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2nd Prize winning Entry – Essay Competition conducted by C3S on "Sino-Indian Economic Rel

C3S Paper No.2088

2nd Prize Essay


Lobzang Dorji , Pondicherry University

The ongoing debate on India – China relations among the academia has raised a series of issues including the future prospective and the major challenges threatening the bilateral relationships. The past six decades of India- China relationships have witnessed more of mutual mistrust and suspicion than friendly atmosphere. Over the years it has gone beyond proportion of mutual mistrust and suspicion. The challenge has always been to bridge the differences of opinion from both sides and reach to a common understanding on a number of sensitive issues including Sino-Indian border issues. At the same time, one should not come to the conclusion that both India and China have always been at loggerheads. A series of serious attempts have been made by both India and China to bridge the differences more particularly on the border issue. India and China relations are expanding and deepening despite several divergences on many pertinent issues impacting the bilateral relations. The deepening of relations was reflected when the two countries established the Strategic and Cooperative Partnership for Peace and Prosperity in 2005 and also signed A Shared Vision for 21st Century in 2008. Undoubtedly, India and China have emerged as the two rapidly growing economies and their bilateral relationship to a greater extent has assumed global and strategic relevance. It would be important to introspect India – China experience in the past and then explore the mechanisms by which the bilateral cooperation can take a robust shape. There is certainly a very important element guiding India-China relations and that is the growing shared interests on a number of issues including trade and commerce. China and India have become important trade partners. This paper aggregates the development of Sino-Indian economic relations from 1992 onwards (resumption of border trade after the 1962 war), covering patterns of trade, investment, comparative assessment of strengths and convergences therein, and the shifts in policy focus required, among other factors, to improve the health of this relationship. It would identify the problem areas as well as the future avenues for both countries to redress the current imbalances in the bilateral trade patterns as both countries move towards bigger goals in the future.

It must be reiterated here that India recognized China immediately after it came into existence as People’s Republic of China in 1949. After establishing diplomatic relationships, both India and China shared a number of common concerns and challenges confronting their relationships. Both the countries, India and China had also reached to a common understanding on number of major international issues. The signing of Panchsheel Agreement in 1954 was a move toward achieving the confidence but somehow this confidence did not last long. The Preamble of the Agreement reflected the growing consensus between the two countries. India accepted Tibet as part of China and also relinquished the British responsibilities and obligations in Tibet through the Panchsheel Agreement. The bonhomie created a very positive atmosphere and it paved the way for the then Chinese Premier Chou En-lai to visit India thrice during the period 1954-1957. The Prime Minister of India, Jawaharlal Nehru visited only once in October 1954. Nehru’s visit to China was a landmark event because China accorded a warm and red carpet welcome. The euphoria and optimism created for the future of India-China relations was unprecedented. However, such euphoria and optimism were definitely short lived.

 India and China perhaps are the only countries in the world, which have a legacy of ancient culture and civilizations. Both also share a similar heritage of colonization. Both are two most populous countries in the world. India and China are still underdeveloped Asian countries. Despite a number of similarities, both have many times found themselves at different poles especially on bilateral contentious issues. There have, however, always been cooperative attempts on a number of sectors other than contentious sectors. The past 60 years of India- China relations have obviously signaled that both the countries have been seeking mutually acceptable solutions to the main contention relating to boundary issue. It is also generally believed that both countries never allowed the differences to come on their way of bilateral cooperation and engagement.

The major challenge confronting India-China relations has been to build mutual trust and confidence. The trust deficit created by both the sides has decimated the robustness of bilateral relationships. The element of trust is an essential component in forging a sustained bilateral cooperation. Somehow, the lack of trust and confidence between the two countries created lots of misunderstanding on a number of bilateral issues. Despite the fact that India was one of the first few countries, which recognized the People’s Republic of China, the bilateral relationship saw a number of downs than ups. The history of initial years of India-China relations more particularly during 1949 – 1958 depicts an era of friendliness. Both India and China were able to reach to a consensus and signed the Panchsheel Agreement, which basically dealt with Trade and Intercourse between India and Tibet region of China in Beijing. Panchsheel became the guiding principles of India-China bilateral relationship. Zhou Enlai’s trip to India in June 1954 was a symbolic messaging about China’s intent and philosophy. It was historic in the sense that a communist head of government was making a peacetime visit to a non-communist state.

