China-India Brief #140

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

Guest Column

India-China relations after the Shangri-La Dialogue 2019

By Kanti Bajpai

Photo by Dominic Li Indiana on flickr.com

The Shangri-La Dialogue held in Singapore from May 31 to June 2, 2019 was notable for the strong words from both the Chinese and American side in the speeches by Defence Minister Wei Fenghe and Acting Secretary of Defence Patrick Shanahan. It was also notable for the very strong team that the Chinese brought to Singapore for the first time in years. Clearly, in the present state of China-US relations, Beijing was determined to field its A team. While India was absent almost completely from the Dialogue, the tone and substance of what was said had implications for India-China relations.

Secretary Shanahan spoke first and delivered a hard message on China. Tensions and rivalry in East Asia were the fault of China (though Shanahan was careful not to take China by name), and the US would stand with allies and friends to defend its and their interests. The Free and Open Indo-Pacific (FOIP) was a real commitment on the part of Washington and the governing framework within which the US would approach the region. The US was part of the region, backed norms and rules that were widely accepted by regional states, was preparing to invest up to $60 billion in low and middle income countries (in partnership with the private sector), would modernize its forces to meet growing challenges, and sought to cooperate with China wherever possible. Shanahan also endorsed ASEAN “centrality”.

Minister Wei spoke the following day. His much-anticipated speech was, if anything, harder in tone and substance than Shanahan’s. Regional tensions and rivalries were the US’s fault (Wei too did not specifically mention the US) as they were in other parts of the world. China stood for peace and development, typified by its Belt and Road Initiative (BRI) and recent Dialogue of Asian Civilizations, its growing UN peacekeeping role, and its diplomatic outreach to countries all over the world including in Asia. Beijing would not bully others or seek dominance but would not accept it either: if it was attacked, it would “surely” counterattack. It would fight to protect its core interests – territorial, political, and economic (including trade). It would not abide Taiwanese independence under any circumstances, had a right to build military installations that were defensive in nature in the South China Sea, would continue to help reach an agreement with North Korea on its denuclearization, and, despite differences, would continue to seek stability with the US including through military-to-military cooperation.

While India and India-China was scarcely mentioned in these speeches, it was clear that New Delhi should pay heed.

First, the polarization between China and the US was stronger than ever. Neither side accepted any wrongdoing. Both were belligerent. Both emphasized military power. China underlined it was prepared to fight over Taiwan in particular. Despite Donald Trump’s tendency to go it alone and to question commitments in far-off places, the Shanahan message stressed a coalition strategy and a commitment to Asia. Despite China’s softening with both India and Japan over the past 18 months, Wei’s stance on China’s interests was uncompromising. The China-US relationship increasingly resembles a cold war – a long-term struggle short of a shooting war which will make life difficult for smaller states.

Secondly, the US appears to have moved from its strictly hub-and-spokes approach in Asia to one of coalition defence suggested by FOIP. While Trump has scarcely ever mentioned FOIP in public, his national security team seems to believe in it. India is clearly an important part of FOIP even after Prime Minister Modi’s rather equivocal and tepid references to it at the Shangri-La Dialogue in 2018. But at the 2019 Dialogue, Shanahan and French Defence Minister Florence Parly made clear that France and other Western allies of the US, who are not part of FOIP, will have a growing presence in the Indo-Pacific region. This suggests that Washington is looking at FOIP Plus.

Thirdly, China, which traditionally had few if any allies, is looking to use both hard and soft power enticements to build a coalition of its own – not a military but rather a diplomatic entente. In terms of hard power, the BRI is the main instrument. Chinese investments and construction will be used, whatever their more cosmopolitan objectives, to attract strategic partners – or at least to ensure that countries stay neutral. BRI also has a soft power element: its scale and its benefits are sought to both impress others and attract them to China. The recent Dialogue of Asian Civilizations is another soft power initiative – its message is that Asians are connected to each other and should stick together.

A China-US polarization and cold war could constrain the choices of smaller countries; but it also furnishes opportunities. India seems increasingly to favour a return to non-alignment. After the Wuhan summit and various difficulties with the US over trade, H1B visas for Indian professionals, arms and energy purchases from Russia and Iran respectively, Delhi has moved towards a more equidistant posture. India’s more circumspect treatment of Tibetans including the Dalai Lama, its now rather pro-forma criticism of BRI, and the ambivalence to FOIP are part of its softening towards China. The Modi government looks increasingly to exploit a more middling position between China and the US, a feature of India’s traditional non-aligned posture. India has long used the threat of tilting away from one great power and towards the other as a bargaining strategy. The danger of course is that at a critical moment it may be left without a reliable strategic partner.

