China’s Paradigm Shift

Source: The Hitavada      Date: 18 Jul 2017 12:37:40


Without India, Xi Jinping’s dream project for  globalisation remains half-baked. To this end, China will strive to engage India in larger economic cooperation in its Asian power game. In this exercise, China is unlikely to escalate border stand-off, which may prove inimical to the Chinese ambition for leadership in globalisation.

BARELY a month after heightening anti-India protests on border stand-off, China made a somersault against the protest and applauded Modi’s reforms. Further to the surprise, China underpinned India as the future global low cost factory and predicted that India would edge out China in near future.

This reflected a paradigm shift in China’s stand towards India. Till now, the Chinese Government and its media were hyper in snowballing anti-India protest over the border stand-off in Sikkim, Bhutan and Tibet tri-junction. China sent precautionary advises to the Chinese investors in India on the imminent anti-China protests.

In an opinion piece, the powerful Chinese media, ‘Global Times,’ acclaimed India’s reforms, saying, India is becoming more attractive to foreign firms. It said, “As low-cost manufacturing is gradually moving away from China, it is now critical for India and even the world whether it can replace China as the next world’s factory.”

A month ago, the same media virtually accused India of provocating Chinese and Indian troops’ scuffle at the Sikkim border. It fired a salvo saying that, “India needs to be taught the rules.” It reminded India that it was far behind China in economic and military might and asked for mutual respect for each other. India was one-quarter of China’s GDP and its defence budget was one-third of China, it said.

What has driven China to make a volte-face in anti-India protest? Was China’s fear for boomerang by its own people, who are operating business operations abroad, or fear of loosing India from the net of globalisation after Trump receded, leaving a place for Xi Jinping to lead globalisation as it did in the last Davos Summit?
Presumably, there are two reasons which prompted China to reverse its anti-India protests. First, growing Chinese investment in India and Chinese engagement in various infrastructure projects and secondly, Trump’s relook into Asia-Pacific policy where India is likely to regain its role as linchpin, envisaged during Obama administration.

India-China economic relations increased manifold during Modi administration. He was not averse to economic engagement with China. Unlike his predecessor, Modi tried to woo Chinese investment with twin aims -- increase Chinese investment in India and use it to reduce wide trade deficit, incurred by Chinese exports to India. Instead of triggering trade war, Modi administration took amicable and economically viable measures to reduce the trade deficit.

India tends to be the next generation investment destination for China. China has emerged as a global leader in overseas investment, from a global leader of foreign investment receiver. China lost low cost manufacturing competitiveness in the wake of appreciation of Chinese currency yuan. In 2015, China was number two in foreign investment in the world. Besides yuan appreciation, Chinese Government relaxed several procedural hassles to promote Chinese investment abroad.
These yielded benefits to the Chinese companies, who were losing out in their domestic market. India’s higher growth trajectory in GDP and large pool of middle class as well as non-ageing people ensured substantial windfall to the Chinese investors in India. For example, around six top brand Chinese smart phone makers either have or likely to start manufacturing in India. India has become the new turf for these Chinese companies to meet their global ambition. India accounted for 60 to 70 of the global sales of these Chinese companies. Global sales account for 30 to 35 per cent of the total sales of these companies. In a way, India acted as an engine for the global presence of these Chinese companies.

Chinese interests in economic engagement with India perked up after the successful launching of AIIB (Asia Infrastructure Investment Bank) a year-and-half-ago. China is the biggest stakeholder, followed by India in AIIB. It was a major breakthrough in establishing Asian infrastructure development funding institution and threw a big challenge to the western funding institutions and ADB. India requires USD 1 trillion fund for its infrastructure development.

One of the significant features of AIIB, which is benign to India, is that clean energy is not the prerequisite for power development, unlike World Bank, IMF and ADB. In India, most of the upcoming power projects are coal-based. As a result, these power projects were deprived of fund facilities from World Bank, IMF and ADB, after clean energy became priority for funding. Given the situation, AIIB funding will be a leg up for Chinese companies over its competitors in bidding for new power projects in India.
The recent Trump-Modi summit added a new dimension of spirit in the Indo-USA relation. The most critical part of this summit was Trump’s clear direction for tightening Indo-USA relation.

During Obama administration, India had often been termed as linchpin to US Asia-Pacific Pivot policy. India lost the value with Trump negation to Asia-Pacific strategy, in lieu of his focus on “America First”. But, the mercurial Trump quickly changed his vision on Asia-Pacific strategy.
In the beginning of May, USA adopted a new initiative for rebalancing Asia power strategy, namely “Asia Pacific Stability Initiative” - proposed by Senator John McCain in the beginning of this year. Pentagon endorsed a plan of USD 7.5 billion to strengthen US presence in Asia-Pacific region over the next five years.

Two security threats – rising China and nuclear North Korea - justified the initiative. At Shangri - La Dialogue in Singapore, US Defence Secretary James Matis said the US will continue to strengthen military capabilities in Asia-Pacific region. Trump will attend the Asia-Pacific Economic Cooperation summit in Vietnam in November. These series of actions prove that the Trump administration is taking a new look at USA’s Asia-Pacific strategy.

Without India, Xi Jinping’s dream project for globalisation remains half-baked. To this end, China will strive to engage India in larger economic cooperation in its Asian power game. In this exercise, China is unlikely to escalate border stand-off, which
may prove inimical to the Chinese ambition for leadership in the globalisation.