 There are a number of issues on which these countries have been cooperating, and there is a strategic reason behind this collaboration. For a long time, both countries were worried about American supremacy and how second tier countries like themselves could work together to balance American power. More recently, these countries have had to coordinate their actions on a number of global issues. Most salient are, of course, the climate change negotiations in Copenhagen and the Doha trade negotiations, where one led and the other followed and, as a result, the negotiations collapsed. Western countries have categorically blamed India and China for the collapse of these negotiations. It is evident that these countries can coordinate on global issues, and both see a larger reality that the Western-dominated global economic order needs to be challenged by emerging powers, especially India and China. The recent global financial crisis has prompted demand for the restructuring of global economic institutions, and China and India have taken the International Monetary Fund (IMF) and the World Bank to task in order to gain a greater role. The two states are also “sovereignty hawks” and have opposed military interventions led by Western states.

As modern India and China came into being (post-1947 and -1949, respectively), both countries had similar conditions, namely, low incomes, large rural populations, decades of self-imposed economic isolation and a high degree of central control . What differentiated the two was that China’s agrarian reforms freed up labour as a vital low-cost input for the industrial sector. India was unable to achieve this synergy between agriculture and industry because half of India’s workers and one-sixth of its output are still dependent on agriculture. Thus, while China was able to execute the classic pattern of moving from the primary to the manufacturing sector, India has seen growth mainly from its transition from agriculture to services. The development pathways for the two economies depended on infrastructure investment, exports and FDI in the case of China (with the state playing a major role), while India’s standout growth was spurred by strong domestic demand and growth in services trade (with an important role for private enterprise). Services such as information technology rely on advanced technologies and satellite transmission than on the availability of utilities and good roads; therefore, India was able to execute the transition from agriculture to the service sector despite inadequate basic infrastructure. Another advantage for India was its better proficiency in the English language. This meant that English-speaking engineers were able to adapt western business models to a lower-cost environment, from tasks ranging from customer service and software programming to the development of new business processes and software, legal and medical issues, and other services

 Sino- India both the rising trade deficit and the structure of trade are problematic. The diversity limit of Indian exports weaken India’s export capacity. India’s overall exports of goods, it becomes fairly evident that the product mix of its exports to China does not reflect the strengths which India otherwise has in its external sector. Resource-based exports are a structural cause of worry. Primary exports have limited options for value-addition and generate a limited number of jobs compared to exports of flourishing manufacturing. That the Chinese have largely imported ores and primary materials from India is an imbalance that needs to be redressed. However, in all fairness, the ‘rise of China’ has also ensured, by virtue of investment-driven growth, that developing economies with resource-based advantages experience a real improvement in their terms of trade, with China accounting for 65 per cent of seaborne iron ore demand in the world. Similarly, if we dissect the nature of imports from China, it becomes clear that consumption goods are present only to a small extent in Indian imports, and over 63 per cent of India’s imports in 2011 belonged to the category of intermediate goods. Hence, China is India’s largest trading partner with total trade grossing US$75 billion for 2011–12.

So, the future convergence of priorities for both countries, wherein the underlying strengths in manufacturing and services, for China and India, respectively, offer several practical avenues for joint development. The industrial sector in China comprises state-owned, private domestic and foreign funded enterprises. In the context of India’s overall exports to the world, India has niche strengths in manufacturing and, although smaller compared to China’s manufacturing sector, India, and the joint ventures. China’s imports in this crucial category of Indian manufacturing is unimpressive and neither is there any strategic planning towards forging supply lines that could extract the complementarities. Apart from the self-selection logic of the aforementioned partnerships, if a concerted effort is made to develop regional comparative advantages in this sector, then India and China together can address the rising trade imbalance in this sector.

