Sino-Indian Relations: Growing Yet Fragile

China and India are divided over several issues like territorial sovereignty, regional security and global governance. The main issue in Wen’s visit was the strong Indian reaction to China’s practice of issuing stapled visas to the Indian citizens from Jammu and Kashmir. S.M. Krishna told his Chinese counterpart, Yang Jiechi, that Delhi expects Beijing to show sensitivity to Indian concerns on territorial sovereignty in Kashmir. India's concern is about the structure of the bilateral trade that is utterly skewed in favour of China, writes C. Raja Mohan in RSIS commentaries.

The visit of Chinese premier Wen Jiabao to India has reinforced rather than resolve a paradox that has taken hold of Sino-Indian relations—growing political fragility despite the increasing economic engagement. China and India remain deeply divided over the critical issues of territorial sovereignty, regional security and global governance.

...

Wen’s visit to India in 2005 was arguably the most substantive political exchange between the two countries. That visit produced the only negotiated document between the two sides on the boundary dispute that has hobbled bilateral relations during the last 60 years. In that year, Wen and the Indian prime minister Manmohan Singh also unveiled the aspiration to build a strategic partnership between the two countries. Wen’s visit generated a rare optimism in Sino-Indian relations and intense phase of all-round engagement between the two nations.

...

China objected to the Indo-US civil nuclear initiative and launched an effort to provide a matching deal for Pakistan; Beijing came in the way of India’s search for a permanent seat on the United Nations Security Council.

China began to raise the ante on the boundary dispute in both Arunachal Pradesh in the eastern reaches of their frontier and Jammu & Kashmir on the West. Talk of an armed confrontation became common as both sides stepped up their military activity all along their contested boundary. As bilateral ties headed south, it was Wen who stepped in to bring a measure of calm. In his two meetings with Prime Minister Singh at the end of 2009 on the margins of multilateral conferences in Bangkok and Copenhagen, Wen sought to arrest the slide.

...

Fixed at a relatively short notice, Wen’s visit raised hopes in Delhi that the spirit of 2005 in bilateral relations could be revived. The results, however, have been mixed. The main issue in the run up to Wen’s visit has been the strong Indian reaction to China’s practice of issuing stapled visas to the Indian citizens from Jammu and Kashmir. India suspended military exchanges in September 2010. A couple of months later, the Indian foreign minister S.M. Krishna told his Chinese counterpart, Yang Jiechi, that Delhi expects Beijing to show sensitivity to Indian concerns on territorial sovereignty in Kashmir. Krishna also reminded Yang that India has shown respect for Chinese sovereignty over Tibet and Taiwan.

...

On the question of terrorism -- another major concern for India -- the joint statement fell well short of the clear and unambiguous demands from other great powers that Pakistan should shut down terrorist operations on its soil. Wen’s unwillingness to support the Indian demand for speedy justice to those in Pakistan who plotted the terror attack on Mumbai at the end of November 2008 has only reinforced the deep- seated Indian concerns about the nature of Sino-Pak strategic partnership.

...

Meanwhile the news from the economic front during Wen’s visit to Delhi was more encouraging. Dr. Singh and Wen have now set a target of US$ 100 billion for bilateral trade in 2015. This is by no means ambitious. At the current rates of growth — about 40 per cent -- that landmark might be reached within the next couple of years. India's concern, however, is not about volume but the structure of the bilateral trade that is utterly skewed in favour of China. In 2010, out of a bilateral trade of US$ 60 billion, the deficit in Beijing’s favour is about US $20 billion.

On his part, Wen has promised to facilitate better market access to Indian goods and services. More broadly, Wen's visit has resulted in a number of agreements — from cooperation in green technologies to banking and from maritime security to the launch of a strategic economic dialogue. Wen's visit to India might have helped pause the recent downward slide in Sino-Indian ties. Wen and Singh, however, have much work to do to overcome the political fragility of their expanding economic engagement.

Wen Jiabao In India

In the Chinese Premier, Wen Jiabao's visit to India, there was an emphasis on developing closer business ties with India in different areas, which includes banking, finance and green technologies.The current imbalances are likely to persist as Indian exports are less competitive in Chinese Markets. Wen Jiabao’s visit facilitated closer integration of banking and financial sectors of the two economies. Crude oil imports played a role in enlarging the trade deficit,but they were not imported from China.However, both sides have committed to correcting the imbalance, writes Amitendu Palit.

