China-India Brief #87

china-india-brief-87


Published Twice a Month
January 10 – 24, 2016

Centre on Asia and Globalisation
Lee Kuan Yew School of Public Policy


Guest Column

China-India Economic Cooperation: Time to Act

by Bhanoji Rao

China-India Economic Cooperation

China and India face challenges that are unique to each. However, if the two demographic giants were to cooperate and collaborate on the economic front, it will not only benefit them over the longer term but will also contribute to global good.

From 1990 onwards, China’s forex reserves swelled dramatically but the exchange rate hardly appreciated. Thanks to this not quite text bookish policy, the world at large enjoyed getting a wide variety of excellent China made consumer goods at near throw away prices. China’s hard working and disciplined people made the country great. The rest of the world facilitated it via economic globalization. 

Table 1:
China: Average Exchange Rate and Average Forex Reserves in Months of Import
Table 1

Note: All data in this table and others that follow are from the World Development Indicators Online Databank.

The Chinese growth model may need some course correction – as the world awakens to the new leadership in America and likely to closed door policies in Europe.   

The Indian case is different. Thanks to the initiatives of the former Prime Minister P V Narasimha Rao and his chosen Finance Minister, India moved out of the inward looking economic philosophy, cementing on the earlier era of hesitant reforms. Economic growth picked up. It is now common for commentators to add India to China as the key influencers on the global economic scene.    

Table 2:
Average Annual GDP Growth Rates (Percent) 

Table 3:
Other Macro-Economic Indicators

Manufacturing-driven China is showing signs of slowing down. The same could soon be the case for services-driven Indian growth, possibly threatened by external shocks to the service export base.

Mr Donald Trump made clear his preferences in campaign speeches: bringing factories and jobs back to US and restraints on H1-B visas. Buy American, Hire American was President Trump’s message on January 20 as part of his maiden speech immediately after taking oath of office. The policy framework could give a jolt to China and India.  

Dreamers (like me) look at the 2015 population numbers – 1.37 billion in China and 1.31 billion in India and get fascinated with the idea of the mega economy that can result from collaboration and integration. It makes sense especially in the context of evolving demographic trends: China’s ageing population and India’s demographic dividend.

Table 4:
Age Composition (%) of 2015 Population

India’s mounting trade deficit with China inspired The Economist to put out a very readable article in February 2016 on the trade gap (Arrive Full, Leave Empty). The magazine makes the pertinent point that a vast part of the overall trade deficit of India will be wiped out once the deficit with China is off the books.    

Table 5:
India – China Trade (Billion USD)

When one sees the growing trade, the proximity of the two vast nations, and the enormity of the combined market, the policy prescription that comes to the fore is for manufacturing investments to flow from China into India and service sector collaboration on an unprecedented scale.

Post-liberalization India did attract sizeable FDI. During 2011-16, the average annual inflows were of the order of some $40 billion. Total inflow since the turn of the century amounted to $ 290 billion. Sad to say, Chinese investment in India accounted for just 0.5% of the total ($1.4 billion) during  the long spell of 15 years.    

One might think that there is little for China to gain from China-India Cooperation (CIC). This may not be so when one considers the medium to longer timespan: the combined markets and new products and services plus specialization yet to unfold beyond current expectations. CIC could also bring benefits to demographically smaller nations in and around, helping growth, stability, and security.

CIC is the best bet for significantly reducing military expenses, overcoming terrorism of all forms, and ensuring growth in the two nations as well as across the globe via backward and forward linkages propelled by competitive advantage. Maritime security issues, Nuclear Supplier Group membership for India, smaller neighbours’ diplomatic energy savings – all these will be facilitated once CIC is running on full steam.

“Inequality in income distribution and uneven development space are worrying. Over 700 million people in the world are still living in extreme poverty” observed President Xi in his speech on January 17, 2017at the World Economic Forum, Davos. It is not utopian to say that India’s underemployed low-income people and the lower middle class in China looking for opportunities to move up the income ladder would welcome CIC. 

Where does one start? How does one start?

It is easy to formulate the CIC agenda: automatic approval with zero waiting time for Chinese FDI into Indian manufacturing sectors with minimal reservations; visa-free entry for students from each side; unrestricted tourist movements; hassle free remittances; free trade as per an agreed time-table with no further approval requirements, etc.     

To be frank, one must not expect China to bell the cat, given its current preoccupations on the economic front and business-as-usual in diplomatic relations. It will be too much to expect India to say “cooperation at any cost”.