 A few years ago, there was a lot of attention to the notion that China and India might cooperate on energy security, as they do have some common interests. That relationship did not materialize, and instead they compete against each other in drilling for oil reserves and in controlling oil fields across the globe. There is a growing sense that energy is a zero-sum game, and since it is such a crucial factor in their economic growth, both countries want to secure their energy supplies. That early potential for cooperation is all but gone. The power sector is arguably the bedrock of all industrial and service outputs that run the Indian economic engine. Though, inadequate of power generation has huge shortfalls in its planned capacity additional target of India. Chinese power suppliers are able to offer high- capacity equipment at cheaper rate on contrast to domestic manufacturer. The second Sino-Indian strategic economic dialogue expanded cooperation in this sector, though limited to the private sector, in the form of MoUs between Reliance Power and Guangdong Mingyang Wind Power Industry Group Co Ltd for a 2,500 MW renewable energy project.   Even an agreement between Lanco Group and China Development bank for financing the US$600 billion Anpara Phase-II Power projects in Uttar Pradesh. Given the continual expansion in this sector, the nature of participation by Chinese companies should move away from being suppliers and project financers to domestic manufacturing of the equipment through wholly foreign-owned enterprise partnership.

Besides FDI equity inflows, Chinese companies (majors such as Huawei, TCL and Haier) have invested capital in India, and are also taking up projects under contracts where they are important suppliers for infrastructure projects (such as for power generation, for instance, by supplying machinery and setting up plants.  Indian investments in China are predominantly by the private sector6 mostly located in Guangzhou, Shanghai and Beijing with a major presence in high-tech industries, especially in IT/software, and pharmaceuticals. IT majors such as Infosys Technologies, HCL Technologies, Zansar Technologies, BirlaSoft, KPIT Cummins, TCS, Tech Mahindra, Mahindra Satyam, NIIT, 3i Infotech, Nucleus Software, Wipro, MindTree Consulting and Genpact all have presence in China. Yet the relationship is not exactly mutually exclusive or zero-sum competing. However, there are opportunities to collaborate in the area of streamlining production orientation, wherein the strength of India in small batch orders and customization can pair with the large processing capacity of Chinese. There are several dimensions to infrastructure expansion, but it would useful to examine two key sectors where the quality of China’s participation in India’s growth could be vital: rail transport (specifically high-speed rail, even metro rail), and power.

The rise of China has been quite rapid in the sense that Indian and American strategists had not contemplated so sudden and so dramatic an ascent. Many countries in the Asia-Pacific region are worried about China’s rise because it is happening at a much faster rate than anticipated. And the question that has been posed is: what are the real intentions of China in possessing such a major military force? Many states in the Asia-Pacific have argued that India should seek to balance the region. And, of course, the United States was one of the first countries to acknowledge India’s role, when the Bush administration pushed India to become a major player in the region. It is not entirely clear that India is ready to play that sort of role. New Delhi has yet to reach a domestic consensus on what kind of role it wants to play. If it does want to perform the part of balancer, that would mean acknowledging some significant divergent interests with China. For a long time, India has relied on the United States, because it has some significant conflicting interests with China. Indian elites would indeed like to see the formation of a balancing coalition. There is a growing perception that the United States on its own will not be able to shoulder all of the responsibility. Other countries need to respond to restore regional stability, and India has a stake in that stability for friendly relation with China in terms of economic.

The major issues that confront India today are still domestic: poverty, socio-economic inequality, an imbalance between the aspirations of a rising middle class and the inability of governing elites to meet those aspirations. There is a large majority of Indians who cannot provide for their basic necessities. These are the political issues that will determine India’s global role. Until India can get its domestic house in order, it will be very difficult to define the country regionally and globally. There is also a question of leadership. India is at the moment facing a governance deficit. With a leadership vacuum, there seems to be a sense of drift in the country on major policy issues, both domestic and global, and so there is no articulation of the role India wants to play in the world. This is something important for any country as it rises in the global hierarchy. For India not to articulate that role has been a major factor hampering communications with its allies, friends, and adversaries regarding what role India sees for itself in the region and in the world.

