Red Storm Rising

As the Asian Century unfolds, India must get its act together to prevent China from usurping the country’s future

Deng Xiaoping was given to one-liners. “Cross the river by feeling the pebbles,” China’s former premier famously said on the adoption of market reforms. But the analogy goes well with attempts to bridge the gulf between a belligerent China on the rise and a nail-chewing India on the lookout—and the pebbles are not smooth.

The 20th anniversary of China’s brutal suppression of the Tiananmen uprising may have kept democracy wonks occupied across the world last week. Yet, the relationship between China and India, as they emerge from their colonial past to reclaim their economic trajectories and prosperity, could well be the biggest story of the so-called ‘Asian Century’. It is a story of new global competition and old mutual suspicion, of economic growth yet diplomatic distance. Of dangerous unsettled borders and a potent arms race. It is a tale of international diplomacy trying to offset regional intrigues.

In other words, a new Great Game is playing out. It is apparent in China’s encirclement of India through military aid, diplomatic support and manoeuvres to gain port access in the South Asian region. It is visible in remote oil fields and bauxites mines in Africa, where both compete. It is palpable even in Silicon Valley, as India cedes cyberspace to a newly computer-savvy China. Signs can be seen even on Indian shopshelves, as China storms the market with low-priced factory products on the back of a mighty manufacturing machine and an artificially cheap currency.

What, really, is India’s counter plan?

Is there a China strategy at all?

These are worrying questions, and they demand hard answers. The thing is, China does not even consider India in the same league as itself. “India suffers from diplomatic myopia,” says Bharat Karnad, national security expert at Delhi think-tank Centre for Policy Research, “China is a nation which recognises only the language of power. After the Pokhran II nuclear blasts, we had a window of opportunity to come level with China. However, we were too timid. India must assess the complexity and scope of Chinese power. The Chinese compete with us on all levels and this has to be recognised.”

A recent example of that rivalry was the Nuclear Suppliers Group (NSG) waiver, where China tried till the very end to scupper India’s admission to the nuclear club. That its opposition was a surprise reveals complete complacency on India’s part. “We fell yet again for the verbal trap,” rues a diplomat who was in Vienna for the NSG deal, “The Chinese assurances to our leaders counted for nothing at the table.” Déjà vu 1962? As then, the reality now is sobering; it’s Kissingerian. Think ‘interests’. China has an interest in India’s isolation. It would give it command of the Asian Theatre. This new Great Game has four aspects: economic, military, diplomatic and bilateral relations, particularly the vexed border question. India needs to define its options and work out how to calibrate its moves on each.

The great leap ahead of India that China has taken is relatively recent. In the late 1970s, both countries were roughly at par—closed and in poverty. They had little integration with the global economy. Controls on capital, investment and trade characterised both their economic profiles. But by 1980, China had initiated tentative reforms, with legitimacy given to once-secret (and successful) private farming, and allowances made for market incentives in other sectors. Investment and exports zoomed, and the country’s economic emergence is now spoken of as a historic phenomenon. Never in the world have so many risen out of poverty so fast, ever.

With a 2008 GDP of $4.4 trillion, China is the world’s third largest economy, and the fastest growing as well. With an investment rate of an annual 40 per cent of GDP, its growth has sizzled in double digits for two decades or more (dipping to high single digits only these past two years). Foreign direct investment has played a stellar role, a good $90 billion in 2008. And if those gleaming cities, superhighways, maglev trains and other infrastructural marvels aren’t enough to boast of, China holds the world’s largest cache of foreign currency reserves at $2 trillion.

India’s $1.1 trillion economy is modest in comparison on every count. And with the country’s GDP growth panting to get anywhere close, global analysts such as Parag Khanna are already saying the race is over. China has pulled itself far ahead, with no hope that India can catch up. To put this in perspective, China’s exports alone at $1.4 trillion in 2008 are larger than India’s GDP.

