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Indo-Chinese relations -- Towards cooperation, or competition?

For China and India, Asia's largest emerging economies, forging closer economic and political links hinges on settling the long-standing border dispute. But is China interested, asks S. Sethuraman

Towards cooperation, or competition?

THE TWO Asian giants, China and India, with one-third of the world population, are set to enter the league of the most powerful economies within the next two to three decades, even if their per capita incomes will remain well below those of the developed nations.

Their output would have expanded by not less than 300-400 per cent, with their combined share of world trade anywhere between 10 and 15 per cent. This is no doubt subject to the two countries sustaining high rates of growth of 8-10 per cent per annum in conditions of a supportive external environment.

The world economy itself should be broadly on an even course, notwithstanding temporary setbacks, financial crises, and environmental and other hazards, so as to provide the growth impulses for countries well poised to take advantage of the global market . Both China and India are now reconciled to globalisation and are fully prepared to honour their obligations under the multilateral trading and international monetary systems.

What are the prospects for Asia's two largest emerging economies embarking on a path of cooperation in building a new international order based on equity with assured progress for all nations? What are the constraints -- internal and external -- for such cooperation?

Border conflict

The second half of the 20th century began with India becoming independent and later a sovereign democratic republic, while China emerged out of civil wars with the Communists in control proclaiming the People's Republic of China. India was among the firs t to accord diplomatic recognition to the New China, sign an agreement (1954) embodying the doctrine of Panchsheel (five principles of peaceful co-existence) in international relations, and to support vigorously China's admission to the UN.

But the Hindi-Chini bhai bhai of the early 1950s evaporated in no time as Communist China activated its borders (both the notional McMohan Line and the ill-defined stretches ``where not a blade of grass grows''), harbouring suspicion against India in the wake of the Tibetan uprisings and the Dalai Lama's escape, and receiving asylum in India. And, finally, the border war of 1962 froze Sino-Indian relations in a time warp.

India's initiatives since the mid-1980s, with a visit to Beijing by Rajiv Gandhi to thaw out bilateral relations -- economic and political -- have continued but with little headway in resolving the border dispute or ushering in a new era of mutual confid ence, trust and all-round cooperation.The President, Mr. K. R. Narayanan's visit to China, soon after the 50th anniversary of the establishment of diplomatic relations between the two countries, was expected to impart a new momentum to the ongoing discus sions in joint working groups to address the 40-year-old border problem. While Mr. Narayanan emphasised that the border issue should not be left to an ``indeterminate future'', China maintains its traditional plea for ``time and patience'' for dealing wi th a ``complicated'' problem -- left behind by history -- and arriving at a settlement based on mutual understanding and compromise.

Sino-Pak axis

Sino-Indian relations have to be viewed not only in a regional or Asian context but also in the wider emerging international environment. Despite its commitment to non-proliferation, China has long been assisting Pakistan in developing its nuclear and mi ssile capabilities, and has rejected American concerns over the breach of export controls. It tells India that the assistance to Pakistan is not directed against any country. China had denounced India's nuclear tests in 1998 and wants it to give up weapo nisation and sign the CTBT.

China has also viewed with misgivings the qualitative change in Indo-American relations during the US President, Mr. Bill Clinton's visit in March. However much it may disclaim hegemonic ambitions, China would certainly not like India to contend for a ma jor role in Asia -- political or economic -- which would in any way impinge on its authority.

So long as the border issue remains unresolved, and there can be no military solutions between two nuclear powers, it is to China's distinct advantage, even if the two countries proceed to develop cooperation through expanded trade and technology flows a nd in international fora. Nor has China come out strongly against international terrorism, thereby giving comfort to Pakistan which provides the base for terrorist groups in South Asia sending out armed militants into the Kashmir Valley.

Global diplomacy

China has been forging ahead of India in building relations with the rest of the world, with its inherent strength acknowledged by the US and major industrial nations and large parts of the developing world.

Given China's military might and growing economic clout, the US has been following a policy of engagement -- giving up its `containment' theory of the earlier decades -- both in the interest of peace and security in Asia, where it has a strong military p resence, and to tap the potential of a vast market opening up steadily.

