less risks and higher pays, he said. Instead of capital outflow, China witnessed more capital flow into the country.

‘India biggest market for biz jets in Asia Pacific’
The Hindu, February 28
India has emerged as the biggest fleet owner of business aircraft in the Asia Pacific surpassing China with business houses and high net worth individuals (HNIs) acquiring aircraft. Even during the economic slowdown period of 2008- 12, Indian businessmen purchased 38 per cent more aircraft than the previous five years as per estimates by Beechcraft Corporation. According to Beechcraft, a leading manufacturer of business aircraft, India has a fleet of 254 business aircraft as compared to 213 in China, 192 in Japan, 150 in Hong Kong, 66 in Malaysia, and 53 in Thailand, making it the biggest fleet owner in Asia Pacific with 15 per cent market share.

China emerges as India’s top trading partner: Study
The Economic Times, March 2
India’s eastern neighbour China has emerged as its biggest trading partner in the current fiscal replacing the UAE and pushing it to the third spot, according to a study conducted by PHD Chamber of Commerce. India-China trade has reached $49.5 billion with 8.7 per cent share in India’s total trade, while the US comes second at $46 billion with 8.1 per cent share and the UAE third at $45.4 billion with 8 per cent share during the first nine months of the current fiscal, the study revealed.

Is China’s loss India’s gain?
Live Mint, March 3
India’s S&P BSE Sensex has outperformed China’s Shanghai Composite Index in the past 3 months, as the former has gained around one per cent while the latter has declined 6.6 per cent. Apart from expected improvement in India’s twin deficits in the recent past and lower inflation in the future, India will get a boost from lower commodity prices. Analysts say the weakening Chinese currency will also be a headwind to their fund inflows.

Vietnam, China pip India in rubber output
The Hindu, March 3
Tyre and rubber industries have expressed concern over the fall in productivity and slack pace of growth in India’s rubber production. An analysis of rubber production data released by the Association of Natural Rubber Producing Countries for 2013 showed that India now trails Vietnam and China in production. It has now slipped to the fifth position in rubber production. The Automotive Tyre Manufacturers Association and All-India Rubber Industries Association, which analysed the ANRPC data, have raised concerns over this at a meeting organised by the Rubber Board. In 2013, the country’s rubber production decreased 7.6 per cent to 8.49 lakh tonnes. Vietnam registered a growth of over 20 per cent and its production has topped the coveted 10-lakh-tonne mark, which India has been aspiring to achieve.

InflexionPoint gearing up for a smartphone foray in India
The Hindu, March 5
The smartphone market in India is set to get more competitive, with former Apple CEO John Sculley’s InflexionPoint planning to launch a smartphone brand by May, according to people with direct knowledge of the matter. The company now plans on floating a new smartphone brand in India and the India team, which will look after distribution and sales, will be headed by former Micromax smartphone head Ajay Sharma. It will be a China manufacturing-driven operation as well. “The phones will be manufactured out of China, which will be taken care by InflexionPoint’s sister company there. We will take care of sales and distribution here. We believe we can differentiate ourselves in the market here,” Mr. Sharma said while confirming the development.

India’s Feb manufacturing, services growth outpaced China: HSBC
The Hindu, March 6
The manufacturing and services sectors in India expanded at a faster rate than China in February even as emerging market economies grew at the slowest pace since September 2013, according to a HSBC survey. During February, the HSBC composite index for India, which maps both manufacturing and services, stood at 50.3, whereas for China it was 49.8, Brazil 50.8 and Russia 50.2. An index measure of above 50 indicates expansion. The HSBC Emerging Markets Index (EMI), a monthly indicator derived from PMI surveys, sank to 51.1 in February from 51.4 in January, signalling the weakest growth in global emerging market output since September 2013. Manufacturing output in emerging markets was weighed down by contractions in China, Russia and South Korea. Growth slowed in Mexico and remained weak in Brazil.