Optimists believe that China’s success in goods exports to the West, which has spawned regional trade linkages within Asia, could boost India’s own trade prospects. True, Sino-India trade has risen from just $2 billion in 2000 to over $35 billion in 2007. Yet, the terms of trade are distinctly neo-colonial, with India shipping raw materials such as iron ore, minerals, cotton and other commodities, and getting value-added products such as machinery and appliances. “The devil is in the details,” says Ajay Sahai, director general of the Federation of Indian Export Organisations, “Sino-Indian trade is skewed in China’s favour. In the first nine months of 2008, we had a trade deficit with China to the order of $9 billion.”

If this were a simple matter of comparative advantage, each country delivering what it is relatively better at, it may still be okay. But Chinese policy distorts economics. It is known to deploy State resources towards export dominance, which gives its export factories a cost structure that’s hard to match. Take its subsidy regime. “China is a threat because their legendary productivity has an opaque origin,” says Rafeeque Ahmed, managing director of Farida, a Rs 580 crore leather export house, “The Chinese currency is still undervalued, its labour laws are not as restrictive as in India, and they have access to cheap capital as State-owned and quasi-State-owned enterprises there get loan write-offs as a matter of course.”

India’s commodity exports, meanwhile, “may be a short-term gain but it will result in long-term dependence on China”, warns Sahai. What’s worse, India is falling behind China in the global race to secure oil, gas and mineral assets overseas to fuel the blistering economic growth. Nowhere is this more in play than Africa. China does $40 billion of trade with the continent, most of it buying raw materials and fossil fuels. In Sudan, India and China have a rare partnership in the Greater Nile Oil Project, an oil venture in which China has 40 per cent stake and India’s own ONGC Videsh has 25 per cent. However, China has 4,000 troops and support infrastructure on the ground, with no qualms about exercising its diplomatic clout in shielding the Sudanese regime (and its interests) from Western pressure over the Darfur crisis. China’s voice has the backing of a gilt-edged fact: it is the US government’s single largest creditor. When Chinese officials discuss the dollar’s value, the world listens.

That’s a measure of power projection, a concept alien to Indian diplomatic circles. Money talks. “India lacks the ready availability of domestic and foreign capital which is available in China,” says Barry Bosworth, an expert of Sino-Indian economic relations at the Brookings Institution, a Washington DC think-tank, “It moves very slowly to strengthen infrastructure, and lags behind in creating opportunities for low-skilled labour. Both services and those parts of manufacturing where India does well tend to rely on high-skilled labour inputs. India needs to expand financial resources. Longer term, there is a need to fix a dysfunctional public education system.”

In that, Bosworth touches upon India’s great big hope: education. Free democracies tend to generate intellectual capital in large numbers, and so industries that use this as an input ought to spell an advantage for India. Yet, even in infotech exports, China is showing signs of success. It exports only $1 billion of the stuff, compared to India’s $46 billion odd, but a 2007 report on the Chinese challenge by Nasscom says, ‘IT in China is witnessing growth. Leading Chinese firms have reported above average growth rates of 40-50 per cent over the past few years. Venture capital investors have also announced significant investments demonstrating their conviction in the China IT-BPO story. Chinese firms are beginning to receive a steady stream of business enquiries from Western customers.’ Clearly, India needs to get beyond the rhetoric on education.

As flashpoints go, the Sino-Indian border is potentially the most dangerous in the world. It’s that one dispute between the two countries that could turn volatile at less than a moment’s notice. India and China have held several rounds of high-level border talks, but nothing has come of it. The trouble can be traced to the 1962 war, in which India got a hiding from China’s People’s Liberation Army (PLA). The humiliation has left India scared. So much so that the Government commissioned Henderson-Brooks report on the war is still a State secret. All that’s known is what it did to Jawaharlal Nehru’s earlier ‘Hindi Chini Bhai Bhai’ policy—made it a laughing stock.

The current scenario? India claims 10,000 sq km in the northern sector in the region of Aksai Chin, which is under Chinese control. On its part, China lays claim to all of Arunachal Pradesh in the eastern sector (apart from some nooks in the mid sector facing Uttarakhand). For China, Arunachal is ‘Southern Tibet’, a term increasingly used by Chinese foreign policy think-tanks. China not only refuses to recognise the McMahon Line, a border drawn by the British, it has made some 30 incursions into Indian territory here. It also flouts border decorum by refusing to authenticate the ground positions of its army stationed in the sector.