Perhaps the best hope for now is for third parties to bring the top leaders and policy makers from both countries to a series of closed door discussions on understanding the case for CIC and the next steps to take it forward.

 

Bhanoji Rao is an Adjunct Professor at the Lee Kuan Yew School and Governing Board Member of GITAM and IFHE Universities in India.

 

The views expressed in the article(s) 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.


 

News Reports

Bilateral relations

Respect sovereignty, India tells China
The Hindu, January 19
Asserting its territorial sovereignty, India said on Wednesday that the China-Pakistan Economic Corridor (CPEC) passes through its territory. Addressing the Raisina Dialogue, Foreign Secretary S. Jaishankar said China was yet to respond to India’s concerns on CPEC. “China is very sensitive on matters concerning its sovereignty. We expect they will respect other people’s sovereignty. CPEC passes through a territory that we see as ours. Surely people will understand India’s reaction. There needs to be some reflection and I am sorry to say that we have not seen signs of that,” said Mr. Jaishankar at the event that was inaugurated by Prime Minister Narendra Modi on Tuesday.

India, China trade barbs over NSG
The Wire, January 19
In a response to China’s statement that membership of the Nuclear Suppliers Group can’t be a awarded to India as a farewell gift by the outgoing Obama administration in the United States, New Delhi said on Thursday that the country sought entrance into the NSG only on the basis of its non-proliferation record. “India is not seeking NSG membership as a gift.  India is seeking it on its non-proliferation record,” external affairs ministry spokesperson Vikas Swarup told reporters on Thursday. “I of course cannot speak for other applicants,” he added, in a snarky retort which plays up the Indian view that China has been blocking India’s application based on its support for Pakistan. The Chinese statement had been triggered by the remarks of the outgoing US administration’s assistant secretary of state for South and Central Asia, Nisha Desai Biswal, where she specifically named China as the only country which was blocking efforts to bring India into the fold. “Clearly there is one outlier that needs to be addressed and that is China,” she said.

 

News Reports

China and India in the Regions

China says it sold, not gifted, two warships to Pakistan
The Hindu, January 16
China on Monday clarified that it had not “donated” two warships to Pakistan, but the transfer of vessels, apparently for the defence of Gwadar port, was part of legitimate “military trade” between the two countries. “I have learnt that some reports said China has donated these vessels. This is not correct. The report mentioned to surveillance ships. It is normal military trade cooperation with the two countries and complies with the international commitments of the two countries,” said Chinese foreign ministry spokesperson Hua Chunying at her regular press briefing. Pakistani media reports on Monday said that China has handed over two ships to Pakistan Navy on Saturday to safeguard the China-Pakistan Economic Corridor (CPEC).

Modi takes shots at China, says no talks with Pakistan
Bloomberg, January 17
Taking a swipe at both Pakistan and China, Indian Prime Minister Narendra Modi said countries need to stop supporting terrorism and start respecting territorial sovereignty. India will not hold talks with Pakistan as long as New Delhi’s nuclear-armed neighbor continues to support terrorism, Modi said in a foreign policy speech on Tuesday. In a likely reference to Pakistan, he said countries in the region that export terrorism stand “isolated and ignored.” “India alone cannot walk the path of peace, it also has to be Pakistan’s journey to make,” Modi said at a conference in New Delhi. “Pakistan must walk away from terror if it wants to walk toward dialogue with India.” The Indian prime minister also made a rare, veiled reference to Beijing’s $46 billion investment in the China Pakistan Economic Corridor, or CPEC, which passes through parts of the disputed region of Kashmir that are administered by Pakistan but claimed by India. 

U.S. hopes to overcome Chinese hurdle on India’s NSG membership bid
The Hindu, January 17
A day after China came out strongly against the Obama administration on India’s Nuclear Suppliers Group (NSG) membership bid, outgoing U.S. envoy Richard Verma on Tuesday exuded confidence that the Donald Trump government would be able to overcome the Chinese hurdle. Mr. Verma said President Barack Obama, Secretary of State John Kerry and a lot of other people had worked in pushing India’s membership to the elite Nuclear Suppliers Group and that the U.S. will continue to work on it. China had on Monday said admission of non-NPT signatories in NSG cannot be a “farewell gift” for countries to give to each other. The Chinese reaction had come after the Obama administration asserted that Beijing was an “outlier” in the efforts to make India a member of the elite nuclear club.