China’s various actions in recent years seem to have convinced Indian elites that China does not take Indian security concerns very seriously and does not recognize India as a major global player. For a long time, the political elite in India were unwilling to acknowledge that there were significant problems in Indian relations with China. That acknowledgment took a long time in coming. If you recall, in 1998 the Indian defense minister had made a statement that China is India’s number one enemy. That created a major backlash, and many Indian elites immediately suggested otherwise. The arc of Indian foreign policy since then has been a reaction to China’s growing profile. Now there is an acceptance of the reality that significant divergent interests exist. Yes, there is some convergence on environmental and economic issues, but the relationship remains fraught with tension. That does not mean that India should take on China militarily, but it does mean that New Delhi should respond more proactively to what China seems to be doing in regard to India and the surrounding region. That realization pervades Indian policymaking today. This is a very crucial change in Indian foreign policy and will determine most of the initiatives that India will take regarding China.

Whether China is able to sustain economic growth in the face of its demographic changes and whether India is able to reap its demographic dividend in the coming decades will depend on the socioeconomic and policy environments in each country. The clearest prerequisite for translating demographic opportunity into sustained economic growth or sustaining growth in the face of unfavorable demographic change is a demand for available labor, along with conditions enabling that labor to be productive. People need the skills and training to make them productive workers. China’s population has higher average levels of literacy and education than India’s. If India invests in human capital, it may be able to overcome its current educational disadvantage through productive employment of its growing pool of younger workers. People also need good health and access to quality health care to work productively.

China’s population is generally healthier than India’s, and China has the benefit of a more developed health care system. On the other hand, China’s population is aging more rapidly than India’s, and therefore health care costs for this population are likely to pose a growing burden. Women can be productive contributors to the economy. An important spur to future economic growth in both countries will be the degree to which women participate in the workforce. In both countries, women are less likely than men to participate in the formal economy (that is, to work outside the home in wage-earning positions), but the difference is much greater in India. In China in 2009, 67 percent of women aged 15 or older participated in the labor force, compared with only 33 percent in India.

 In addition, the gender gap in education is smaller in China than in India. As a consequence, China is currently better positioned than India to benefit from women’s participation in the workforce. Nonetheless, India’s situation can also be viewed through the prism of women as an untapped segment of society whose inclusion in the labor market can dramatically expand the labor force and create a rapid expansion of the GDP growth rate. A well-developed infrastructure can reduce transaction costs, enable economic efficiency, increase the productivity of labor, and ease the limitations of societal aging by extending productivity into later years. Building such infrastructure can also provide employment opportunities. As a result of recent, systematic investments, China ranks considerably ahead of India on many dimensions of infrastructure, especially those related to communications and energy.

Other factors that contribute to economic growth include openness to trade, which adds productive and rewarding jobs, and a sound financial system to promote savings and investment. China ranks ahead of India on these dimensions also. From an economic perspective, China’s demographic characteristics are currently optimal for supporting economic growth, but in coming decades China will have to cope with a rapidly aging population and a shrinking working-age population. By contrast, India has two more decades before its demographic window begins to close (and even then, India’s window will close very slowly). Whether India will be able to reap a demographic dividend will depend on its ability to meet the challenges of improving its educational system and closing gender gaps in education, improving its health care system, enhancing its infrastructure, and incorporating more women into the workforce. India has one of lowest female workforce participation rates in the world, and one of the least educated populations in Asia. Increasing educational attainment and women’s involvement in the workforce would give India’s economy an additional impetus for growth by expanding the labor force at a rate that exceeds the rate of population growth, while also improving its quality.