India had hoped that recognising Tibet as an ‘autonomous part of China’, during former Prime Minister AB Vajpayee’s 2003 visit to Beijing, would cool relations down. If anything, China’s position has hardened. “China clearly thinks it is in a position of advantage,” says an Indian diplomat, “Its economic growth and military modernisation, as well as the issue with Taiwan, call for buying time on the India border question. This is exactly what it is doing.”

In 1962, China had overrun all of Arunachal before it withdrew its forces. India fears a repeat. “India is in a humiliating position,” says Karnad, “The more we postpone the border issue, the more ground we lose. Time is on China’s side.” As a pre-emptive measure, India has a massive development programme underway in Arunachal to minimise any local disaffection. “Make no mistake,” says a Planning Commission official, “This is a mini Marshall Plan, a project to make Arunachal modern.” Besides turning the state into a hydropower major, it could rouse local support and thus give India a bigger bargaining chip with China in settling the dispute. A comprehensive deal, though, may involve the forfeiture of Aksai Chin. What India wouldn’t want is a test of force, since jaw-jaw is always better than war-war, though it would be foolish not to be prepared even for such an eventuality.

The real asymmetry in the Sino-Indian relationship is the military one. In 2008, China boosted its defence budget by nearly 20 per cent to $57 billion, more than double of India’s. And this is just over 1 per cent of the bigger country’s GDP, which leaves room for further increases. From India’s perspective, three aspects of the Chinese military upgradation are of particular concern. One, the beefing up of the PLA’s rapid action forces. Two, the modernisation of the PLA Navy. And three, by far the scariest in this mad, mad, mad world, the deployment of its latest nuclear missiles.

Backed by new technology and railway supply lines, China has scaled up the presence of its rapid action special forces in Tibet that face India (under the PLA’s 13th Army in the Chongdu region and augmented by the 52nd Brigade in nearby Linzi). By Indian intelligence estimates, these forces include tank brigades and rapid airlift capabilities as well as paratroopers. “The Chinese rapid action forces capacity has been significantly beefed up,” says General VP Malik, former Chief of Army Staff, “It is a clear immediate challenge for our defence planners.”

An equally pressing worry—the PLA Navy’s designs in the Indian Ocean. Its new fleet of Russian destroyers and rejigged aircraft carriers may be seen as routine additions. But its new Jin-class nuclear submarines carry nuclear weapons, assuring it deterrent sea patrol capability for the first time. With its JL2 missiles, which can be shot off from under the sea, it can nuke any Subcontinental target.

What also makes India hot around the collar is China’s plan for a missile base on Hainan Island, which would bring both the Pacific and Indian Ocean within strike range. Nuclear tipped or not, Chinese missiles have reached quite another quantum level. When China blasted a satellite to smithereens in mid-January 2007, for example, it was the US and Russia that sat up—the only two countries that had achieved such precision targeting in space. In the context of America’s ‘Star Wars’ vision and more recent National Missile Defense shield, it signalled a new order of deterrence by China.

The latest in its arsenal is the Dong Feng 31, an intercontinental ballistic missile with a range of 8,000 km, a solid-fueled, three-stage weapon that can hit targets in the US. For India, an even greater concern is the Dong Feng 21, stationed in Delingha near Tibet, that can strike anywhere in India given its 2,500 km range.

India, in contrast, has stumbled in its missile programme. While its test of the Agni III (range: 3,500 km) was a success, it is far from deployment stage. What’s more, Indian missiles are designed for kilotonne payloads, while Chinese rockets can carry warheads of up to one megatonne, making the Agni look like a firecracker. To compound matters, military cooperation between China and Pakistan, even Bangladesh, is getting thicker. Myanmar is another question, and Nepal is slipping into Chinese influence. In all, India could find China running rings around it in South Asia. But then, in risk doth lie opportunity…

About The Author

Ninad D. Sheth