China and India: Economic Ties and Strategic Rivalry (Part 3)


China and India: Economic Ties and Strategic Rivalry (Part 3)

How well do theories of economic interdependence and structural realism explain the India-China divergence between growing economic relations and continuing strategic mistrust? This article looks at the Indian side and argues that we need to go beyond economic and strategic factors, and brings in a more contingent approach based on domestic elite discourse and thinking. The article suggests that a more nuanced and complex debate on China is emerging in India than that posited by interdependence or realism, a debate that is framed by what I term nationalist, realist and globalist schools of thought, with the latter two groups currently holding the center of gravity.

Indian Domestic Worldviews on the India-China Economic/Security Divergence

The Indian elite consensus holding that China and India are rivals, which dates to the 1962 war, began to weaken after Rajiv Gandhi’s visit to Beijing in 1989 (the first by an Indian Prime Minister since 1954). The pace of relations did not quicken until the early 2000s, having weathered a serious downturn in the wake of India’s nuclear tests in 1998.[1] There is still deep-seated mistrust of China to be found, but the burgeoning economic ties and greater political interaction has allowed more diverse viewpoints to emerge on the Indian side.[2] Indian perspectives regarding the co-existence of increasing economic ties alongside political tensions and rivalry between India and China can be identified by three main orientations or worldviews: realist; nationalist, and liberal-globalist.[3] Realists tend to emphasize the importance of self-reliance in the international arena. According to realists, the international system is anarchic; a country cannot rely on international institutions for protection. They place a great deal of importance on the role of great powers as actors in the global system and privilege hard power over ideology and economics. Nationalists, like realists, emphasize self-reliance and self-strengthening.

However, nationalists may embrace these goals not only as a means to the end of meeting foreign threats, but also as a goal in itself. Proponents of the globalist school tend to favor international political and/or economic integration. They emphasize economic means and institutional goals. In the economic realm, they often argue for free trade and fewer restrictions on capital movement. Globalists are relatively skeptical about military power as a tool of statecraft.

The key question regarding India-China relations is whether China is viewed as a threat or opportunity for India. Aided by the highly charged history of India and China, Indian public discourse is often dominated by hard nationalists, who start from a premise of distrusting China across the board—in economics and politics. However, behind the bellicose public and media discourse, there is a much more nuanced view on India’s relations with China. While this is especially true in the business sector, that stands to gain from increased economic activity with China— such as information technology, pharmaceuticals and financial services—it is also found among a cross section of businesses and strategic elites, political leaders and even bureaucrats.[4]

China as Threat or Opportunity

To return to the theoretical models, an economic interdependence proponent

clearly would see China not only as an economic opportunity for India, but that the economic ties would have beneficial political spinoffs. Many of the Indian business leaders who I interviewed seem to hold this view. They believe that there is a positive relationship between economic interaction and political relations. In general, this belief was held by even heads of businesses that stood to lose from Chinese competition. A representative view was that “If there’s a significant amount of trade interdependence, it makes them less inclined, or less able, to have military conflict. This is especially good for India, being the weaker country.” Not all saw this direct correlation, but most believe that economic relations between India and China will not be negatively affected even if political relations go sour. Short of war, they were confident that economic ties would not be severely disrupted. Unsurprisingly, most reflect a liberal market-oriented globalist outlook.

Others, such as the head of a major Indian bank with offices in China, asserted that China and India are too important to each other and “cannot ignore the other.” He contended that the two are complementary and competitive, and while their relations tend to be “unpredictable,” especially regarding neighbors and borders, “they will not push it beyond a point.” One of India’s top information technology company officials referred to Chinese Premier Zhu Rongji’s comment, while in India during 2002, that the Integrated Chip (IC) should stand for “India China.”

Indian business leaders appeared less worried about India’s future relations with China. They placed a great deal of confidence in the idea that “business sense dominates all else” in China. As the managing director of a major engineering corporation said, “I do worry about China strategically but China is also very commercial minded.” While these business leaders are concerned about the political pressure that China can exert on India (relations with Pakistan was the top pressure point identified), they believe that businesses are primarily exempt. They tend to view the political and business spheres as fairly compartmentalized in this regard. Moreover, they view China’s younger generation as much less ideological than earlier ones. The most important factor for many Indian business leaders is the need to have continuing leadership on both sides who understand that countries cannot grow without putting economics ahead of politics.

