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India-China Ties: Positive & Negative

Prime Minister, Dr.Manmohan Singh, is scheduled to visit China from January 13 to 15, 2008, for talks with the Chinese leaders. This will be his first visit to China. He did not accept an invitation from the Chinese Government to attend the June,2006,summit of the Shanghai Co-operation Organisation (SCO) at Shanghai as an observer. The Government of India explained his decision not to go as due to the fact that India’s status as only an observer of the SCO did not warrant a presence at the level of the Prime Minister. Among the other observers, Pakistan, Iran and Afghanistan were represented by their heads of State—Presidents Pervez Musharraf, Mahmud Ahmadinejad and Hamid Karzai. Chinese officials suspected that the Prime Minister’s decision not to go was actually due to the US suspicion that one of the objectives of the SCO was to counter the US influence in the Central Asian region.

2. Shri Atal Behari Vajpayee, the predecessor of Dr.Manmohan Singh, had visited China in June 2003. Mr.Wen Jiabo, the Chinese Prime Minister, had visited India in April,2005, and President Hu Jintao in November,2006. Dr. Manmohan Singh has, however, been meeting his Chinese counterpart in the margins of other multilateral summits such as the recent (November 2007) ASEAN summit in Singapore.

3. India-China relations continue to be characterised by a mix of mutual concerns, mutual suspicions and mutual goodwill. The concerns on the part of India have been in respect of the unresolved border dispute. The on-going talks on the subject between the specially-designated representatives of the two Prime Ministers have reportedly got stuck on the Chinese claim to Arunachal Pradesh, particularly to the Tawang Tract. With the Chinese going back on the understanding reached by the Prime Ministers of the two countries during the visit of Mr.Wen Jiabo to India in April,2005, that they should avoid any territorial adjustment in populated areas, it is evident that the Chinese are not prepared to give up their demand relating to Arunachal Pradesh.

4. While one can understand the hard bargaining by the Chinese on this issue, what should be a matter of particular concern to the Indian public are the frequent reports of Chinese troop intrusions into Indian territory, an intrusion into Bhutanese territory and reported Chinese objection to some structures erected by Indian troops in Indian territory in Sikkim. While the Government of India has denied or played down the gravity of most of these reports, the fact that such reports keep appearing in our media from time to time itself indicates the continuing trust deficit between the two countries arising from the unresolved border issue. Just as they have gone back on the past understanding that populated areas should not be disturbed, are they also preparing to go back on their commitment made in 2003 to Shri Vajpayee that Sikkim was no longer an issue between the two countries? Are they trying to link any de jure concession on Sikkim by them to an Indian de jure concession on the Tawang Tract?That is a question, which must be bothering the minds of Indian policy-makers.

5. The heavy investments by the Chinese for the crash development of the road and rail infrastructure in Tibet and for extending the road and rail networks towards Tibet’s borders with India and Nepal and the reported desire of the Nepalese Government, now increasingly dominated by the Maoists, for the extension of this network to Nepal should add to India’s concerns, if this has not already done so. The recent statements of Shri A.K.Antony, the Defence Minister, after a visit to Sikkim in the first week of December,2007, on the need for paying urgent intention to a rapid (he used the expression “dramatic” ) development of the road and other infrastructure in our territory adjoining Tibet should be welcomed as an overdue wake-up call. It is to be hoped that this call is followed up seriously with concrete time-bound projects on the ground and that we do not slide back into another spell of complacency as we are in the habit of doing in relation to China.

6. Our ability to hold our own against China in the undesired event of another confrontation with China would depend on the state of our intelligence agencies, the Army and the Air Force. While the Army and the Air Force are receiving the required attention, one has an impression that there has been a downsizing of our intelligence capabilities vis-a-vis China. This, if true, would be very unfortunate and would show that we have forgotten the lessons of the Sino-Indian conflict of 1962 and are letting ourselves be lulled once again into another spell of complacency.

7. The continuing military, nuclear and missile supply relationship between China and Pakistan and the ever-increasing Chinese interest in strengthening their strategic presence in Pakistan, Sri Lanka, Bangladesh and Myanmar— and possibly in Nepal too in the coming years— are another area of continuing concern for India. We tend to forget that militarily and strategically, Pakistan has benefited more from the supply relationship with China than from the supply relationship with the US.

8. The Chinese too have their concerns arising from the steadily improving strategic relationship of India with the US, Japan and Australia. While India does not project its relationship with the US as a possible card that could be used against China, that is the way Beijing looks at it. The Chinese concerns were reflected in their comments on the joint naval exercise of September,2007, in the Bay of Bengal involving the navies of India, the US, Japan, Singapore and Australia and on the floating idea of a concert of democracies involving India, Japan, Australia and the US. When the Chinese have no qualms over continuing with their policy of having India excluded from the ASEAN plus three grouping in order to keep India one pedestal below that of China, there is no reason why we should be apologetic about having China excluded from some of our common projects with the US, Australia and Japan based on democracy as the common ideological binding factor— a glue which cannot bind China.

