China-India Brief #129

Guest Column

Was 2018 a turning point in China-India Relations?

By Byron Chong    

Photo: pmindia.gov.in

Even before it came to a close, some news sources were already hailing 2018 as a “watershed year” in China-India relations. The highlight that year had been the meeting between Indian Prime Minister Narendra Modi and Chinese President Xi Jinping which took place in April at Wuhan. Ties had been strained in the preceding months over India’s continued opposition to the China-Pakistan Economic Corridor (CPEC), and the Doklam crisis which saw Chinese and Indian armies engaged in a 73-day standoff. The two nuclear powers had come dangerously close to the brink and were eager to ease tensions and rebuild strategic trust. The informal summit was thus seen as a means to “reset” bilateral relations. Indeed, much like Prime Minister Rajiv Gandhi’s 1998 visit to Beijing which paved the way for two decades of rapprochement, it was hoped that the 2018 summit would be a turning point in China-India relations.

In many ways, the past twelve months has indeed witnessed significant changes. Trade ties for instance, have improved dramatically. The year 2018 marked the first time that both sides held delegation-level talks to address the growing trade deficit, which in 2017/18, reached over USD 63 billion in China’s favour. Beijing agreed to slash tariffs and increase imports of Indian goods like rice, sugar, rapeseed oil and pharmaceuticals. Curbs for the import of non-basmati rice from India were removed in June 2018, and a six-year ban on rapeseed meal was lifted in October. India for its part, also announced major tariff reductions for Chinese goods, and has made plans to eventually cut duties on more than 80% of Chinese imports over the next 20 years.  

Steps were also taken to enhance political and military engagement. Last year, there were four meetings between Modi and Xi, three between their respective defence ministers, and multiple high-level dialogues between foreign policy counterparts. Both sides have also agreed to jointly train diplomats in Afghanistan, and recently launched a mechanism promoting people-to-people cultural exchange. December 2018 saw the restart of the ‘Hand-in-Hand’ joint military exercise. Last held in 2016, the annual exercise had been suspended in 2017 following the Doklam standoff. Its resumption was thus an important symbol of the return to ‘normal relations’.

India also appears to be softening its stand on sensitive bilateral issues. In the run up to the Wuhan meeting, the Dalai Lama – viewed as a separatist by China – was banned from holding a rally in New Delhi. The Indian government also excluded Australia from the Malabar naval exercise, supposedly to avoid antagonizing Beijing, though this has been the case for many years. In July 2018, the Indian foreign ministry instructed the national carrier, Air India, to label ‘Taiwan’ as ‘Chinese Taipei’ on their website. And during a speech at last year’s Shangri La Dialogue, Modi sought to allay Beijing’s fears that the ‘Indo-Pacific’ was an anti-China coalition by stressing that the grouping was not an exclusive club, but “includes all nations in this geography”.     

While some may interpret these actions as indicative of a trend towards mutual accommodation and reconciliation, they in fact represent little in terms of concrete policy changes. Discussions on joint cooperation in Afghanistan actually began as early as February 2017, way before the Doklam crisis. New Delhi’s shunning of the Dalai Lama is also not without precedent. In fact, it has been known to use its interactions with the Tibetan leader as a means of signaling its displeasure to Beijing.

And despite clearly upsetting Beijing, India has continued to expand defence-security cooperation with Australia and trade ties with Taiwan. In fact, it has accelerated security cooperation with many of China’s regional rivals. In September 2018, the inaugural 2+2 Dialogue was held between India and the United States (US), and the Communications, Compatibility, Security Agreement (COMCASA) was signed which allowed New Delhi to receive high-end military communications equipment and real-time encrypted information from the superpower. India is also negotiating the Acquisition and Cross Servicing Agreement (ACSA) with Tokyo which would allow Japan to refuel and resupply its ships at Indian naval bases on the Andaman and Nicobar islands. In addition, it is enhancing military and energy collaboration with Vietnam.  

For its part, China has given little regard to India in its foreign policy since Wuhan. In mid-2018, China once again opposed India’s bid to join the Nuclear Suppliers Group (NSG). Later, it vetoed New Delhi’s attempt to list Masood Azhar, chief of Pakistan-based terror group Jaish-e-Mohammed (JeM) as a global terrorist at the United Nations. Masood had been accused of organizing multiple terror attacks on Indian soil. China had also initially blocked an effort by the United States (US) and India to place Pakistan on the Financial Action Task Force’s (FATF) terrorist financing watchlist, and only withdrew its objection when it became clear the move would fail. In late 2018, it was reported that there were secret defence agreements under the CPEC which included plans to build Chinese fighter jets in Pakistan.