Next only to Japan, the No. 2 economic superpower, China accounts for the largest output in Asia and is part of ASEAN+3, the most powerful grouping in East Asia, which includes Japan and South Korea.

China is also in the Asia Pacific Economic Forum (APEC), which brings together North America, Asia and the Pacific for a free trade area by 2020. Developments in East and South-East Asia point to the evolution of an East Asian free trade grouping, which would have a tremendous impact on world trade. An Asian Monetary Fund, proposed by Japan, is widely supported in the region. Once in place, both developments would tend to reduce the power and influence that the US and Europe have enjoyed in Asia. India does not figure in any of these groupings.

WTO status

The impending admission of China to the World Trade Organisation (WTO), ardently supported by the US, which concluded a deal with Beijing in November 1999 for greater market access at lower tariffs, will considerably enhance China's importance and facili tate its integration with the world trading system. As the Singapore leader, Mr. Lee Kuan Yew, said recently, China's entry into the WTO will would have ``profound economic and geo-political implications for China and the world''. It will make China one of the most important players in the global exchange of goods, services, capital and talent in the 21st century.

China has promised to fulfil the onerous obligations which WTO membership entails, even if it meant going through a period of painful adjustments. The Clinton Administration has been trying to persuade the Congress to vote for grant of `permanent normal trading status' for China, which has agreed to bring down its tariffs from 24 per cent to 9 per cent by 2005 and eliminate licensing and quotas. China has enacted legislation to protect intellectual property rights, but is yet to clean up scores of domes tic laws and make institutional reforms, required to remain in conformity with WTO obligations.

China is currently among the world's 10 largest exporters. Its shipment of goods to the US alone is worth around $60 billions -- more than one-and-a-half times India's total exports -- and has a trade surplus of some $40 billions. China is strong in labo ur-intensive manufactured products, which account for 87 per cent of its exports, against India's 74 per cent. It would pose a challenge to India's export ambitions in textiles and other manufactured products in the coming decade.

China's modernisation

Ahead of India, China began transforming its economy from 1978 when the then supremo, Deng Xiaoping, launched the modernisation programme and proclaimed the transition from total state control to ``Socialism with Chinese characteristics''. The explosive growth rates of the first 15 years saw a four-fold expansion of the economy. Already among the ``Big Five'' (permanent members of the UN Security Council), China began commanding international attention not only as an economic powerhouse in Asia but also a world power. India launched its liberalisation and structural reforms drive in 1991, and by the end of the decade, it was also reckoned as a growing regional power.

China's growth rate averaged 10-11 per cent between 1980 and 1998 against India's 5.8 per cent in the 1980s and 6.1 per cent in the 1990s. By 1998, China's per capita income had risen to $750 against India's $440. Its exports have been growing at 12 per cent in volume and 17 per cent in value and exceeded $180 billions, with a current account surplus of $30 billions. Its international reserves of $152 billions is surpassed only by Japan (see Tables 1, 2 and 3). China has been the largest recipient of fo reign direct investment (FDI) among the developing countries, with annual inflows at $40-45 billions since 1995. The boom in exports and FDI flows has helped China build its reserves year after year.

India has, however, taken long to realise the importance of exports for growth and employment. It is now trying to adopt the Chinese model of special economic zones. While India's population is projected to overtake China's in the next four decades, it w ill still trail behind its giant neighbour in economic performance.

Path ahead

Growth projections for China and India underline the many challenges both have to overcome in sustaining high growth rates and accelerating the reform process without social disruptions. Unlike China's authoritarian regime, India's democratic machinery m oves slowly, and broad political consensus is not easily achievable for essential reforms.

The prospects of India and China forging closer links for common causes will depend on China's willingness to settle the border dispute speedily and become even-handed in relations with its South Asian neighbours. As long as the border dispute persists, normalisation of relations becomes difficult. And India cannot give up its pursuit of a nuclear deterrent in the face of proliferation of destructive weapons in its neighbourhood.

For Asia's two large economies, cooperation and complementarity should be the principal objectives. Their coming together to advance peace and stability and strive for the establishment of an equitable economic order will have a profound impact on the wo rld as a whole. Will they grasp the nettle and fashion the future?

(The author is former Chief News Editor of PTI, New Delhi.)