Indian Prime Minister Narendra Modi and Chinese President Xi Jinping held their second “informal summit” last weekend to reset the two countries’ relationship, which could be a “win-win” for both sides.
Indian economic growth dived over the past year, from more than 7% to just 5%, because of a combination of “bad” policies and conflicting special interests within the country. For example, demonetization, or eliminating the use of large-currency banknotes, has hurt the agricultural and retail sectors because cash is a major form of financial transactions. Overprotection of domestic industries prevented the establishment of an efficient manufacturing sector and the realization of the “Make in India” policy goals.
A senior official of the Modi government recently pointed out that India “loves to ally with the US,” but it must promote and protect its national interests first, with reference to America’s criticism of the prime minister meeting with Xi to establish a “new era” of China-India relations.
China was not India’s first choice and indeed might be forced into forming a partnership with the “communist country” because its Western and Japanese “friends” have been unable or unwilling to lend a hand. The US, the European Union and Japan are having problems themselves. US President Donald Trump’s trade wars, particularly against China, have caused considerable damage to the American economy, reducing growth from more than 3% in 2018 to around 2% in 2019.
Japan and the EU are in worse economic and financial shape, growing at below 2% and crippled with huge public debts. Japan, the UK and the EU, in fact, are increasingly looking to China to stave off their economic woes. Trump, for example, pressured Japan into signing a trade agreement that largely favored America: requiring Japan to buy large quantities of US products but maintaining US tariffs on Japanese cars and other goods.
New Delhi can also be forgiven for being suspicious of America’s motives: Is the US a true friend or an opportunist using India to counter China? In light of recent US behavior, the latter might be more true
New Delhi can also be forgiven for being suspicious of America’s motives: Is the US a true friend or an opportunist using India to counter China? In light of recent US behavior, the latter might be more true.
The US government, for example, wants India to buy its military technology and invest in joint development programs as a way to counter the “China threat.” However, this kind of “investment” amounts to asking India to spend money on defense rather than on economic development, thus risking India’s national security with little if any contribution to economic development and growth.
Furthermore, spending more money on defense could trigger an arms race with China, the last thing India needs. The money could be better spent on investing in infrastructure and job-creating industries, because tens of millions of young Indians are joining he labor force each year. So far, only a small percentage of the new job seekers are able to find employment. Besides, India has enough nuclear bombs and missiles to deter any foreign military adventurism, including from China, so joining the US to contain China would be a gross misallocation of resources.
Indeed, it could be argued that a closer China-India economic relationship might best serve both countries’ national interests.
First, China has the economic and technological muscle to help Modi’s “Make in India” industrial policy achieve its goals. With a financial war chest of more than US$3 trillion in foreign reserves, and the state owning most of the infrastructure construction enterprises and other funds, the Chinese government has the resources and authority to make huge investments in India’s infrastructures and industries. In the West and Japan, on the other hand, investment decisions are the domain of the private sector, not the government.
Second, closer relations would create a prolonged period of geopolitical stability that is essential for India’s economic development and growth. Not having to worry about a “Chinese invasion,” India would have the time and more money (saved from buying more weapons) to develop its economy.
The allegation that China never delivers on its promises and sets “debt traps” is just that, a malicious allegation far from being true. For example, Jayadeva Ranade, president of the India-based Center for China Analysis and Strategy, in a January 18 LibertyWeb interview wrongly suggested that Sri Lanka spent 85% of its GDP repaying debt to China. How can that be when Chinese loans only accounted for 10% of Sri Lanka’s total foreign debt?
Most of Sri Lanka’s foreign debts, like those of other developing economies, were in fact owed to Western- and Japanese-controlled financial institutions. Indebtedness to those financial institutions mushroomed largely because of the lenders’ harsh loan conditions, requiring borrowers to repay loans before spending on economic enhancement programs and thus preventing them from generating sufficient funds to do both. The dilemma forced the borrowers to ask for subsequent loans just to repay the outstanding balance and interest. So it was the West and Japan that set the “debt trap” for emerging markets, not China.
History has shown that China does deliver on its promises and has played an important role in helping poor economies to develop – just ask any developing nations in Africa or South America that received Chinese investment. Indeed, senior US officials such as Secretary of State Mike Pompeo and Vice-President Mike Pence have been to told to mind their business when they urged recipient nations not to accept Chinese investment or participate in China’s Belt and Road Initiative (BRI).
Other benefits of a closer China-India economic and geopolitical relationship include a possible rapprochement between India and Pakistan. China, being the “all-weather friend” of Pakistan, could mediate a truce between the two South Asian nuclear powers. With India, Pakistan and China at peace working with one another, the region’s economic development and growth could be assured.
Of course, a close relationship with India benefits China as well. Adding India to its BRI could increase China’s investment and trade prospects, thereby weaning it from the West and Japan. A market with a huge proportion of the world’s population brings enormous economies of scale and therefore competitiveness, enabling China, India and other countries that are participating in the BRI to compete effectively with the developed world.
Modi and Xi should be applauded for putting the China-India relationship on track. The potentially large numbers of lives it would improve or save will make them more deserving of the Nobel Peace Prize than all of the US presidents who have received it.