Any evaluation of India-China relations over the longer term needs to factor in Beijing’s views. In this context worth recall is Mao Zedong’s telegram to Stalin around 1950 when he conveyed Zhou Enlai’s very unfavorable opinion of Indian Prime Minister Jawaharlal Nehru and observed implicitly that this would guide the tenor of the relationship for a very long time. In recent conversations with foreign diplomats and analysts their Chinese interlocutors list three main issues as responsible for the strain in India-China bilateral relations. These are: the Dalai Lama’s presence and activities in India; the unresolved border dispute; and India’s international aspirations. Viewed along with the statements publicized by China’s official media that ‘limits have been imposed by history on the extent to which China can develop relations with India’, it is clear that tensions will exist in India-China relations for the foreseeable future.

Two other major issues, in addition to the unresolved border or shrinking export markets sought by both countries and competition for scarce energy, natural and mineral resources, have a real potential to erupt into serious confrontation between India and China. Water is the most important. Much of north China faces severe water shortages and as this gets increasingly accentuated it will probably accelerate Beijing’s ambitious plans to divert waters from the south to the north. Diversion of the Brahmaputra River to the north at a currently estimated cost of US$ 66 billion is a major part of these plans. Chinese engineers are going ahead with the construction of a series of dams along the course of the Tsangpo (Brahmaputra) and the project is presently under the direct supervision of Chinese Premier Li Keqiang.

Thus far Beijing has exhibited marked insensitivity to either India’s concerns or those of other lower riparian nations as in the case of the Mekong River. The deleterious effects of diversion of the river will be heightened by the quickening retreat of the snow-fed glaciers in Tibet caused by warming and the rise in temperatures because of the new dams and development projects undertaken by China in Tibet. Together this will affect the 40 core people residing in the Indus, Ganges and Brahmaputra river basins.

The other area of likely competition is food. At a time when global population is rising, both China and India, according to analysts, will move from their current self-sufficiency in food to become food grain deficient nations between 2045-2050. Global warming has an adverse impact on food production which registers a decline for each degree Celsius rise in temperature above the norm. During the growing season, farmers can expect a 10 per cent decline in wheat, rice, and corn yields. Four countries namely the US, Canada, Russia and Australia will remain the main sources of food grain supply for the world. China and India will compete for the limited supplies and grain prices will soar. China will also try and enhance food production by using the large tracts of arable land in its water starved north, thus accelerating implementation of the south-north water diversion project.

If India is to persuade China to cooperate, it must accelerate efforts to, at least in asymmetric terms, acquire the ability to impose costs and deter China. The growing restiveness among China’s minorities and increasing societal discontent, are vulnerabilities that will potentially constrain Chinese leaders in the not too distant future.

Meanwhile, India should build the capacity to frustrate Chinese ambitions and ensure a calibrated enhancement of resistance to Chinese pressure. For this India will need to recast its strategic foreign policy objectives to enable it to urgently find and attract good sources of large scale capital investments, advanced technology and hi-tech joint manufacturing ventures. India will simultaneously have to upgrade the skills of its workers; favor establishment and growth of a manufacturing industry especially in the hi-precision and advanced technology sectors; and, put in place the back-bone for a secure, modern telecommunication and global navigation systems. China’s entry into the Indian economy will require to be controlled and India’s indigenous critical industries safeguarded.

The detonation of nuclear device by India in May 1998 to a greater extent received lots of criticism from China. Hence, the process of normalization, which had been built over the years got derailed. China was vocal opponent of India’s nuclear test and made a strong point that the nuclear tests were against the international trend. The nuclear issue featured as an irritant in India-China relations for some time, which really put the bilateral relationship in a limbo. However, both the sides were able to resume talks once again in a span of nine months. The visits made by the then Minister of External Affairs Jaswant Singh in 1999 and Prime Minister Atal Behari Vajpayee in 2003 opened a number of new vistas for cooperation. The boundary issue which had always been an obstacle in building trust and confidence was overshadowed by the issues relating to trade and commerce. The opening of the border regions for trade including the Nathu La in Sikkim really signaled a quantum shift in India’s approach towards China. This shift also in a way recognized Sikkim as a part of India. The reopening of border trade through Nathula Pass has certainly helped in forging greater economic ties between these two emerging economic powers of Asia. Historically, Nathula has been a very important border from time immemorial in respect of trade. It is well known fact that Nathula was closed after Sino-Indian War of 1962. The border trade through Nathula Pass formally got resumed on 6 July 2006.By then, both the nations had experienced phenomenal growth rate in the bilateral trade. The trade relations have improved substantially and the bilateral trade until now has crossed the $ 50 billion US dollar figure. There was a downslide in the volume of trade marginally in between especially during the global economic meltdown.