Excerpts:

The Chinese Premier’s recent visit to India emphasised on developing closer business ties with India in different areas. Several agreements were signed, including in banking and finance and green technologies. The paper argues that despite both countries deciding to increase bilateral trade and addressing the current imbalance, the latter might persist due to low competitiveness of Indian exports in the Chinese market and the Indian industry’s inability to compete with Chinese imports.

Chinese Premier Wen Jiabao visited India five years and eight months after his last visit in April 2005. Much has changed during these years. No change, however, has been as remarkable as the rapid acceleration in economic ties between China and India. Between the Premier’s two visits, Sino-Indian merchandise trade has increased from US$12.7 billion (2004-05) to US$42.4 billion (2009-10).2 Overall trade figures will be even larger by including bilateral services trade, on which, unfortunately, no official estimates are available. The almost fourfold increase in trade during the last five years has led to China becoming India’s largest trade partner and India becoming one of China’s major trade partners.

...

And business it was that dominated the visit. Both countries decided to lift bilateral trade to US$100 billion by 2015.3 Going by the rate at which bilateral trade has been increasing in recent years, the target might well be achieved before the chosen date. Both countries also decided to work together in infrastructure, telecommunications, investment, finance, information technology and environmental protection for achieving ‘win-win’ outcomes. Forty- nine Memoranda of Understanding (MOUs) were signed between Chinese and Indian business entities during the visit. Two key ones among these were between the Federation of Indian Chamber of Commerce and Industry (FICCI) and China Chamber of Commerce (CCC), and the Reserve Bank of India (RBI) and the China Banking Regulatory Commission (CBRC) respectively.

...

The Chinese Premier’s visit will be remembered for facilitating closer integration of banking and financial sectors of the two economies. The Industrial and Commercial Bank of China (ICBC) – one of the largest global lenders by market value – has applied for setting up branches in India, while other leading Chinese banks such as Bank of China, China Construction Bank and Agricultural Bank of China are expected to do so in the future.5 Existing Indian banks in China [eg. State Bank of India (SBI)] are likely to expand operations.

Contribution of crude oil imports in enlarging the trade deficit, hardly any of which are imported from China. Nonetheless, both sides have committed to correcting the imbalance.

The key to balanced trade is increasing India's exports. China has agreed to encourage Indian agricultural, pharmaceutical and service exports in its domestic market. These and other Indian exports will increase if non-tariff barriers (NTBs) in China's domestic market come down and they also become more competitive. While NTBs can probably be reduced by negotiating with the Chinese government, competitiveness of Indian exports in the Chinese market vis-à-vis similar exports from Southeast Asia and other competing countries cannot be increased in the same manner. Thus despite reduction in NTBs, Indian exports might not experience substantial increase.

On the other hand, Indian industry must also note that till now they have successfully lobbied against Chinese imports and precipitated anti-dumping measures largely because China is yet to be treated as a 'market' economy by the WTO. This will, however, change from 2016. It is important for the Indian industry to reconcile to the fact that Chinese imports will be as much a part of the Indian market as they are in most other markets of the world. Instead of clamouring for protection and lobbying against Chinese imports, it is more sensible to lobby for domestic reforms that will reduce production and operational costs, and make Indian exports more efficient and competitive.

As India struggles to analyse the pluses and minuses from the Chinese Premier's visit, it is clear that China wants to do business with India. Unresolved borders cannot and should not hold back two of the world's largest economies from exploiting mutual synergies. That is the message emanating from Premier Wen's visit. Will India play ball?

Ni hao: Indian calling China

The world's interest in learning Mandarin is soaring as the Chinese economy does the same. From April 2011 onwards students in CBSE schools will be introduced to Mandarin. Mandarin will be the 13th foreign language to be introduced in the curriculum. The popularization of the programme will face obstacles in implementation, reports The Financial Express.