Gold in a spot
The Hindu Business Line, March 6
Concerns flagged by New York University researchers that the venerable global benchmark for physical gold trades — the London Gold Fixing — could have been manipulated for a decade, cannot be dismissed as mere scare-mongering. Whether manipulated or not, the manner in which the London Gold Fixing is arrived at is an anachronism in this era of online trading and electronic order matching. Gold is now a financial asset and it is retail buyers from India and China apart from investors in exchange traded funds, who drive this market. This structural change calls for a benchmark that is amenable to real-time price discovery on a transparent electronic platform. In this context, India and China, the largest consuming centres, have the potential to emerge as global gold trading hubs.

World’s biggest arms importer, India wants to buy local
The New York Times, March 6
Of the 30 countries that attended a defence exposition last month to sell weapons to India, the world’s largest arms importer, the confidence displayed by Russia was reflective of its long time position as India’s dominant military provider. But decades of effort by India to make its own hardware may finally be bearing fruit. India recently rolled out its own fighter jet, a tank, a mobile howitzer and a host of locally made ships. If India succeeds, the Russians could be in trouble. Russia has nearly $39 billion worth of military equipment on order by India, representing nearly a third of Russia’s total arms exports. India ranks eighth in the world in military spending. Among the top 10 weapons buyers, only Saudi Arabia has a less productive home-grown military industry. China, by contrast, has been so effective that it is beginning to export higher-technology arms.

China, S. Korea, Japan advance FTA negotiations further
Global Times, March 7
China, South Korea and Japan advanced their free trade deal negotiations further at the fourth round of talks held in Seoul. Trade delegates from the three Asian countries gathered in Seoul for talks on the trilateral free trade agreement (FTA), the Ministry of Trade, Industry and Energy said in a statement. Since President Park Guen-hye took office in February last year, South Korea sought actively to participate in the RCEP negotiations. The RCEP is a multilateral FTA that will include China, South Korea, Japan and 10 members of the Association of Southeast Asian Nations (ASEAN) as well as India, Australia and New Zealand. China, South Korea and Japan have seen increasingly close economic and trade ties and have become important partners and markets to each other.

India Inc beats Chinese peers in financial health
Business Standard, March 10
China is growing at a faster pace than India and scores high on key macroeconomic ratios. But India Inc beats its Chinese counterpart hands down in key financial ratios. Indian companies are not only more profitable than their Chinese peers but offer more bang for the buck to their shareholders. India’s top companies, excluding banking and financial ones, earned 14.3 per cent on their net worth (shareholders’ equity) in 2012-13, higher than the 10.2 per cent reported by Chinese companies. At 15.6 per cent, operating margins were also much higher than the 11.4 per cent reported by Chinese firms last year.

News Reports

Energy and Environment

China and India Eye 25% Stake in Petronas’ Canadian Shale Gas Project
International Business Times, February 25
Malaysia’s state oil firm Petronas will sell a 25 per cent stake in its Canadian shale gas project, Progress Energy Resources, to an Indian company and an Asian gas buyer, said Petronas president and chief executive Shamsul Azhar Abbas. Shamsul did not name the Indian company or the Asian LNG buyer, and refused to divulge financial details. However, sources told the Press Trust of India that Indian Oil, the nation’s largest oil firm, would acquire a 10 per cent stake and the remaining 15 per cent could go to a Chinese firm. Petronas previously said it would sell up to 50% of the Canadian project, suggesting it now has another 12 per cent to divest.

China speeds up Indian Ocean exploration for minerals
The Economic Times, February 26
China has said its research vessel surveying polymetallic deposits in the Indian Ocean has discovered two hydrothermal and four hydrothermal anomaly areas as the resource-hungry country stepped up efforts to extract minerals from the seabed. China’s State Oceanic Administration (SOA) hailed achievements by Chinese scientists. The SOA said that scientists onboard the “Dayang-1” research vessel discovered two seafloor hydrothermal areas and four hydrothermal anomaly areas, and deepened understanding about the overall area. They also gained insight on the origins of carbonate hydrothermal areas, and made successful attempts to explore for sulfide, state-run Xinhua news agency quoted the SOA as saying.