However, China has been insisting from day one that Mac Mohan line is not acceptable to them and all of Arunachal Pradesh belongs to them. It has always been objected by India. India has the problems from Tsangpo which rises in Tibet and flows into Arunachal Pradesh as Dihang and becomes Brahmaputra when it enters Assam. India has the lingering problem in Ladakh where one third of its territory Aksai-Chin is occupied by China and claimed by them as the legitimate part of their country. Hence, there are certainly serious problems and issues between India and China. Many of these lingering issues certainly require attention from both sides in the current international security environment. The first decade of twenty first century has seen many high level visits from both sides. It has also signaled that many of the lingering issues would be given paramount importance by both the countries. The visit of the Chinese Premier Wen Jiabao to India in April 2005 recognized India’s inherent strength in Software industry. It was felt that China can help India in strengthening its hardware industry and India can help China in strengthening software industry. India and China also announced the establishment of a Strategic and Cooperative Partnership for Peace and Prosperity. By then, both the nations had experienced phenomenal growth rate in the bilateral trade. The trade relations have improved substantially and the bilateral trade until now has crossed the $ 50 billion US dollar figure. There was a downslide in the volume of trade marginally in between especially during the global economic meltdown.

 It must be emphasized here that Chinese President Hu Jintao’s visit to India in 2006 and Indian Prime Minister Manmohan Singh’s visit to China in 2009 could not make much impact on the bilateral relationships because of the deepening of mistrust from both sides. However, a 10-point Roadmap was drawn up to enhance the Strategic Partnership. Over the last few years, China has been both overtly and covertly engaging itself across India – China borders and making a number of anti-India gestures. The growing China-Pak nexus, opening of a number of China Study Centers in Nepal and its tacit support to the Maoists in the ongoing imbroglio in Kathmandu and its wider ramifications on Indian national security has added to the growing mistrust in India.

 The first decade of the twenty first century also saw lots of cooperation in the field of defense. A bilateral dialogue mechanism has been established to forge greater ties in defense cooperation. As a part of larger confidence building exercise, both the countries have been conducting joint military training and army exercise. Since both the countries have been the victims of piracy, India and China have also agreed to cooperate jointly on the anti-piracy efforts.

 India certainly has not been much influenced by the ongoing China’s military and strategic modernization programmes. China’s requirements are different than India’s one. And hence, India understands the current developments in China with great maturity. China’s actions with regard to its current strategic capabilities are mostly guided by the developments in the United States. The only worry which India always has is the magnitude of growing Sino-Pakistan nexus. There is, however, certainly a fear that Pakistan will gain from the ongoing strategic modernization programme in China and it will then certainly have negative repercussions and wider ramifications for India’s national security.

With the increase in China’s force structure, it may also become easier for Pakistan to increase the size, sophistication and overall capability of its strategic force. Therefore, it is anticipated that China will keep colluding with Pakistan and using it as a counterweight to ensure that India is kept distracted by a proxy war. Hence, in the current regional security settings, India will never agree to forego its strategic options.

The current China’s posture towards India suggests otherwise. India’s security concerns have been widening. It is certainly not “Pakistan-specific”, and that it will have to take into account the environment and strategic considerations in its neighborhood. The all-weather Sino-Pakistani relationship will thus be one of the main hitches when one envisions India-China relations in 2020. China certainly benefits more from close ties with Pakistan by extending its influence in South Asia.

