Is China thinking of abandoning India as a regional economic partner? Defending China as a strong promoter of an open global order, Chinese President Xi Jinping in his speech at the recently concluded Belt and Road Forum (BRF) in Beijing stressed about upholding a multilateral trading regime and building free trade areas. It needs to be seen how inclusive Beijing will be in promoting this, given the substantial differences it has on the issue with neighbouring India.
The Chinese perception of India’s participation in the regional economic integration process, sponsored mainly by Beijing, has always been circumspect, particularly given that China has been attempting to stymie India’s advances at every step of the way. India has not endorsed China’s Silk Road initiative.
Indications are that China would prefer to abandon India in the Regional Comprehensive Economic Partnership (RCEP) negotiation, the biggest free trade bloc in the Asia-Pacific region currently, and to go ahead about free-trade negotiations regionally. An indicator of this was clearly visible even before the Beijing BRF meeting in Chinese media, with Global Times on May 4, reporting, titled “China could work on RCEP deal without India.”
As regards the RCEP negotiation, non-transparency in the negotiation criteria is one issue that troubles India. A majority of RCEP members want zero duties on most traded products, with a few exceptions on minor products, which India does not find to be in its own interest.
There is also the factor of the non-compatibility of Asean members with Asean’s dialogue partners on the negotiation criteria on matters relating to trade, services and investment. Apart from the differences over tariff reductions, there are other potential matters that discourage India, such as services liberalisation and lack of trade agreements among many of Asean’s trade partners.
The absence of a free trade agreement (FTA) between the two remains a bottleneck. India is reluctant to open its domestic market to China for fear of its markets getting flooded with cheap Chinese goods to the detriment of its domestic industry. Reduction of import duties under RCEP will squeeze out the less competitive Indian companies.
In fact, China has ignored addressing trade imbalance which in the last few years has widened in favour of China – from $48.48 billion in fiscal year 2014-15 to $52.68 billion in 2015-16. Mutual investment flows are another matter of disquiet between the two countries. Economic interdependence, particularly in the context of FTAs, is a subject matter that has not been earnestly discussed between China and India.
The Chile dialogue, held in March this year, expressed hopes for the sustenance of the Trans-Pacific Partnership (TPP) without the US, but the game seems to be virtually up for TPP.
There is also a new seriousness among the Asean members to conclude the RCEP negotiation expeditiously, since this will help them immensely to revive the economic conditions in the region. The current push for a regional trading mechanism is because most of the countries in the Asia-Pacific region are looking for a trading deal which will help them balance the protectionist tendencies taking hold in the US.
For Beijing, the RCEP was a strategic proposition from the beginning. Barring India, which was never in consideration for TPP, most of the Asean’s important dialogue partners, particularly Japan and Australia, announced becoming a part of both TPP and RCEP negotiations. So did Vietnam and Malaysia.
This made Beijing initially uncertain over several trading matters, and importantly, on how to strike a balance between the South China Sea (SCS) disputes and to forge unity among the Asean countries to negotiate the RCEP dealings. But now, Beijing has consolidated its control over the SCS disputes fairly well after the July 12, 2016 Permanent Court of Arbitrations (PCA) verdict in favour of Philippines. Importantly, China has managed to forge a level of economic unity among the Asean members while dividing them politically on maritime disputes.
Several developments indicate Chinese unilateralism in the Asia-Pacific region to which India must take a serious note of. First, soon after the presidential candidate Trump’s declaration during his election campaign in the US that his administration might withdraw from the TPP and China gradually starting to reassess how the RCEP negotiation could be expedited.
Multi-modal connectivity
Xi Jinping’s emphasis on an “early conclusion” of RCEP negotiations at the Apec CEO summit in Lima, Peru, in November 2016 was a clear reference to this. Second, China did not clearly visualise initially establishing a connection between RCEP and Xi Jinping’s pet Belt and Road Initiative.
Today, after the recently concluded Silk Road Forum (SRF), China is in a much better position to articulate and convince its Asean partners of the merits of multi-modal connectivity and regional economic integration. Third, Beijing today stresses more intently on the prospects of the Free Trade Area of the Asia-Pacific (FTAAP) thrusting on the RCEP.
This was also seen at the Beijing BRF summit. After the US withdrawal from the TPP, China thinks of emerging as an alternative economic power to the US in the broader Asia-Pacific as well as Pacific Alliance network. A corollary of this is noticed in China’s attendance in Chile’s high-level meeting in March.
For India, its political non-endorsement of the BRI might prompt larger consequences, including Chinese negligence of India’s interests in RCEP negotiation. China had not officially announced BRI when the RCEP was formally conceptualised. The TPP, in Beijing’s perception, was always an American strategy, connected to the American “pivot to Asia” strategy, which was an attempt to contain China.
With the ill-fated TPP without the US, the RCEP today offers China a much-needed leadership platform to mould the world political chessboard and reshape the rules of regional and global trading to suit its ambitions. Beijing’s BRF summit furthered about China’s unilateral approach on regional economic integration. The canvas of the RCEP, being very much limited to an East Asian context, gives China a better leadership role in Asia-Pacific, which India cannot afford to ignore.
(The writer is Research Fellow and Head, East Asia Centre, Institute for Defence Studies and Analyses, New Delhi)