For three years, India under Modi attempted to enlarge its bargaining space vis a vis China by forging closer ties with the militarily most significant powers in the Indo-Pacific region – the US, Japan, Australia, and Vietnam. After the Doklam crisis and the Wuhan summit, and against the growing difficulties with Trump, Delhi has not only rediscovered non-alignment; it has rediscovered ASEAN. At Shangri-La in 2018, Modi firmly endorsed ASEAN centrality. Ahead of him this year is a decision on the Regional Comprehensive Economic Partnership (RCEP), a trade bloc which includes ASEAN, China, Japan, and South Korea, and Australia and New Zealand. India has understandable concerns here, but if Delhi is serious about a more middle course between China and the US and ASEAN centrality, it may well have to temper its reluctance to sign on to the agreement.

The Shangri-La Dialogue of 2019 was a livelier and more significant meeting than the past several dialogues. India, which hardly featured at it, nevertheless will be affected by the lessons that various powers take away from it. China-US relations look to be increasingly polarized. This threatens to reduce the general policy space of regional states, but it may also throw up some opportunities. For India, a return to a more middling strategic course and diplomatic and economic engagement with ASEAN and its various partners could be rewarding. China-India relations, as a result, could continue on a path of good sense and moderation.

Kanti Bajpai is Wilmar Professor of Asian Studies and Director, Centre on Asia and Globalisation, National University of Singapore

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

Chinese armymen, civilians do yoga with Indian defence personnel along India-China border
The Times of India, June 21

Chinese army troops and civilians for the first time participated in a joint Yoga session with Indian army personnel along the India-China border in the Eastern border on Friday (June 21).

China Rules Out India's Nuke Club NSG Entry Without Talks On Treaty
NDTV, June 21

China on Friday (June 21) said that there would be no discussion on India's entry into the Nuclear Suppliers Group (NSG) before reaching a specific plan on participation of members who have not signed the treaty on the Non-Proliferation of nuclear weapons (NPT) in the elite grouping.

China asks India to make an independent judgement on Huawei
Money Control, June 20

China on June 20 urged India to make an "independent judgement" about Huawei's operations in the country without being guided by the US ban on the Chinese telecom giant's products and provide an "unbiased and non-discriminatory" environment for the Chinese businesses.

At SCO Summit, India holds off on endorsing China’s Belt and Road project
Hindustan Times, June 16

India held off on endorsing China’s Belt and Road Initiative (BRI) in the joint declaration issued after the Shanghai Cooperation Organisation (SCO) Summit in Bishkek on Friday, a reflection of New Delhi’s concerns about the ambitious trade and connectivity project.

News Reports

China and India in the Region

China to uphold multilateralism, oppose protectionism at G20 Osaka summit
Xinhua, June 24

China is ready to work with relevant sides to firmly uphold multilateralism, and oppose unilateralism and protectionism at the upcoming Group of Twenty (G20) summit in Osaka, Japan, said senior officials in Beijing Monday (June 24).

Japan still leads in Southeast Asia infrastructure race, even as China ramps up belt and road investments: report
South China Morning Post, June 23

Japanese-backed projects in the region’s six largest economies – Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam – are valued at US$367 billion, compared with China’s US$255 billion, the figures show.

Pompeo to seek stronger strategic ties with India despite trade tensions
Reuters, June 21

U.S. Secretary of State Mike Pompeo will seek to further strengthen strategic ties with India during a visit next week despite increasing frictions over trade, data flows and arms from Russia, officials said.

In relief to India, Maldives may scrap ocean deal with China
The Times of India, June 17

An agreement China signed with the Maldives to build an observatory in the Indian Ocean is likely to be scrapped, as India’s relations with its maritime neighbour enter a purple patch following the exit of former Maldivian president Abdulla Yameen.

News Reports

Trade and Economy

India seeks 'clear roadmap' from China to ramp up export of pharma products
Business Standard, June 21

In an unusual move, India on Friday (June 21) used a hugely popular Chinese movie to seek enhanced market access for Indian medicines in China as the drug regulators of both countries held their first-ever meeting in Shanghai and brainstormed on removing the road blocks.

China wants Asia free trade pact without India
Nikkei Asian Review, June 19

China is proposing a new Asian free trade agreement that excludes India, throwing a wrench into plans for the 16-country Regional Comprehensive Economic Partnership.

US topples China as India's largest merchandise trade partner
Livemint, June 19

India’s trade surplus with the US declined to $16.8 billion from $21.2 billion a year ago. India’s exports are playing in a stronger position with its trade deficit with China dropping to $53 billion in 2018-19, down from $63 billion a year ago.

Apple weighs 15%-30% capacity shift out of China amid trade war
Nikkei Asian Review, June 19

The countries being considered for diversification include Mexico, India, Vietnam, Indonesia and Malaysia. India and Vietnam are among the favourites for smartphone diversification.

