Tuesday, August 11, 2020

India’s China choice

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The border clash between China and India on 15 June in the harsh Himalayan terrain of the Galwan Valley resulted in deaths, including at least 20 Indian soldiers, and casualties on both sides. Clashes along the disputed border had become more common in the last few years but this was the most serious conflict since 1962.

Leaders on both sides have avoided escalation but there is little ballast in the relationship that gives confidence in calming tensions. The Himalayas that separate the two countries are a big buffer, with the terrain making it difficult to drive tanks over or assemble large forces, as Hugh White reminds us. But that won’t stop the relationship from deteriorating further.

This conflict may mark a critical turning point in Sino-Indian relations. It may further drive the world’s two most populous countries apart or it could be a catalyst for a more constructive future.

With both countries dealing with the health and economic crises from COVID-19, the climate is ripe for stoking nationalism and raising the tensions. Prime Minister Modi has walked India back from the brink but is still under huge pressure to retaliate somehow.

For India to achieve the vision of its rightful place in a multipolar world, Delhi will have to find a way to accommodate China and this border clash may yet force the action that’s needed.

The presumption of hostility towards China casts the Chinese economy as a massive threat to India’s. It is five times the size of the Indian economy and as India’s trade deficit continues to grow, much of it appears to derive from China’s competitive power. The real cause, of course, is India’s appetite for foreign savings to finance growth. But trade deficits, including that with China, have become in the new Indian nationalist conception — articulated after Modi and his Bharatiya Janata Party’s electoral victory in May that brought in a rare absolute majority — the  central reason for the shift back to a ‘self-reliant’ India after three decades of gradual opening up.

The Indian economy is almost the same size as the 10 ASEAN economies combined and, although the Southeast Asian grouping is far from acting in unison, their economies have embraced and benefited from China’s rise. India appears cowed by it. Yet to be internationally competitive, Indian firms need to compete, not to be sheltered from embracing integration with the international economy including that of China.

In this week’s lead essay, Suman Bery and Alicia Garcia-Herrero argue that ‘India has the scale and sophistication to recalibrate its economic relationship with China such that deeper interdependence reduces, rather than increases, New Delhi’s economic vulnerability’.

The path to power, prosperity and security is not economic retreat and ‘economic retaliation’ that costs the Indian people and makes them poorer and India smaller. It requires proactive engagement, alongside Australia, Japan, Vietnam and the rest of Southeast Asia with China, not isolation from it.

The Regional Comprehensive Economic Partnership (RCEP) agreement is politically radioactive in India, just as the Trans-Pacific Partnership (TPP) was for many countries in the East Asia and Pacific, and ultimately for its central proponent, the United States itself. Many in India believe that RCEP is China-led and signing up to it will decimate Indian industry. But RCEP is an Indonesian and ASEAN-led agreement that was created to manage Southeast Asia’s relations with their large neighbouring economic powers.

The conception of RCEP as a China agenda is a totally incorrect perception of its origins and strategic purpose — RCEP is and was from the beginning an ASEAN agenda for dealing with China and the regional economic powers in a multilateral setting.

It was political pressure, including riots, that forced Modi to walk away from the deal in Bangkok last November at the 11th hour after his negotiators had done pretty much all the hard work and the agreement was there for the taking.

Retreat from RCEP due to fear of the Chinese economy is a missed opportunity. Failure to engage in RCEP foregoes the opportunity to leverage regional weight in economic dealings with China and the opportunity to balance and engage with China with the support of ASEAN, Japan, China, Korea, Australia and New Zealand.

RCEP or no RCEP, India still has to deal with China. Without RCEP, India will have to deal with China alone, bilaterally. In asymmetric bilateral economic dealings, the smaller power, as for…

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