As the Chinese economy soars, so does the world’s interest in Mandarin. India is the newest addition to the group of countries promoting Mandarin via schooling systems. CBSE has announced the introduction of Mandarin to its schools, starting April 2011, to acquaint young Indians with Chinese culture. Mandarin will be the 13th foreign language to be introduced in the curriculum, alongside French, German, Spanish, Arabic etc being taught in 4,000 schools across the country. Given China’s increasing weight in the world economy and that it is India’s largest trading partner, this step was in the offing. But its timing is nevertheless interesting.

...

However, Mandarin’s coming of age in India is still a while away, given the underlying challenges, one of which is the paucity of teachers. Another will be the script—while French and Spanish, the more popular foreign languages written are in the Roman script, students will have to learn a whole new script to be able to read and write Mandarin. But the biggest obstacle to Mandarin’s popularisation is the implementation of this programme. Only time will tell whether the government will be able to get it together in time or tardy implementation will be the reason we miss the party, yet again.

China and India need an ambitious agenda for engagement

Chinese President Wen Jiabao's will be visting India on 16-17, in the year when India and China will be celebrating the 60th anniversary of the establishment of diplomatic relationships, and both the countries have rediscovered each other. There are challenges as well as opoortunities. China is not only the neighbouring country of India, it is an emerging super power. Our borders are the most peaceful of all, though disputed, writes Nirupama Rao in a speech delivered to the Observer Research Foundation and republished in The Hindu.

This year saw India and China celebrating the 60th anniversary of the establishment of diplomatic relations. A couple of weeks from now, Premier Wen Jiabao will be in India and will participate in the closing ceremony of the Festival of China in India which will bring to a close the calendar of activities organised in both China and India to commemorate this occasion.

The six decades of the India-China relationship behind us have a record that is chequered. We became arbiters of our national destinies from the date of India's independence and China's liberation in the late 40s of the last century, inspiring many others in Asia and Africa to end colonialism and foreign domination. This was the time when India and China in a sense, rediscovered each other, understanding the potential of the synergy between two of the largest populated nations in the world on the global stage.

...

The leadership in both our countries understood the untenability of any sustained estrangement between us. The last three decades have been marked by well-intentioned efforts of exploration towards establishing the framework of a stable, peaceful, productive, and multi-sectoral relationship between India and China. Contradictions are sought to be managed, and our differences have not prevented an expanding bilateral engagement and building on congruence. There are elements of cooperation and competition that form the warp and weft of our relationship.

There are both challenges that the relationship confronts us with and also opportunities. As our Prime Minister has said, India and China will continue to grow, simultaneously, and our policies will have to cater to this emerging reality. For India, the situation is complex since China is not only our largest neighbour but also because China is today a major power in the world both from the traditional geo-political point of view and the more current geo-economic point of view.

...

China's rapid economic growth over the last three decades has been spectacular and riveting. It is now the second largest economy in the world with a GDP of roughly $5.5 trillion. China has begun to deal in the currency of global power, and its economic success is impacting its foreign, defence and security policies. The appellation of assertiveness is frequently applied to China's profile in global affairs today. The question that I am always asked is whether our relationship with China will be one dominated by increasing competition for influence and resources, as our economic needs grow.

...

It is true that divergences persist. We have a disputed border. There are legacies as well as lessons bequeathed to us by history. This is a complex problem and the cartographies that define national identity are internalised in the minds of people in both countries. At the same time, we are making a serious attempt at trying to arrive at a fair, reasonable and mutually acceptable solution to the boundary question as the recent 14th round of the Special Representatives talks will testify. The absence of a solution to the question is not due to lack of efforts but arises from the difficulty of the question.

What also needs to be appreciated is that the India-China boundary is one of the most peaceful of all borders. We have in place a well organised set of confidence building measures to ensure peace and tranquillity on the border.

...

Another issue of concern is the management of trans-border rivers. Many of the rivers nourishing the plains of Northern India and also areas in North-east India arise in the highlands of the Tibetan Autonomous Region and are a source of livelihood and sustenance for millions of our people.

...

There is, then, the question of the China-Pakistan relationship. India firmly believes that a stable and prosperous Pakistan is in India's interest, and we are not against Pakistan's relations with other countries. While I agree that relationships between countries are not zero-sum games, we do not hesitate to stress our genuine concerns regarding some aspects of the China-Pakistan relationship particularly when it comes to China's role in PoK, China's J&K policy and the Sino-Pak security and nuclear relationship. The need for mutual sensitivity to each other's concerns cannot be denied.