News Reports

Energy and Environment

U.N. food body elects first Chinese head as climate crisis worsens
Reuters, June 24

China’s vice minister for agriculture was elected on Sunday to lead the United Nations’ Food and Agriculture Organization (FAO), the first Chinese national to run the 74-year-old agency at a time when climate change is leaving more people hungry.

Struggle for water intensifies as taps run dry in India
Reuters, June 21

The struggle for water has intensified in many parts of India, where villages and cities have run out of water - a problem campaigners have said is due as much to years of poor groundwater management as to a lack of rain.

India to overtake China as the world's most populous country: UN
CNN, June 20

India is set to overtake China as the world's most populous country in less than a decade, according to a new United Nations report. China and India currently account for about 37% of the entire global population of roughly 7.7 billion, with China currently home to about 1.4 billion people and India to 1.3 billion.

India Remained the Third Largest Solar Market After China and the US in Q1 2019
Mercom, June 19

India remained the third largest solar photovoltaic (PV) market in the first quarter (Q1) of 2019. For the second quarter in a row, the United States was the second largest player in the global solar market behind China.

Analyses

China and India, Reluctant Partners
Caixin, June 20

By David Mahon, Executive Chairman of Beijing-based asset management and corporate advisory firm Mahon China Investment Management Ltd

At a time when the United States is withdrawing from the world and many multilateral institutions, while slapping tariffs on allies and adversaries alike, India and China are moving closer together economically out of commercial practicality.

Regional rivalries over Sri Lanka’s ports
East Asia Forum, June 19

By Dushni Weerakoon, Executive Director and Head of Macroeconomic Policy Research at the Institute of Policy Studies of Sri Lanka (IPS).

When it comes to Sri Lanka’s national security and sovereignty, nothing seems more guaranteed to generate heated discussion than the spectre of foreign involvement in seaport developments.

After taking up ‘Pak terror’ with China, can India keep Beijing out of ‘Kashmir’ talks?
Observer Research Foundation, June 18

By N. Sathiya Moorthy, Senior Fellow & Director of the Chennai Chapter of the ORF

Coming as it is after the Elections-2019 campaign in India and Modi’s bigger win than in 2014, the Pulwama-Balakot, punctuated by the China vote on Masood Azhar are all seen as huge diplomatic victory for India on the global/regional scene and a personal political triumph for Modi nearer home - or, is it so?

Lessons from India in digital disruption
China Daily, June 18

By Nandan Nilekani, Chairman of the EkStep Foundation and chairman of Infosys Ltd.; founding chairman of the Unique Identification Authority of India (Aadhaar)

Digital technology can rapidly transform how countries provide services such as education and health for their citizens. Public services in the future should be effective, efficient, fair, data-driven and responsive to individual needs. And the groundwork to turn this vision into reality needs to be laid now.

Modi’s India can compete & co-exist with Xi’s China. Negative foreign policy will only hurt
The Print, June 15

By Zorawar Dulet Singh, Adjunct Fellow with the Institute of Chinese Studies and a Visiting Fellow at the Forum for Strategic Initiative

The Bishkek meeting between Narendra Modi and Xi Jinping reaffirms the understanding both leaderships had reached at their Wuhan meeting in April 2018 – that India-China relations needed a reset to bring some stability into this relationship. But more importantly, the ongoing tension between Washington and Beijing has reinforced the logic that Asia’s rising powers must take more responsibility for providing order and stability in their neighbourhood.

Books and Journals

State Control and the Effects of Foreign Relations on Bilateral Trade

Journal of Conflict Resolution, Volume 63, no. 2 (2019): 405-438

By Christina L. Davis, Woodrow Wilson School, Princeton University; Andreas Fuchs, Alfred-Weber-Institute for Economics, Heidelberg University; Kristina Johnson, Edward J. Collins Jr. Center for Public Management, University of Massachusetts Boston.

Can governments still use trade to reward and punish partner countries? While World Trade Organization (WTO) rules and the pressures of globalization restrict states’ capacity to manipulate trade policies, politicization of trade is likely to occur where governments intervene in markets. We examine state ownership of firms as one tool of government control. Taking China and India as examples, we use new data on bilateral trade disaggregated by firm ownership type as well as measures of political relations based on bilateral events and United Nations voting data to estimate the effect of political relations on import flows since the early 1990s. Our results support the hypothesis that imports controlled by state-owned enterprises are more responsive to political relations than imports controlled by private enterprises. This finding suggests that politicized import decisions will increase as countries with partially state-controlled economies gain strength in the global economy. Extending our analysis to exports for comparison, we find a similar pattern for Indian but not for Chinese exports and offer potential explanations for these differential findings.