9. The mutual suspicions are the outcome partly of the continuing trust deficit and partly of the lack of transparency of Chinese policies. These suspicions are not unique to India-China relations, but are also to be found in China’s relations with the US and other Western countries where parliamentarians and policy-makers continue to express concerns over likely invisible threats to their security from the enhanced activities of Chinese intelligence agencies in their territory by taking advantage of the developing bilateral relations. In this context, one has to understand the anxiety of our intelligence agencies to subject proposals for Chinese investments and construction contracts in sensitive sectors such as telecommunications and port construction and in sensitive areas such as Bangalore to greater scrutiny from the security point of view than we do in the case of proposals and projects involving the Western countries. The cautiousness of our intelligence agencies should be understood and appreciated instead of being ridiculed and belittled as one tends to do in India.

10. It is not as if only the Indian intelligence agencies have suspicions about China. The Chinese agencies too have suspicions about India and tend to protect China with appropriate firewalls. We saw it in the case of India’s Information Technology (IT) majors. Everybody in India, critical of the over-cautiousness of our intelligence agencies, points out that the Chinese have allowed our IT majors to have a major presence in China since 2002 whereas we were reluctant to allow Chinese telecommunication companies to have an equal presence in India—particularly in cities such as Bangalore. And that too if there are retired Chinese intelligence and military officers associated with the Chinese presence.

11. What those in India, who tend to ridicule our intelligence agencies, tend to forget is that, firstly, the Chinese have allowed our IT majors to have a presence only in non-sensitive cities such as Shanghai. Have they allowed them to have a presence in sensitive areas such as the Sichuan province where many of their military industries are located? Will they allow our IT majors to open offices in Tibet and Xinjiang to benefit the Tibetans and the Uighurs? Secondly, even in non-sensitive places such as Shanghai, while allowing our IT companies to have a presence they kept their businesses confined to dealings with the local offices of Western multi-nationals. They discouraged their own entities—governmental or non-governmental— from having business with the Indian IT companies.

12. Only last year, the Chinese slightly changed this policy and started allowing their entities to have business with the Indian IT companies. This change was reflected in the award in February, 2007, of a multi-million dollar contract to the Tata Consultancy Services (TCS) to implement a comprehensive international trading system for the China Foreign Exchange Trade System (CFETS), which is a sub-institution of the People’s Bank of China. The TCS has also expanded its presence in Beijing, where its interactions are expected to be more with Chinese Government entities than with Western business companies. This is a welcome development.

13. In February last, the TCS, supported by the National Development and Reforms Commission (NDRC) of China, also announced the inauguration of TCS (China) at its new premises at the state-of-the-art Z-Park in Beijing. The joint partners of TCS (China) are the Beijing Zhongguancun Software Park Development Co, Ltd, the Uniware Co, Ltd, and the Tianjin Huayuan Software Area Construction and Development Co, Ltd . It was described as marking the launch of China’s first large scale outsourcing technology company. Speaking on the occasion, Shri S.Ramadorai, the CEO and MD of the TCS, was reported to have stated as follows:”TCS has successfully completed five years in China and the new joint venture is the next step in our long journey in China.The joint venture will help to create a large scale global offshoring base in China and domestic business of increasing scale. We look forward to working closely with our Chinese partners, supported by the National Development and Reforms Commission to meet the expectations of our shareholders and customers.” TCS Asia Pacific owns the majority of the joint venture with a 65 per cent stake. The three Chinese partners, supported by the NDRC, hold 25 per cent with Microsoft expected to take up the remaining 10 per cent. TCS China will focus on financial services, manufacturing, telecom as well as the government sector, providing IT outsourcing services and solutions to the Chinese domestic market as well as the global multi-national company customers.

14. India too has not been found wanting in lowering its barrier of suspicions against allowing the Chinese presence in India to be increased. The kind of difficulties which Chinese contractors faced in the past for getting visas for their engineers to work in construction projects in India has been lessened. More Chinese students—mainly the recruits of Indian IT companies such as Infosys and Cognizant—have been coming to South India for improving their knowledge of English and for training in IT. Many educational institutions in South India in places such as Vellore and Coimbatore have started getting Chinese students for learning English and IT-related subjects. The number involved is still miniscule (about 500) compared to the thousands of Chinese who have been going to Western countries and Japan for studies. But there has been a welcome beginning in opening the door to Chinese students. At the same time, it has to be mentioned that many Chinese, particularly in the rich coastal areas, have a fascination for the West and Japan and prefer going there for higher studies than coming to India. It is only the Chinese students from the less well-off families of Western China, who want to come to India for their studies.