...

Our trade with China is growing faster than that with any other country and China is our largest trading partner in goods with trade likely to exceed US$ 60 billion this year. There is also serious discussion between the two countries on correcting the trade imbalance and we would like to see more Indian goods and services entering the Chinese market. Many Chinese companies are now well established in India and many Indian companies are also opening up in China. We in India have also worked to resolve hurdles that have sometimes been faced by Chinese companies to ensure a level playing field for all foreign investors.

...

The results of our policy of engagement are manifest in many areas and are not limited to bilateral trade and investment alone. Over 7,000 Indian students study in China, and the CBSE is set to introduce Chinese in the curriculum of schools from the next academic session. There is also an information gap that keeps our peoples from understanding each other better and which we need to bridge by concerted public diplomacy from both sides. There is much work to be done to improve perceptions within the media in both countries.

The global trend towards multi-polarity and a more even distribution of power has been accelerated by the recent global economic crisis. While the immediate financial aspects of the crisis may have been addressed, its structural causes in terms of global imbalances remain unsolved. This provides an opportunity to India and China to work together.

...

As India and China continue to pursue their interests, and so long as their overwhelming preoccupation remains their domestic transformation, and both understand that this goal requires a peaceful periphery, it is my firm conviction that the elements of competition in the bilateral relationship can be managed and the elements of congruence can be built upon. As our interests get progressively more complex, the costs of any withdrawal from engagement will rise. I believe this is a big relationship with the clear possibility of an ambitious agenda of mutual engagement that will be one of the most important bilateral equations of our new century. It is in our interest to view it in a more wide-angled and high definition manner than ever before.

Europe's crisis a win-win opportunity for China

The sovereign debt crisis of Europe has shaken the Euro, and exposed fissures in the European Union.Chinese demands for the lifting of an arms embargo have been publicly backed by Spain.There is massive public support for the euro. It is a smart political move as of the fact that China’s exchange rate policy is still vulnerable to international criticism, writes Pallavi Aiyar in Business Standard.

Excerpts:

"While Europe’s sovereign debt crisis may have shaken the euro and exposed fissures in the European Union, one country’s hand in the region has been strengthened: China’s. It has converted Europe’s crisis into an opportunity to extend Beijing’s clout in the region."

"But in June, only hours after credit agency Moody’s downgraded Greece’s credit rating to junk, it was China that held out a financial lifeline, in the form of a multibillion euro investment package. While signing the deal, Chinese vice premier Zhang Dejiang gave the eurozone’s weakest link a public vote of confidence, declaring Beijing’s belief in Athens’ ability to overcome its fiscal problems, an announcement that moved markets positively, following weeks of turmoil."

"At the time, Greek deputy prime minister Theodoros Pangalos praised China in an interview, echoing sentiments often expressed by African nations indebted to Beijing. “They are not like these Wall Street people, pushing financial investments on paper. "

"The Chinese deal in real things, in merchandise. And, they will help the real economy in Greece,” he said."

"It’s not only debt-laden southern European countries that find themselves beholden to Beijing. Even power house Germany’s continued economic buoyancy owes much to its exports to China. Jonathan Holslag, research fellow at the Brussels Institute of Contemporary China Studies, notes that Germany’s economic recovery over the past year is due in substantial part to its exports of cars and advanced machinery to China."

"Access to technology is also increasingly being built into deals struck by Chinese corporations. For example, the Greek package included an exchange of know-how between China's Huawei Technologies and OTE, the Greek telecom organisation."

"While the commercial interest behind companies capitalising on the European downturn is clear, reasons for the Chinese government’s “goodwill” gestures are murkier. Holslag believes Beijing is motivated by the desire to ward off creeping protectionism in Europe, thus ensuring its most important export market remains open. In July, when German chancellor Angela Merkel visited Beijing, Chinese Premier Wen Jiabao was explicit in making the connection."

"In return, Merkel made a joint statement with Wen, vowing to oppose protectionism in Europe. There are other pluses for Beijing from its increasing influence. Chinese demands for the lifting of an arms embargo have been already publicly backed by Spain. Holslag believes with Beijing’s new leverage with certain EU member-states, backing for this and other issues like the granting of market economy status to China will intensify."