Govt should consider banning Chinese imports in power, telecom
Business Standard, February 26
The government should consider banning imports of equipment related to power generation and telecom from China, the Indian Electrical & Electronic Manufacturers’ Association said. Director General Sunil Misra warned that the dependence on China in these critical sectors may lead to a “dangerous” situation for India as their servicing and spare parts are unlikely to be available in case there is a conflict or economic standoff with China.

India’s diesel subsidy spurs pollution worse than Beijing
Live Mint, February 28
Air quality is costing India 1.1 trillion rupees in shortened life spans of productive members of the urban population each year, according to the World Bank. While Beijing and Shanghai make the headlines for air pollution caused by factory smokestacks burning coal, Delhi residents get their smog right in the face from cars and trucks running on cheap diesel. The result: Delhi’s air on average in 2013 was laced with double the toxic particles per cubic metre being reported in Beijing, leading to respiratory diseases, lung cancer and heart attacks.

Global warming may threaten World Heritage sites
The Times of India, March 5
Some of the world’s most recognizable and important landmarks such as the Statue of Liberty and Sydney Opera House could be lost to rising sea-levels if current global warming trends are maintained over the next two millennia, a new study has warned. Potsdam Institute for Climate Impact Research found that seven per cent of the current global population would be living on land that would be below sea level and that the distribution of the affected population was uneven – more than 60 per cent of the affected population would be in China, India, Bangladesh, Vietnam and Indonesia.

India’s diesel fumes fuel glacier melt
Eco-Business, March 7
As India’s economy expands, so does pollution, particularly in the country’s major cities. Kieran Cooke, one of Climate News Network’s editors, has recently been in Kolkata, one of the country’s biggest and most polluted population centres: he says increasing pollution is not only harming Kolkata’s citizens – it’s also a likely contributor to climate change taking place in the Himalayan region. According to The International Centre for Integrated Mountain Development (ICIMOD) estimates, black carbon is likely responsible for a large part – around 30 per cent by some calculations – of glacial melt in the region. It says most of the black carbon deposited in the Himalayas and in the southern area of the Tibetan Plateau comes from the plains of India, while black carbon on the eastern and northern parts of the Plateau originates in central China.

Analyses and Commentaries

Modi’s China-bashing won’t shake Sino-Indian ties
Global Times, February 26
Yu Jincui highlights that Sixth China-India Annual Defence Dialogue concluded with both sides agreeing to enhance concerted efforts in maintaining peace and tranquillity on the disputed border. This came two days after Narendra Modi, the Bharatiya Janata Party’s prime ministerial candidate in national elections due by May, warned China must shed its “expansionist mindset” in a rally in the South Tibet region which is claimed by India as its territory. The harsh remarks by the candidate, who has made reviving the sagging economy a central plank of his campaign while so far rarely commenting on diplomacy, were soon interpreted by Indian media as evidence Modi will adopt a tougher stance over the border dispute and a more strident position in relations with China than Prime Minister Manmohan Singh if he is elected. Given the neighbourhood relationship and economic interdependence over the years, India and China have more common demands for cooperation rather than confrontation. Future bilateral relations won’t be affected a lot due to changes in leadership. There is no need to exaggerate the significance of Modi’s remarks.

Asian Giants Look to the Arctic
The Diplomat, February 26
Katherine Cima and Russell Sticklor highlight that after a lengthy courtship, China and India formalised their relationship with the Arctic Council in May 2013 by gaining admission as official observer states. In the months since, both countries have been actively seeking influence with the Council’s permanent members to further establish footholds in a region certain to emerge as a central arena of 21st Century geopolitics, scientific research and commerce. While public statements have often cited climate change research as the primary driver of the two countries’ Arctic engagement, the real underlying motive remains securing access to the region’s greatest natural treasure: energy.

The world of Narendra Abe
The Indian Express, February 27
Comparing Narendra Modi with Japan’s Shinzo Abe, Sanjaya Baru argues that Modi represents an Asian nationalism sparked by China’s rise and the West’s part-confused, part-duplicitous response. The author highlights that Modi is not an Abe in terms of his inheritance. Abe’s biography reads more like that of Rahul Gandhi. The grandson of a former prime minister, Abe is related to the Japanese emperor. He is the “insider” among Tokyo’s power elite. Modi is the “outsider” in the Delhi darbar. But, Modi would seek to define his foreign policy in more nationalist terms, as Abe has tried to, partly as a way of reviving the national mood in a dispirited country.