More surprisingly, political leaders from the different parties have been supportive of economic initiatives toward China as well—even when the idea of deepening economic ties were being first raised in the early 2000s. As far back as 2003, when Sino-Indian relations were being renewed after the post-nuclear test dip, it was not hard to find members of parliament urging more trade and economic ties with China.[5] Congress Party members praised the efforts of its rival Bharatiya Janata Party (BJP) to step up economic engagement with China. As one leading Congress member noted,

Luckily, with all your [BJP government] efforts, the trade has increased from US $ 1 billion to US $ 5 billion and, very soon, I think, we will be able to reach US $ 10 billion. […] We are discussing common issues, like trade, culture and other things, and especially the issue of environment. All the rivers flow from China to India. If there can be any collaboration between India and China to tame those rivers, it will be beneficial to us.[6]

Prime Minister Vajpayee and his Chinese counterpart went on to set up a respective “Group of Eminent Persons,” on each side to carry interactions forward at a high public level. On the Indian side, it was notable that BJP chose the chairperson from the Congress Party, signaling a deliberate cross-party approach to this key bilateral relationship.

This trend seemed to strengthen fairly quickly. In 2004, under a new Congress government which defeated the BJP, it was possible to find support not only from BJP and Congress, but other regional parties as diverse as the Hindu nationalist Shiv Sena, to the Communist Party of India.[7] The words of the Shiv Sena member of parliament are worth quoting at length:

The Foreign Minister…has said that while we are committed to resolve the border dispute with China, we would also like to further our economic relations with China. I am sure we cannot miss out an opportunity with China, which is now the fastest growing economy in the world, which is growing so fast that probably one day it will be surpassing the U.S. economy within the next few years’ time. So, between India and China, we have more than 33 percent of the global population and if they have a common market, it can influence the world economy in a very significant way.

The Communist Party member agreed with the sentiment that improved economic ties can influence global affairs. According to him, “We are initiating —it is a very important thing—a policy by which India, China and Russia will go together. It creates a condition whereby we together prosper economically; it has an implication in terms of preserving world peace.”

Such views show an adherence to liberal-globalist principles that underlie the interdependence model. While the favorable business opinion toward China seems to have remained consistent, even with the emergence of the large trade deficits, and the ups and down in political relations, policy commentators and politicians have shown more susceptibility to nationalistic and realist sentiments. From 2008 onwards when the deficits became more pronounced, parliamentary debates, for example, revealed rising concerns that went beyond just economics.

Sitting in opposition this time, the BJP was more prone to take a harder line on economic imbalances with China, in contrast to their earlier position. Against this development, what is notable also is the steady policy orientations and commitment of the ruling Congress government to continue uninterrupted relations with China along market liberal globalist lines. In this effort, a more energetic partner for the government was Indian industry—from business associations to important companies that were global market leaders. The industry associations, in particular, have emerged as key domestic actors since the mid-2000s in helping to shape Indian government strategies. According to some Indian Commerce Ministry officials, they are increasingly turning to groups like the Confederation of Indian Industries (CII) and the Federation of Indian Chambers of Commerce and Industry (FICCI) for advice and even strategy papers, given a serious dearth of expertise on China in Indian ministries. The dominant view of CII and, even the more domestically oriented FICCI, is that India cannot isolate China, and instead needs to work with China. Their view is that India needs to “manage” relations by trying to raise Chinese stakes in India.

[1] This episode was aggravated by the leak of a letter by Prime Minister Atal B. Vajpayee to President Bill Clinton after India’s nuclear tests, justifying the tests by citing a threat from China.

[2] For a diversity of viewpoints in Indian foreign policy thinking, see Deepa Ollapally and Rajesh Rajagopalan, “India: Foreign Policy Perspectives of an Ambiguous Power,” in Henry R. Nau and Deepa M. Ollapally, eds., Worldviews of Aspiring Powers: Domestic Foreign Policy Debates in China, India, Iran, Japan, and Russia (New York: Cambridge University Press, 2012), pp. 73-113 and Deepa Ollapally and Rajesh Rajagopalan, “The Pragmatic Challenge to Indian Foreign Policy,” The Washington Quarterly, vol. 34, 2011, pp. 145-162.

[3] Ollapally and Rajagopalan, 2012, pp. 81-86; and Nikola Mirilovic and Deepa Ollapally, “Realists, Nationalists, Globalists and the Nature of Contemporary Rising Powers,” Worldview of Aspiring Powers, pp. 211-215.

[4] During 2011 and 2012, the author conducted a series of focused interviews across a broad spectrum of Indian economic and strategic elites, geared specifically to accessing their views on the India-China economic and political divergence. This is the first such effort, as far as I know. References to opinions unless otherwise indicated are from these interviews, based on non-attribution rules.

[5] General Budget for the year 2003-2004, Parliamentary Debates, April 23, 2003.

[6] General Budget for the year 2003-2004.

[7] “Discussion Regarding Foreign Policy of the Government,” Lok Sabha Debates, Government of India, Dec. 7, 2004.

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