15. The lowering of the barrier of suspicion by the Indian authorities was also evident in the announcement made in July last by the Huawei Technologies of China that it has received a network expansion contract worth over $200 million from Reliance Communications. These are straws in the wind indicating that the intelligence and security agencies of the two countries are a little more relaxed with regard to each other’s intentions than in the past. At the same time, the fact that the over-cautious attitude continues — though not at the same level as in the past—would be evident from the far-from-enthusiastic Indian attitude to the $200 billion sovereign wealth fund that was created by China last year. During a visit to Beijing in the beginning of December,2007, for a dialogue, inter alia, on India-China co-operation in multilateral financial institutions, Shri D.Subba Rao, the Indian Finance Secretary, was reported to have stated as follows: “We are yet to firm up our views on sovereign wealth funds. We have to decide to what extent we can encourage them. We have not yet decided what to do with sovereign wealth funds. We are looking at the issue from different angles.The case of Temasek holdings of the Singapore Government, which has investments in Indian firms like the ICICI Bank, is different because of a special relationship between India and Singapore. A similar arrangement exists in the case of a sovereign wealth fund of Norway. But the Government will need to carefully examine the pros and cons of allowing the entry of money from sovereign funds of other countries including China.”

16. The Chinese seem to feel that the barrier of mutual suspicions has been coming down faster from their side than from India’s.Speaking at Kolkata on November 22,2007, Mr.Mao Siwei, the newly-appointed Chinese Consul-General in Kolkata, said: “Chinese FDI proposals in India are specially scanned. This attitude of the Indian Government should change. We are patient and expect the situation will improve in the next three years.The Indian Government presently provides visas to Chinese nationals for 3-6 months. This is too insufficient to conduct business. The Chinese Government has initiated talks with the Indian Government to offer long stay visas and ensure liberal sanction of FDI proposals.The Chinese Government does not view India as a threat. We want to be friends with India. Both countries have common interests and can achieve much more in the global arena if we work together.”

17. During interactions with Chinese non-governmental personalities, a point often made is that it is easier for an Indian to get a visa to go to China for any purpose—tourism, studies, business— than for a Chinese to get a visa to come to India. They allege that the attitude of the Indian diplomatic and consular missions in China continue to be marked by suspicion towards Chinese wanting to visit India.

18. It is gratifying that the two Governments have not allowed the mutual concerns and suspicions to come in the way of improving State-to-State relationship. There is a welcome absence of rhetoric at official levels despite highly critical articles on China in sections of the media. There is a greater exchange of visits at different levels—governmental and non-governmental. Military-military bonhomie is being strengthened through joint exercises—between the Navies to start with and now between the two armies in the field of counter-terrorism in the just concluded joint exercise in Yunnan. Military-Military bonhomie contributes to the creation of a feel-good feeling, but nothing more. It won’t help in removing concerns over border developments unless there is a distinct change in the attitude of the Chinese political leadership.

19. The talks held during the visit of Mr.Hu Jintao to India in November, 2006, resulted in an agreement to promote co-operation between the two counties in the field of civilian nuclear energy. Optimists in our strategic community interpreted this as a precursor of a possible Chinese support to the removal of the restrictions of the Nuclear Suppliers’ Group (NSG) on nuclear trade with India. Only when the matter comes up before the NSG formally would one know whether this optimism was justified.

20. Bilateral trade continues to be the major success story of India-China relations.It is galloping forward at a tremendous pace. According to Mr.Mao Siwei, India-China bilateral trade crossed a whopping $27 billion during January-September 2007. The Chinese Government expected bilateral trade to exceed $30 billion by December-end2007, as against a target of US $ 20 billion. He added: “The volume of bilateral trade has grown nearly 10-fold since 2002. Both the Governments had set a bilateral trade target of $40 billion in 2010, which we now think will be achieved by 2009 itself. The Chinese Government believes bilateral trade is the most important factor to promote bilateral relations.”China now exports more than it imports from India. While major items of Chinese exports to India include coking coal, electronic goods and specialised machinery, China primarily imports iron ore from India. India’s iron ore exports to China constitute nearly 60 per cent of its exports to China. Fears that the closing-down by China of its highly-polluting small iron and steel production units might result in a decrease in the demand for Indian iron ore have been belied. India has not been as successful as China in diversifying its export basket. There continues to be an unhealthy dependence on the export of one commodity (iron ore).

21. India-China relations have to be viewed in their totality. If one concentrates solely on areas of concern, one will develop an unduly pessimistic attitude. If one looks only at the galloping trade and proliferating exchanges of visits, there could be unwarranted over-optimism. There is a need for a balanced perspective. (6-1-08)

(The writer, Mr.B.Raman, is Additional Secretary (retd), Cabinet Secretariat, Govt. of India, New Delhi, and, presently, Director, Institute For Topical Studies, Chennai. He is also associated with the Chennai Centre For China Studies. E-mail: )

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