Nor has the situation along the border improved. Just months after both sides disengaged from the Doklam region, it was reported that China had begun constructing another road nearby. Chinese security forces also continue to be deployed around the contested area, and have increased the number of military aircraft stationed near the border in Tibet. These developments, coupled with China’s ever improving infrastructure elsewhere along the border, has led India do the same – boosting troop presence, and fast tracking the construction of strategic roads and integrated buildings on its side of the border. Ironically, the Doklam scare seems to have encouraged increased militarization of the border rather than invigorating efforts towards a lasting, diplomatic solution.    

In reality, Wuhan was less of a ‘reset’ than an opportunistic ‘truce’. Both sides were indeed eager to ease tensions, but were driven to do so mainly due to the rapidly changing geopolitical landscape. The trade war with the US was looming, and China found it necessary to secure its flanks by soothing relations with its neighbours, including India. New Delhi also found itself increasingly at odds with the Trump administration over trade issues, the issuance of H1B visas, and its ties with Iran. Moreover, with general elections in 2019, Modi needed to quickly resolve outstanding foreign policy problems and shift focus to domestic issues. It was in such a context that the Wuhan summit, which had been mooted almost a year earlier, became the opportune meeting to seek a timeout.

This explains why both sides were only willing to make very superficial concessions, and why it is in the area of trade where the most substantial progress has been made. Trump’s protectionist policies are likely to adversely impact the global economy and both China and India needed to strengthen trade ties in order to ride this out. Concurrently, China sees it in its interest to keep India off balance in the international arena, to forestall its rise as a potential challenger. New Delhi as the weaker power, certainly realizes this, which is why it is pursuing closer security ties with China’s rivals, while at the same time, appearing to take a conciliatory approach to Beijing.     

Far from a turning point, 2018 was a year of little substantial change in China-India relations. Distrust and suspicion clearly remain, though both are preoccupied with other issues at the moment. The real question will be how 2019 turns out. A 90-day ‘ceasefire’ has already been called in the US-China trade war and is likely to reach some sort of conclusion in 2019. Similarly, the Indian general election results are expected to be out by May 2019. Once these shackles are off, will we see the return to a steadily competitive relationship? Or will Trump’s increasingly belligerent policies finally push both sides to pursue genuine rapprochement? 

Byron Chong is a Research Assistant at the Centre on Asia and Globalisation (CAG). He holds a Masters in Strategic Studies from the S. Rajaratnam School of International Studies. His research interests include China-India relations and international security.

The views expressed in the 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.

News Reports

Bilateral relations

Vikram Misri Takes Charge As India's New Ambassador To China
NDTV, January 8

India appoints a new ambassador to China. Vikram Misri took charge of the post yesterday and met top Chinese officials during which they discussed Sino-India ties.

China-India cooperation on a fast track after Wuhan summit: China
The Times of India, January 4

China on Friday (January 4) said "practical" cooperation with India is on a fast track since the last year’s Wuhan summit between Prime Minister Narendra Modi and President Xi Jinping and expressed readiness to work with New Delhi to uphold the rights of the two countries at a time of global uncertainty.

India opens battle-ready bridge usable by tanks and warplanes on border with China, following ceremony by PM Narendra Modi
South China Morning Post, December 26

India on Tuesday opened its longest rail and road bridge in a poor northeastern state as part of efforts to boost defences on its sensitive border with China.

China-India Yoga College to open 50 branches in China
The Economic Times, December 24

China’s first Yoga college in Yunnan province, which was set up as part of cultural exchange programme between the two nations, has planned to open 50 more branches across the country as the popularity of India’s ancient physical and spiritual discipline continues to grow all over China, state media reported.

Xi hails long history of China-India partnership
China Daily, December 23

President Xi Jinping said on Friday (December 21) that China and India should leverage the high-level cultural and people-to-people exchanges mechanism to help build an even closer development partnership between the two countries.

China-India joint military training concludes in SW China
CGTN, December 22

A joint training between the Chinese and Indian militaries concluded on Saturday (December 22) in Chengdu, the capital city of southwest China's Sichuan Province.

China, India hail high-level people to people exchanges mechanism
Xinhua, December 21

China and India said here Friday (December 21) that establishing the China-India high-level people to people exchanges mechanism is an important measure to develop the all-round bilateral relations between the two countries.

India ‘overtly cautious’ about China’s sensitivities, but Beijing does not reciprocate: Parliamentary panel
The Economic Times, December 17

India is "overtly cautious" about China's sensitivities on Taiwan and Tibet, but Beijing does not show the same deference to New Delhi's sovereignty concerns, a parliamentary panel has said, urging the government to contemplate using all options in its China policy, including ties with Taiwan.