U.S. Admiral cautions India on Chinese ‘influence’
The Hindu, January 19
Cautioning India on the “increasing Chinese influence in the Indian Ocean”, a senior US Admiral on Wednesday said that India and the U.S. were exchanging information on the movement of Chinese submarines in the region. To deepen this cooperation, Chief Admiral Harry Harris of the U.S. Pacific Command (PACOM) called for early conclusion of the other two foundational agreements, especially the one on communications interoperability. “We work closely with India and improving India’s capabilities to do that kind of surveillance… Chinese submarines are clearly an issue. They are operating in the region…”

US helping India track Chinese submarines
Dawn, January 21
India and the United States are working together to track Chinese submarines in the Arabian Sea zone, India’s Business Standard newspaper said. India does not approve of the China Pakistan Economic Corridor (CPEC) that will service the Gwadar port, which sits strategically between the Arabian Sea and the Persian Gulf. The Standard said Admiral Harris admitted for the first time that the two navies are jointly tracking Chinese naval movements in the Indian Ocean. To build up India’s capability to track submarines, Washington had cleared the sale of Boeing P-8I Poseidon multi-mission maritime aircraft — “the world’s most fearsome submarine hunters”.

India, Sri Lanka in talks on port
The Hindu, January 19
Sri Lanka is in talks to offer the port of Trincomalee to India. Speaking to The Hindu on the sidelines of the Raisina Dialogue here, Field Marshal Sarath Fonseka, Colombo’s Minister of Regional Development, said that the decision on offering the port to India will be taken soon. “Talks are at present going on between India and Sri Lanka and we hope to offer the Trincomalee port, which is one of the best deep sea ports in the world, to India,” said Mr. Fonseka speaking to The Hindu on the sidelines of the Raisina Dialogue. Trincomalee has been on the table for sometime as Sri Lanka wants to maintain a neutral stand and provide equal access to its ports to both China and India.

Trump’s TPP decision gets mixed reactions in China
Global Times, January 24
US President Donald Trump’s decision to officially withdraw the US from the Trans-Pacific Partnership (TPP) trade pact met with mixed reactions in China on Tuesday. Some experts said that the move is a relief for China, which was noticeably absent from the pact, while others pointed to tough challenges ahead for bilateral trade with the US.  Trump took his first executive action as US President to withdraw his country from the 12-nation trade pact, which had been a pillar for the US’ strategic rebalance to the Asia-Pacific region under Barack Obama and was widely viewed as a move to counter a rising China. Though it came as no surprise, given Trump’s staunch opposition to what he repeatedly described as a terrible deal for US workers, the move might have eased some of China’s concerns over the trade deal, experts said.

 

News Reports

Trade and Economy

Demonetisation has hit India’s growth: IMF
The Hindu, January 16
The Narendra Modi government’s demonetisation move could dampen India’s growth by one percentage point in the current fiscal year and 0.4 percentage point next year, compared to its earlier projections, the International Monetary Fund (IMF) said. The IMF now expects India to record a growth of 6.6 percent for the current year, and 7.2 percent next year. Earlier, IMF had projected 7.6 percent this year and next year. According to the IMF World Economic Outlook (WEO) update released on Monday, there is marginal upward shift in prospects for the U.S and China until 2018, but India, Brazil, and Mexico are among the large economies that have their projections revised downwards.

China’s GDP growth beats expectations
The Hindu, January 21
China’s economy grew a faster-than-expected 6.8% in the fourth quarter, boosted by higher government spending and record bank lending, giving it a tailwind heading into what is expected to be a turbulent year. But Beijing’s decision to prioritize its official growth target could exact a high price, as policymakers grapple with financial risks created by an explosive growth in debt.

China phonemakers are taking over world’s fastest-growing market
Bloomberg, January 24
Chinese smartphone brands led by Vivo have muscled out local rivals in India with increasingly stylish yet affordable devices, challenging Samsung Electronics Co. for supremacy in the world’s fastest-growing major phone market. Smartphone rankings are volatile the world over. But the inexorable advance of Chinese brands in India — where some 500 million smartphones are expected to be sold over the next few years — has been unusual given the country’s general lack of enthusiasm for Chinese goods. The shakeup came despite calls last year to boycott Chinese goods, triggered by political issues such as perceptions over Chinese support for Pakistan.