China’s assertiveness leaves its neighbours anxious
The Washington Post, February 27
David Ignatius opines that talk of the danger of war in the Pacific is the Asian real-world backdrop for US debates over military spending. Despite Chinese officials’ previous reassurance that a rising China was not on a collision course with the US or regional powers, no one disagrees that tensions in the Pacific are rising, leaving the US awkwardly in between, trying to support traditional allies such as Japan without encouraging them to take reckless moves.

To counter China, some Asian states must overcome the past
The Daily Star, February 28
Jaswant Singh believes that bilateral relationships alone, of the sort South Korea and Japan are trying to build with India, are inadequate with dealing with a new Asian age. Achieving an internal Asian balance of power to counter China will require India, Japan and South Korea to build a tripartite security arrangement, which can be achieved only if Japanese and South Korean leaders overcome their historical animosities.

Smog screen reflects lack of political requisites
The New Indian Express, February 28
The environmental problems in China have been created by its pursuit of capitalist policies within a communist system. Unless capitalism is practiced in an open society, the lapses into environmental degradation of avoidable deaths of workers in mining and other industrial accidents are inevitable. China’s environment ministry has vowed to “harshly punish’’ factories and power plants that contributed to the hazardous smog which enveloped much of northern China. Other developing countries, including India, should take lessons from this and take timely action since smog is also becoming a recurring feature of their airspace.

“Yellow Skin, White Heart”: Chinese Racial Slur at American Envoy
The Indian Express, March 1
C. Raja Mohan addresses the issues nationalists in Beijing and Delhi have over Americans of Chinese and Indian origin. As US Ambassador to Beijing Gary Locke, stepped down from his post, the China News Service compared him to a banana, yellow on the outside and white inside. Mohan posits that it is similar to the Indian bristling at New York prosecutor Preet Bharara’s pursuit of charges against Indian diplomat Devyani Khobragade. He says that China and India’s successful diasporas in America are indeed valuable bridges to the West, but that they should not forget that the expatriates are American citizens, and their primary loyalty is, rightly, with the American state.

India Expands Strategic Trade in East Asia to Balance China
World Political Review, March 3
Saurav Jha highlights that in the past few years India has been strengthening its civil nuclear cooperation with countries bordering China. This trend, when taken together with India’s interest in marketing surface-to-surface missiles in Asia, clearly signals a shift in New Delhi’s policy stance. China’s latest wave of nuclear exceptionalism toward Pakistan seems to be pushing India to abandon its traditional self-imposed limits on trade in strategic technology, with the result that India is now willing to broaden strategic technology options for countries on China’s periphery in order to secure Indian geoeconomic interests.

India-China talks: why soft border is not an option
Institute for Defence Studies and Analyses, March 3
Abanti Bhattacharya warns that a “soft border is neither an option nor a means to resolve the India-China border dispute.” This is because, for China, its periphery presents a security challenge, for which it has a security-oriented strategy. This is a policy that has been integral to China’s defence outlook since imperial times. India should therefore “focus on soft borders from the same realpolitik premise of internal consolidation of the underdeveloped northeastern states.”

Sino-Indian boundary issues edging toward answers
Global Times, March 3
Nitin Gokhale argues that negotiations on the contentious boundary issue have not witnessed significant breakthroughs, but New Delhi and Beijing are at least talking frequently at various levels to try to find common ground. The Indian assessment is that this slight change in approach has to do with China’s recognition that Indian military presence on the boundary has increased, and so have the chances of a standoff. To avoid accidental disputes, more tactical level exchanges are needed.