News Reports

China and India in the Region

Nepali PM says cross-border railways to be developed with assistance from China, India
Xinhua, January 6

Nepali Prime Minister KP Sharma Oli said on Sunday that the Himalayan country has been working on developing cross-border railways linking China and India in cooperation with the two neighboring countries.

Washington keen on closer ties with India: Analysts
The Straits Times, January 5

The Asia Reassurance Initiative Act showed growing US interest in further deepening ties with India amid common worries over the rise of China, said analysts. They said the new law could even lead to enhanced military cooperation, including in the sale of defence equipment to India.

Chinese-made warship to double Pakistan Navy's combat power  
CGTN, January 3

China is building a "most advanced" warship for Pakistan Navy which could "double the combat power of its fleet", China Daily reported on Wednesday (January 2) citing one of the country's largest state-owned defence contractors China State Shipbuilding Corporation (CSSC) and other military sources.

Taiwan turns to India to shake off shackles of China dependence
Financial Times, January 3

“India is the jewel in our external economic strategy,” said James Huang, chair of the Taiwan External Trade Development Council. “My feeling is that India is like what Taiwan was 30 or 40 years ago and what China was 20 years ago.”

China’s ‘Belt and Road’ Plan in Pakistan Takes a Military Turn
The New York Times, December 19

Under a program China insisted was peaceful, Pakistan is cooperating on distinctly defense-related projects, including a secret plan to build new fighter jets.

With China on its mind, India deepens engagement with Myanmar
The Straits Times, December 16

Indian President Ram Nath Kovind concluded a five-day state visit to Myanmar last Friday (December 14), during which India sought to synergise its Act East and Neighbourhood First initiatives with Myanmar's "independent, active and non-aligned" foreign policy.

News Reports

Trade and Economy

Asian economies poised to take huge strides
China Daily, January 7

China is set to overtake the United States to become the world's largest economy by 2032, according to the Centre for Economics and Business Research (CEBR) in London. It predicts that three of the top five global economies by 2033 will be Asian, with China in top position, India third and Japan fourth. 

India vies to fill Chinese commodities gap created by trade war
Financial Times, January 1

Indian officials and exporters are pushing to boost sales of staples such as rice, sugar and milk to China, exploiting an opportunity created after Beijing raised tariffs on many US foodstuffs.

China Seeks Talks With India to Push Asia Trade Pact, Sources Say
Bloomberg, January 1

China has sought talks with India to allay concerns on a regional free trade pact it is spearheading, two people familiar with the matter said, as Beijing seeks newer markets amid the ongoing trade war with the US.

India’s Trade Balance With China Improves But Will It Last?
Bloomberg Quint, December 20

India’s merchandise trade deficit with China narrowed to $33.3 billion for the April-October 2018 period from $36.8 billion in the same period in 2017. This, even as India’s overall trade deficit has increased to $113.2 billion compared to $91.3 billion in the April-October period in 2017.

EU, India and China ‘new trilateral’ at WTO, says US
Livemint, December 14

The US on Wednesday (December 12) called the European Union (EU), India, and China the new “trilateral” at the World Trade Organization (WTO) as it rejected a proposal from the three sponsors for salvaging the highest court for global trade disputes from becoming dysfunctional in the next 12 months.

China's Vivo buys 169 acres land, to invest US$559 million in India
Channel News Asia, December 13

Chinese smartphone maker Vivo on Thursday (December 13) said it has acquired 169 acres of land in Uttar Pradesh and will spend 40 billion rupees (US$559 million) to set up its second local plant in India.

News Reports

Energy and Environment

India consistently conveys its concerns to China on activity over Bramhaputra: Govt
Money Control, December 27

India has consistently conveyed its concerns over the Bramhaputra river to China and urged the country to ensure that interests of downstream states are not harmed by any activities in the upstream areas, the Minister of State for Water Resources and River Development Arjun Ram Meghwal, informed the Lok Sabha.

China plans more nuanced anti-pollution measures in 2019: ministry
Reuters, December 25

China will adopt more efficient and targeted measures during its campaign against pollution next year, but will not relax the targets or ease the crackdown on violators, the environment ministry said in a statement on Monday (December 24) night.

NASA study finds ice loss slows down glacier flow in Asia
Xinhua, December 14

A NASA-led study has shown Asia's high mountain glaciers are flowing more slowly in response to widespread ice loss, which may affect freshwater availability downstream in India, Pakistan and China.

Iran falls to sixth biggest oil supplier to India in November, from fourth in October
Reuters, December 13

India’s monthly oil imports from Iran plunged to their lowest in a year in November with Tehran dropping two places to become only the sixth biggest supplier after New Delhi cut purchases due to the impact of U.S. sanctions, according to ship tracking data and industry sources.