"Economic clout can translate into greater political influence, a lesson the Chinese know well and apply in their diplomacy across the world. Europe’s economic woes have opened room for these techniques to be used within the EU."

"In sum, the region’s economic fragility has allowed the Chinese government to project itself as a benevolent supporter of the euro, even as it acquires strategic leverage and Chinese companies sniff profitable deals. The kind of win-win situation that Beijing is partial to."

Inside the minds of Indian and Chinese entrepreneurs

There is no dearth of commentary on economic comparison of India and China. A new study by the Legatum Institute says that Entrepreneurs in both the country are bullish about the economy. When most entrepreneurs in India start on their own, for being their own boss, Chinese entrepreneurs do it for money. Many Chinese owe their entrepreneurial spirit to the state, when such is not the case in India. Chinese entrepreneurs are more dependent on banks, when Indian are dependent on family resources, writes Ryan Streeter in The Wall Street Journal.

Excerpts:

"The past few years have seen no shortage of commentary about the comparative economic environments in China and India, where growth and the rise of enterprising classes have gone hand in hand. Yet we have very little data to help us understand how entrepreneurs in these countries think and what motivates their decisions and actions. A new survey of more than 4,000 entrepreneurs, business managers and aspiring entrepreneurs, conducted by YouGov and released today by the Legatum Institute, sheds light on the countries' respective enterprising classes—and raises some questions for policy makers and investors."

"Entrepreneurs in both countries share a high degree of bullishness. "

"Looking beyond the economic optimism, however, two different styles of entrepreneurship emerge. The differences start with why entrepreneurs launch businesses in the first place. Asked about their main motivation, the overwhelming majority of Indian entrepreneurs name "being my own boss," while the most popular response in China is earning more money. In this way, Indian entrepreneurs more closely resemble the Western model: American entrepreneurs were more likely to cite "owning my own company" than "building my wealth" as the main reason they launched a business, according to a Kauffman Foundation study last year."

"When asked about other factors inspiring their decision to start businesses, nearly half of Chinese entrepreneurs give answers related to the state's efforts to promote and manage enterprise. Compared to just 9% in India, 23% of Chinese entrepreneurs say what they learned in school or at the university prompted their decision, presumably a result of the government's strategy of using universities to promote entrepreneurship. Chinese business owners cite pro-business actions by the government or pro-business messages in the media (which in China are state-controlled) at three times the rate of their Indian peers."

"This difference in inspiration and motivation manifests itself in many ways. The relational Indian model of business start-ups is evident in enterprise financing, where 49% of business owners rely on family resources to start their enterprise, compared to only 25% in China. Chinese entrepreneurs are much more dependent on banks, with 49% taking out loans compared to 27% in India. Indian entrepreneurs use conventional financing through debt and investors at about half the rate of their Chinese peers. "

"In listing factors important for starting a business, Indian entrepreneurs place nearly as much value on internal personal qualities, such as creativity and the ability to take risks in the face of adversity, as they do access to finance. Access to information and knowledge, for instance, is more important to Chinese entrepreneurs than being creative. This suggests that Chinese entrepreneurs believe business success depends on external market conditions that can be known and manipulated, whereas Indian entrepreneurs regard success as the result of their internal ability to adapt to changing conditions."

"The survey results uncover an unfolding experiment on how best to foster business creation in developing countries. So far, our findings suggest entrepreneurship in India is marked by a kind of sustainability that is less evident in China. Because India's entrepreneurs have succeeded amid dysfunctional government and financial institutions by developing a kind of independent and experimental ingenuity, it stands to reason that the enterprising class would prosper even more were India to reduce barriers to business and clean up corruption. In China it is unclear what will happen if state efforts are no longer sufficient to entice and groom the entrepreneurs its economy needs. "

India looks to Chinese rice hybrid to raise productivity

This report titled "India looks to Chinese rice hybrid to raise productivity" was published in The Financial Express on July 11 2010.

The agriculture ministry plans to replicate the Chinese model for hybrid rice production in the eastern states. The ministry has proposed a task force on promotion of hybrid rice and will push for private sector participation in the development of the hybrid variety.