Year of friendship solidifies Beijing-New Delhi ties
Global Times, March 3
Liu Zongyi comments that since Chinese Premier Li Keqiang visited India last May, the bilateral relationship between China and India has been gaining momentum. Only by forming a united frontline can emerging economies acquire more respect from the West and shape the world governance structure to be globally beneficial. Liu argues that the relation between the two countries should not fall victim to India’s partisan conflicts, specifically warning Narendra Modi in light of his recent provocative statements.

China’s growth puzzle
The Diplomat, March 4
Stephen Roach sees China’s slowing growth as a welcome trend, in contrast to other emerging economies who, overly dependent on global capital flows, are finding it tougher to finance economic growth as the US Federal Reserve tapers. A superficial fixation on China’s headline GDP growth persists, but the real source of the current slowdown is the long-awaited rebalancing of the Chinese economy. The problem lies with the world which is unprepared for the slower growth China’s rebalancing implies.

Trade volume brings quality shortfalls into focus
Global Times, March 4
Wang Jiamei highlights that last year saw China overtake the US as the world’s largest goods trader for the first time in history, the Ministry of Commerce (MOFCOM) announced over the weekend, citing figures from the World Trade Organization (WTO). Specifically, the country traded $4.16 trillion in goods in 2013, with exports and imports valued at $2.21 trillion and $1.95 trillion respectively. This development marks not only a new milestone in terms of China’s reform and opening-up but also a major stride for economic globalization, according to MOFCOM. Trade disputes between China and emerging-market economies are also becoming increasingly frequent. During the first two months of this year, the MOFCOM issued around 20 warnings concerning trade remedy investigations against Chinese imports from developing countries such as India, South Africa, Indonesia, Egypt, Argentina, Mexico and Brazil.

Clearing the air
The Indian Express, March 6
Chinese Premier Li Keqiang has declared “war” on the toxic quality of air found across Chinese cities. At the opening of the annual meeting of the largely rubber-stamp legislature, Li acknowledged that China’s environmental problems have hit crisis levels, and that its growth model would have to be adjusted to account for the alarming degradation of air and water quality. India, which was recently clubbed with China in the levels of PM 2.5 in its urban centres — fine particulates that can penetrate the lungs and contribute to asthma, cancer and heart trouble — could also do with a renewed focus on air pollution.

Decoding Modi’s foreign policy
Foreign Policy, March 6
Deep Pal claims that despite his roots in a nationalistic, right wing BJP, the highlight of Modi’s foreign policy will likely be economics, and not security. While taking a rhetorical hard line on India’s national interests suits his political ideology, Modi appears to understand that as prime minister, he will need to prioritise boosting trade and fixing India’s economy.

US should back China’s anti-terror efforts
Global Times, March 6
Zhao Minghao argues that the US government and media have outraged the Chinese people with their indifferent attitude toward the inhumane Kunming terrorist attack on the evening of March 1. Some 29 innocent civilians were slashed to death and over 140 injured, with the senior, women and children included. The mob came from Xinjiang Uyghur Autonomous Region, and a black, hand-painted flag of the East Turkestan Islamic Movement was found at the scene. However, quite a few Americans view this attack as a legitimate action by a Chinese ethnic group striving to justify their rights and these extreme Islamic “jihadists” as human rights defenders. Safeguarding the stability in Afghanistan and improving anti-terrorism capacity could have become an important area of Sino-US cooperation. Plus, the US could have worked with China, Russia and India to forge a coalition against Islamic extremism. But it is perhaps losing these opportunities.

Pakistan’s trade strategy
Dawn, March 7
Sakib Sherani asks what higher-order development objectives does Pakistan’s trade strategy and policy seek to achieve? For the past four decades or so, many developing countries have latched onto the coat-tails of the boom in global trade and leap-frogged the development ladder by pursuing an export-led growth strategy. With very few exceptions — in fact perhaps none at all — most successful emerging economies of today have followed an export-led path to development. While India may be cited by some as an example of an economy that grew without an explicit export-led strategy, the phenomenal increase in its manufactured exports over the past two decades has been an important driver of growth. As an illustration, while China’s exports have increased over six-fold since 2000, India’s exports have grown over five times, placing it second in the list of top-performing export nations during this period. Other strong performers have been Vietnam, Turkey, Cambodia and Bangladesh.