Climate meet: India and its BASIC partners strongly oppose rich nations’ attempt to backslide on Paris Agreement
The Economic Times, December 13

India along with its BASIC partners – Brazil, South Africa and China – on Wednesday (December 12) strongly opposed to any such move and made it clear that there should not be any backsliding on the global deal which was reached in French capital exactly three years ago on this day.

Analyses

China And India Led Emerging Market Funds Lower In 2018; What's In Store For 2019?
Forbes, January 1

By Panos Mourdoukoutas, Professor and Chair of the Department of Economics at LIU Post in New York

What turned China and India funds from big winners in 2017 to big losers in 2018? Big changes in the domestic and international environment.

The US-China trade war dynamic: What’s in it for India?
Observer Research Foundation, December 29

By Manoj Joshi, Distinguished Fellow, Observer Research Foundation

There are hazards not just for India, but the global economy in the event of the trade war deepening. Among the more dire ones is the decoupling of the two economies into two mutually exclusive Chinese and American camps. China took the lead in the process by walling off its internet from the global product.  Now, counter-moves are afoot to exclude Chinese companies from the United States.

In 2019, is India prepared to promote itself as an alternative to China?
Money Control, December 28

By Jabin T Jacob, China analyst at the National Maritime Foundation, New Delhi

India-China relations went through a year of relative calm in 2018. This was the result of the so-called Wuhan Spirit — after Prime Minister Narendra Modi and Chinese President Xi Jinping met in the Chinese city in April to attempt to sort out tensions in the ties following the several months-long standoff in Doklam (Dolam) in Bhutan in mid-2017.

A more solid Sino-Indian relationship is underway
CGTN, December 23

By Ning Shengnan, Assistant Research Fellow, Department for Developing Countries Studies at the China Institute of International Studies

For China and India, more access to each other's cultural resources means more opportunity to learn about each other and more aware of each other's needs. This important element would make the bilateral friendship become firmer and more flexible.

Could China and India turn their post-Doklam thaw into a spring?
South China Morning Post, December 15

By Mohan Guruswamy, Distinguished Fellow at the United Service Institution of India in New Delhi

Sino-Indian relations remain somewhat frigid, with the smaller power, India, suspicious of China’s intentions and objectives. Thus responsibility falls to China to ensure the thaw turns into a spring.

Maldivian people will suffer most without Chinese investments
China Daily, December 12

By Liang Haiming, President of China Silk Road iValley Research Institute and a Visiting Scholar at Princeton University

After newly elected Maldivian President Ibrahim Mohamed Solih accused China of raising his country's debt by investing in it, some media outlets have been sensationalizing the issue of China creating "debt traps" in the countries along the Belt and Road.

Books and Journals

Pursuing Development through Connectivity: An Analysis of India’s Northeast Region
CAG Working Paper Series, December 2018

By Byron Chong, Research Assistant at the Centre on Asia and Globalisation, Lee Kuan Yew School of Public Policy, National University of Singapore

Geographical isolation has traditionally been seen as the main stumbling block to economic progress and development in India’s Northeast region. In recent years, the Indian government has sought to overcome this problem by launching a number of connectivity initiatives such as the India-Myanmar-Thailand Trilateral Highway (IMTTH) and the Kaladan Multi-modal Transit Transport Project (KMTTP). Aimed at improving the Northeast’s linkages to its neighbor, Myanmar, and further into the rest of Southeast Asia, it was hoped that greater connectivity would bring increased trade and investment, and propel economic development in the region.

However, the Northeast’s development woes stem from much deeper problems than just geographical isolation. Other barriers to cross-border trade also make it highly questionable whether simply improving connectivity alone would be sufficient to fulfilling the promise of increased trade and investment. In addition, successful completion of these projects could themselves create more problems that could have wide social, economic and security implications.

China’s Connectivity Projects with Pakistan and Sri Lanka: A Review of the CPEC Projects and Hambantota Port
CAG Working Paper Series, December 2018

By Xu Shengwei, Research Assistant at the Centre on Asia and Globalisation, Lee Kuan Yew School of Public Policy, National University of Singapore

Since the Belt and Road Initiative (BRI) was launched in 2013, China has initiated infrastructure projects in many parts of the world, including in Pakistan and Sri Lanka. This essay focuses on the Gwadar Port and Karakoram highway projects in Pakistan and the Hambantota Port project in Sri Lanka. The motives of China and the recipient states, Pakistan and Sri Lanka, in proceeding with the projects are varied, with a mix of economic, domestic political, and strategic factors accounting for the interest of both sides in collaborating. Over the years, the projects have faced a series of hurdles. Difficulties continue to affect the projects even after completion. Yet, despite the hurdles and difficulties, the projects are making headway in terms of their construction, and completed projects are slowly being put to good use. The broad conclusion of the paper is that the projects so far have yielded a mixed record of costs and benefits.