India-China ties at a crossroads as security, economic pressures clash

After more than four years of an armed stalemate on the disputed borders in Ladakh, winds of change are blowing in India-China relations, triggered both by domestic and external stimuli. The security aspect is finding itself subjected to commercial and diplomatic pressures.

External Affairs Minister S Jaishankar and National Security Adviser Ajit Doval have separately met with China’s Foreign Minister Wang Yi at multilateral fora at Astana, Vientiane and St Petersburg in the last few weeks. While both sides expressed their respective positions for improving relations, Russia’s mediatory role between them is a significant development.

Mounting economic pressure, too, seems to be influencing thinking on the China question. In the annual pre-Budget Economic Survey, presented in July this time, the government’s Chief Economic Adviser V Anantha Nageswaran proposed promoting foreign direct investment (FDI) from China, instead of further increasing trade that has skewed the balance in favour of China. However, Commerce Minister Piyush Goyal denied any change in the government’s policies in this regard. Nevertheless, the government approved entry of Shenzhen-based Luxshare Precision, Bhagwati Products (Micromax) and Huaqin Technology in electronics manufacturing. There is also the announcement of resumption of direct flights between the two countries, which had been stopped after the Galwan clashes.

The bilateral relations template has been security-dominated. Two days after the Galwan border clashes in June 2020, Jaishankar had laid down the line that “peace and tranquillity on the borders is essential” for re-commencement of bilateral relations. This line became a “whole-of-government” approach that Home, Defence, Finance and others have followed so far.

However, despite concerted efforts, it has not become a “whole-of-society” approach -- the business communities stepped up importing large amounts of goods from China, and India’s big industrial houses wanted to import “disciplined” workers from China.

China began working on its ancient dictum “shangren wu zuguo” (businessmen have no motherland) by enticing chambers of commerce, media and think-tanks in India. As a result, China became India’s largest trading partner last year, with $118 billion in bilateral trade, with over $85 billion in trade surplus.

Cumulatively, China has earned about $1.6 trillion in trade surpluses from India in the last decade and a half, but it is unwilling to invest even a small percentage of this in India. Indian exporters face non-tariff barriers and other restrictions in the China market, despite Beijing’s WTO commitments. China’s investments in India are miniscule -- about $8 billion, coming from a $18 trillion economy.

China is also under pressure. Its continuing economic problems straddling the real-estate sector, local governments’ debt, decline in investments, increasing urban unemployment, and stagnating domestic consumption, coupled with Western trade restrictions are a major concern. Tagging with a high-growth area and a bourgeoning consumer base in India could elevate China’s economy. However, China’s military pressure on the civil leadership is intact, and it is unwilling to concede to the Indian demand for “disengagement and de-escalation in all friction points” on the border, which the two defence ministries have announced.

For India to become the third-largest economy, there is an urge to surpass the current $70 billion in inward investment, to more than a hundred billion, in addition to strengthening the recent interest in the electronics sector. Global uncertainties caused by the Russia-Ukraine and Israel-Palestine conflicts as well as technological disruptions need to be overcome, and exports and investments enhanced.

The lopsided equation between security concerns and commercial considerations in the bilateral relations is seen in the fact that in recent times, China has upped the ante on the disputed territories with India, as it has with other countries ever since the 2012 directive that “core interests are more important than developmental interests”. The arrangement of “managing” the borders, arrived at during the 1988 visit of Rajiv Gandhi to China, had lasted more or less till the Chinese broke them at Doklam in 2017 and Galwan in 2020.

The key difference between the Indian and Chinese positions for the past four years has been that while New Delhi has wanted “peace and tranquillity” to prevail on the borders for the restoration of bilateral relations, China has been insisting that both sides move away from focusing on the territorial dispute to building economic, political and other relations, without vacating the occupied areas in the disputed region.

For India, the current pressures at the domestic and external sources are ominous. However, the onus of untying the Galwan knot is in China’s court. Offering trade and minor investment lollypops will not resolve the structural cleavages in India-China relations. The situation requires a more mature and comprehensive approach by China, which it is unwilling to concede due to pressure from its military and Beijing’s global ambitions. India, then, should not lower its guard.