With China, India should be prepared for the worst
Rediff, March 7
In an interview with Rediff.com, Shishir Gupta discusses his new book, The Himalayan Face-off: Chinese Assertion and the Indian Riposte. He warns against China’s rising threat to India through its border disputes and China’s relationship with Pakistan. However, China and India’s nuclear capabilities take war off the table.

Assessing Japan-India Relations: An Indian Perspective
Eurasia Review, March 9
Shamshad A Khan argues that while it would be difficult to not account for the China factor in Indian strategic thinking especially with regard to the 2006 India-Japan global and strategic partnership, to assume that China is the prime reason for India and Japan’s growing relationship is likely to lead to the wrong conclusions. Japanese Prime Minister Shinzo Abe’s India visit in January 2014 was part of a prime ministerial level engagement institutionalised in 2006 in which they agreed to meet annually, alternating between New Delhi and Tokyo. It was not triggered by a Sino-Japanese stand-off over the East China Sea or a ‘rising tension’ in the East Asian region as has been interpreted in certain sections of the media and strategic circles.

Journal Articles and Publications

Can China and India Coexist in Myanmar?
Asia Pacific Bulletin, 2014
Daniel Wagner and Giorgio Cafiero explain that even if Myanmar’s relationship with China does not fundamentally shift, India–and other countries such as the United States and Japan—offer Naypyidaw greater leverage against Beijing by emphasizing that Myanmar has other options.

Multi-model comparison of the economic and energy implications for China and India in an international climate regime
Mitigation and Adaptation Strategies for Global Change, 2014
DJA Johansson, PL Lucas, M Weitzel, EO Ahlgren et al presents a modeling comparison on how stabilization of global climate change at about 2 C above the pre-industrial level could affect economic and energy systems development in China and India. Under the climate regime, Indian emission allowances are allowed to grow more than the Chinese allowances, due to the per capita convergence rule and the higher population growth in India. Economic and energy implications not only differ among the two countries, but also across model types. The reduction in carbon intensity is mostly achieved through deployment of carbon capture and storage, renewable energy sources and nuclear energy. The economic impacts are generally higher in China than in India, due to higher 2010–2050 cumulative abatement in China and the fact that India can offset more of its abatement cost though international emission trading.

Major Bilateral Issues between China and India
Arts and Social Sciences Journal, 2014
Bashir Ahmad Dar and Shaukat Ahmad focuses on the bilateral issues which hurdles the relations among the two states and looks for the mutual understanding in the important issues for the peaceful rise of the two Asian giants. For instance, there is a divergence of interests between the two like the border disputes, water disputes etc. Here an attempt has been made to illuminate whether China’s and India’s paths lead them to interact as rivals or partners.

Automobility in Brazil, Russia, India, and China: Quo Vadis?
Transportation Research Board, 2014
T Kuhnimhof, C Rohr, L Ecola, J Zmudintroduces an innovative methodology to answer the question: toward  which levels of automobility are the BRIC (Brazil, Russia, India and China) countries headed? The authors methodology draws on quantitative analysis of historic developments in four industrialized countries (USA, Australia, Germany, and Japan) that serve as case studies representing prototypical paths of automobility with very different levels of per capita automobility, in combination with qualitative data derived from an expert-based qualitative approach. Based on the authors’ analysis, Brazil turns out to be the most car-oriented country among the BRICs with a potential long-term level of automobility between Germany and Australia. Russia comes in second, also with a likely long-term level of automobility above that of Germany. China and India, on the contrary, are heading towards lower levels of automobility below Germany but higher than Japan.

The West and the Rest in the World Economy
Challenge, 2014
Deepak Nayyar highlights until the Industrial Revolution in Britain, Europe and Asia were largely similar in levels of economic development. Beginning around 1820, however, Western Europe and the United States shot ahead, while Asia experienced a rapid decline. Since 1980, poorer countries have been catching up again with the rich. But these countries did not merely rely on markets and openness to industrializing. Development was more about the visible hand of the state than about the invisible hand of the market.