Undoubtedly, China perceives itself to be a dominant military power in the whole of Asia and has henceforth systematically and consistently modernized and acquired strategic capabilities. The current trend suggests that nuclear weapons are going to stay in Southern Asia for different missions. The trend also suggests that modernization of strategic weapons will continue and grow in foreseeable future. Looking to the future, it is most likely that due to the Sino-Pakistan nexus, India might put more emphasis on nuclear weapons for its defense because its conventional weaponry is inferior to China in most respects.

China has also been maintaining a strong military presence in the Tibet Autonomous Region. It has also been making its presence felt in the Indian Ocean, North West Afghanistan and countries on India’s periphery. Despite a number of existing misunderstandings, potential exists for both the countries to work together on a number of key international security issues including counter-terrorism and drug trafficking. More recently, both India and China have shown a great amount of understanding on a couple of very pertinent issues of global nature. This was apparent in almost all the G-20 summits to deal with the global economic meltdown since 2008 and the Copenhagen Summit in December 2009.

The recent visit of India’s National Security Advisor Shiv Shankar Menon in July 2010 who is also India’s Special Envoy on China is again an indication of shifting interests and ignoring the real issue, which is mostly to do with the border. Both the countries are aware about the importance of resolving the bilateral irritant but somehow it has lost the direction. During Menon’s visit to China, the two countries had discussed opening up of new areas of economic cooperation. It was mainly to do with working together in Afghanistan on infrastructure projects and also in developing the country’s mineral resources. It was made obvious by both the countries that they would work jointly in Afghanistan. Afghanistan has shown interest in both of them for taking help in developing its vast mineral resources. India has already invested more than $1.3 billion in infrastructure projects and in other areas in Afghanistan. China has already spent a far greater amount in tapping the mineral deposits of Afghanistan.

There is no doubt in saying that the levels of engagement between India and China have increased certainly to a greater extent. India, at the same time, requires to adopt sophisticated approach to deal with the emerging Strategic challenges being emanating from China. Despite the fact that China has become increasingly assertive not only at the regional level but also at the global level, India has not shown any displeasure so far in strongest terms. The border dispute with China will not be resolved in near future. In the current circumstances, it is obvious that trade has come to be viewed as an increasingly important driver of relations by both sides; especially in the light of lingering political mistrust on a number of wide ranges of issues spanning from the long running border dispute to China’s all weather relationship with Pakistan. The regular reports of incursions by Chinese troops and more aggressive patrolling in disputed areas have certainly created strain on India-China relations.

 It is high time that both India and China should start emphasizing on resolving the real border issues so that the relationship gets a boost and which ultimately would forge a greater and friendly cooperation. India also requires taking pro-active measures in countering China across its borders. A new pragmatism with a combination of both realism and neo-realism would shape their view of each other. The neo-realist perspective of international relations, where maximization of interests becomes the key factor would guide India – China relations in the future. The emergence of China as India’s biggest trading partner in the year 2008 signals that both the countries have been ushering into a new phase of relationship mostly guided by economics and commerce factor.

 The signing of an Agreement on “Political Parameters and Guiding Principles for the Settlement of the Border Dispute”, by both India and China has shown that both the countries, India and China are moving ahead in terms of reaching to a consensus on this major irritant. It has been also agreed that both sides would maintain peace and tranquility on the border. But, at the same, it requires careful assessment especially on the intent and declarations. China has also been following the tenets of the ‘Monroe Doctrine’. The attempt has always been to deny access to other powers in the region that it perceives as exclusively within its sphere of influence. Such Chinese actions have been damaging the interests of other regions especially to the countries in the East and South East Asia. Many of China’s actions in this part of the world would require very careful handling by India. It may be important for India in the current context to understand China’s intentions and fundamental goals. India will always promote constructive engagement with China and avoid any direct confrontation. It would also be in China’s interest if it forges greater and robust partnership with India in the twenty first century.

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