 

News Reports

Energy and Environment

Chinese entry into power sector raises security fears
The Times of India, January 21
Indian power equipment manufacturers have raised alarm over vulnerability of the country’s transmission networks to hacking as Chinese companies make steady inroads into SCADA (supervisory control and data acquisition) systems being added to smarten up city grids. SCADA is a computer-based industrial automation control system that practically makes factories and utilities run on their own. In an electrical system, SCADA maintains balance between demand and supply in the grid. This is not the first time that domestic power gear makers are opposing Chinese equipment. But unlike in the past, when boilers, turbines and generators for power stations were in the line of fire, this time round the concerns are strategic and not about protecting turf.

As oil prices climb, China and India curb their enthusiasm for reserves
The Wall Street Journal, January 23
The world’s oil producers are counting on a production cut to boost crude prices, but a slowdown in stockpiling by China’s and India’s governments could offer obstacles to that plan. For years, the governments of emerging oil consumers like China and India have been stockpiling crude, looking to build buffers like those long held by the U.S. and other developed countries.

 


Analyses

The new CIA: China, India and America
The Straits Times, January 12
Shakespeare wisely said, “There is a tide in the affairs of men, which, taken at the flood, leads on to fortune; omitted, all the voyage of their life is bound in shallows and in miseries.” With the election of Mr Donald Trump as US president, such a window of opportunity has now opened for India to join the ‘A’ league of powers. A rocky, probably even turbulent, road lies ahead for US-China relations. Even before taking office, Mr Trump has challenged China on many fronts, from trade to Taiwan. In the face of this, India has two choices. It can sit back and smack its lips with satisfaction, watching the travails of Beijing as it handles the mercurial Mr Trump. Or it can cunningly exploit this new turbulence in US-China relations to catapult itself into a new “A” league of great powers, best captured in the acronym: CIA. CIA will now stand for China, India and America.

China’s increasing presence in Sri Lanka will benefit all countries in South Asia
Global Times, January 16
Domestic news portal cankaoxiaoxi.com reported over the weekend that Japanese media was saying China’s increasing presence in Sri Lanka’s Hambantota port is making Japan and India worried. It is understandable that the cooperation has left some Asian countries vigilant as media reports suggest that an 80 percent share of the port, which sits on an important trade route, and land for an industrial zone will be leased to China for the next 99 years. However, joining the project would be better than standing aside and being jealous. The Chinese-funded project in Sri Lanka is not a nail being knocked into the geopolitical landscape of South Asia to curb India’s rise.

India should join China in promoting regional economic development in Nepal
Global Times, January 18
China and Nepal have moved one major step forward in kickstarting a joint venture to build a long-delayed hydropower project in Nepal that has the potential to enhance regional energy supply security and unlock economic growth. The latest progress in the project may put some pressure on other Asian countries, particularly India, to rebalance their strategic and economic calculations and decide whether they want to join China in improving regional infrastructure and reap gains from engaging in pragmatic economic cooperation. The Nepal Electricity Authority recently signed an initial agreement with China Three Gorges Corporation (CTGC) to develop the $1.6 billion West Seti hydropower project in midwest Nepal, which could generate 750 megawatts of power when completed. The project is expected to address chronic power shortages in the country and boost the energy-starved economy. If it is connected to grids in other South Asian countries after it goes into operation, it could increase the stability and security of the power supply in the region and unleash regional economic potential. 

Small-town India is waking up to China, but there’s still little understanding of its ways
Scroll.in, January 24
Chinese investors and officials are panning across India’s interiors in search of smart-city and infrastructure investments, from Pune and Indore to small town Chakan in Pune, where officials and entrepreneurs may have no first-hand experience in dealing with China until recently and no local experts to advise them. India’s academic expertise on China, its largest trading partner, is limited to an inner circle of small think-tanks in Delhi and certain universities in West Bengal and South India. “A major investment in China studies is no longer a luxury but a necessity,’’ said Alka Acharya, director of the Delhi-based Institute of Chinese Studies. “We need to train more people beyond the metros who will directly face Chinese presence in job and economic opportunities and social engagement. China is still a black hole as far as our understanding of Chinese society, culture and politics goes.” At its annual China conference in Mumbai last month, the institute, for the first time, included a Marathi session to encourage professors in Maharashtra to look east. Responses came from unexpected places: Amravati, Parbhani, Solapur.


Compiled and sent to you by Centre on Asia and Globalisation and
the Lee Kuan Yew School of Public Policy, National University of Singapore