A team led by minister of state for agriculture K V Thomas visited China in this regard. The team has submitted its report and a set of recommendations to the agriculture minister Sharad Pawar. While charting out ways to bring green revolution to the eastern region, Pawar has asked his ministry officials to look into the Chinese model and replicate that.

In India, rice productivity is 3.3 tonne per hectare. China’s productivity is almost double and is at 6.6 tonne per hectare. China has been able to produce 200 million tonne rice annually from 30 million hectare (ha) while India produces 150 million tonn rice from 45 million hectare.

The ministry has noticed that almost 63% of Chinese land under rice cultivation produces hybrid variety, compared with only 3% in India.

"A task force on promotion of hybrid rice should be created at the national level for more aggressive promotion,” Pawar said. The task force, to be headed by an additional secretary, will hold periodic meetings with the eastern states and work out a blueprint for increasing the area under hybrid rice.

The task force will devise strategies to create clusters of villages adopting hybrid rice so that procurement centres are opened to provide marketing support to farmers. “If proper guidance and support is given to the farmers along with proper price and storage facilities then the situation will change substantially in two-three years,” he said.

His ministry is also looking at possible public-private-partnership in areas like development of hybrid seeds. “There are almost 3,000 seed companies in China. A lot of seed companies have also come in India. We will only have to ensure that the quality of the seed is maintained. We are trying to encourage the private sector to venture through public-private-partnership model,” he said.

Need to boost production to achieve food security: FM

Finance Minister Pranab Mukherjee on Saturday said that the government will enact a legislation to provide subsidised wheat and rice to poor, but to make it a success there is a need to boost production and strengthen delivery system.

"We are committed to ensure Food Security Act and to make successful, we need to produce more procure more and strengthen delivery mechanism for making accessible and affordable,” Mukherjee said. The UPA government has promised to enact a National Food Security Act, under which it promises to provide 25 kg of foodgrain every month at Rs 3 per kg to families below the poverty line. Mukherjee said there would be no dearth of funds for the sector.

Renminbi Revaluation Won't Trigger a Shopping Spree

Zhiwu Chen's article "Renminbi Revaluation Won't Trigger a Shopping Spree" was published on
YaleGlobal on 12th May 2010.

Here are a few excerpts:

Revaluation of the renminbi will simply result in a shift of manufacturing among emerging markets, leaving the US with a somewhat smaller trade deficit, higher prices for imported goods and higher interest rates, but not necessarily higher levels of employment. Neither is it likely to increase domestic Chinese consumer spending that the world wants to see. China’s domestic spending will rise only when the government releases its hold on the economy and households receive a larger share of GDP.

Even if the renminbi were to appreciate by 50 percent, raising Chinese labor costs to 10 times
less than those in the US, manufacturing would still not return to America.At most, US retailers
would source not from China but from other emerging economies. Revaluing the renminbi won’t affect America’s trade deficit or employment as wished for.

Reasons often mentioned for the challenges in boosting private consumption in China include people hanging on to their savings in the absence of an adequate social safety net and the lack of
sufficient financial products to insure against future uncertainty. Depressed interest rates for
bank deposits, a means of subsidizing the state sector, amount to a transfer of income out of
households, which also negatively affects private consumption. But more fundamentally, private
consumption has failed to grow in pace with China’s GDP, because the Chinese economy is still largely state-owned and because government taxation is, in the absence of functioning democratic institutions – taxation without representation – virtually unchecked.

State ownership is a major factor depressing private consumption growth in China, because it
prevents households from directly benefiting from land-value appreciation, enterprise profits and capital gains. One might think that state ownership benefits all and that the SOE profits and
state-asset appreciation serve to reduce or eliminate taxation on citizens’ income.

State ownership and control of resources in the past allowed China to industrialize fast. But now
state control is a fundamental obstacle to desired structural transformation: As it acts to depress China’s private-consumption growth, it is also partly responsible for the global imbalances. Therefore, while a revalued renminbi can superficially adjust the international trade structure, privatizing state-owned assets and greater say for taxpayers in government budgeting and fiscal policy can ignite a fundamental correction process in China that would also benefit the global economy.