India-China Relations in the Second Term of Prime Minister Narendra Modi

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The Vivekananda International Foundation (VIF) held a round table discussion on the India-China Relations in the Second Term of Prime Minister Narendra Modi. Leading strategist and policymakers participated in the discussions. Dr Arvind Gupta, Director VIF delivered the opening remarks and Amb Ashok Kantha, Amb Arun K. Singh, Mr Sanjay Chadha, Mr V. Srinivas and Mr Pranav Kumar and Prof. Sujit Dutta participated in the discussion.

The salient points that emerged from the discussion follow.

India –China relations can be divided into three phases

India-China Relations in the first phase of PM Modi can be divided into three phases: the first phase is 2014-2015 in which Xi Jinping visited India, followed by PM Modi‘s visit to China. Notably, the Chumar and Demchok standoff also happened during this time. The second phase is from 2015-2016, rudely disrupted by the differences surfaced on issues such as the Dalai Lama, Masood Azhar and the Nuclear Supply Group (NSG) which finally culminated in the Doklam episode. The third phase is the post-Doklam phase that is still continuing.

India-China relations need adjustments

India-China bilateral relations has become a leader-led process wherein both the leaders have obtained charge of the affair. They are invested in the relationship than any leader before. This needs to be leveraged. This is the best time to review bilateral relations. There are structural challenges that we have not addressed. Strategic convergence between India and China has reduced and we have not taken care. Neither side is happy with the state of relations. The international order is changing rapidly and we are in ‘new normal’. Overall, China is under pressure and this has open a lot of opportunity for India.

A new modus vivendi is needed for the bilateral relations

Overall, the bilateral relations is better than it was a years ago. China is making adjustments vis–a-vis neighbouring countries. India needs to utilize this opportunity. The issues accumulated need at least limited progress. There is a need to add fresh positive content to the relationship and closer developmental partnership. There is a need to deal with the simultaneous rise of India and China and their competing world views which raise serious doubt about each other. There is also a need to induce new vigour in the strategic communications issue-by-issue and theatre-by-theatre.

Need for genuine strategic dialogue

India and China should start exploring early harvest for the border settlement. India should propose a solution based on Sikkim plus middle sector and seek more clarification on the Line of Actual Control (LAC). The LAC should be the basis of negotiation. Any understanding on the middle sector has to be based on watershed principle. Besides, the Comprehensive Building Measures (CBM) have actually not achieved much. Hence there is a need for intensive strategic dialogue like the US-China Strategic Dialogue.

China is not an adversary

To call China an adversary is to underestimate the scope of opportunities; at best it can be seen as a ‘challenge’. China is looking at hierarchical order in which they would like to constrain us, it is not likely to make any changes for India. India should take practical approaches while dealing with China such as in case of the Asian Infrastructure Investment Bank (AIIB).

Changing US-China relations

There has been a change in the overall US-China relations. Progress of China-US relations kick-started in 1971 as part of US’ effort to balance the global power vis-à-vis USSR. It was at the behest of the US that China got entry into the World Trade Organisation. The change in the US attitude toward China started appearing since the Bush administration. And since then it has undergone metamorphosis. Donald Trump has taken a forward-leaning hardliner approach to China and the current phase is marked by the severe US-China trade and technological frictions that have compelled China to look beyond the US. The change also started appearing in their national security strategy documents in 2017 and 2018.

US-China trade friction

Amidst the US-China trade friction, if India is able to get some investments, that will be a huge gain for India, although Vietnam has emerged as the biggest beneficiary of the diversion of trade flow. Against this background, the US-China trade friction is an opportunity of the lifetime.

Growing importance of the Indo-Pacific Region

The Indo-Pacific has become an important factor in the US strategic and economic articulation. Against this background, India should factor four points in her relationship with the US. Firstly, the US global objective which is today defined by Indo-Pacific; secondly, US relations with Pakistan; thirdly its relations with China; and fourthly the importance the US attach to its relationship with India. Overall, it is a complex situation where each country is trying to create space for itself. Within the context of Indo-Pacific, India should work as an independent player and explore convergence.

Regional Comprehensive Economic Partnership (RCEP)

The 2019 deadline for joining RCEP is fast approaching and it is high time that India takes a stand. China has started pushing for a free trade pact between ASEAN + 3 (which includes the ten-member ASEAN, China, Japan and South Korea) at the East Asia Summit. Among the 16 countries negotiating RCEP, all except India, Australia and New Zealand would get included in the proposed pact. Notably, if India is out of RCEP, the other countries would offer concessions to each other and India would be left outside. India’s participation in the RCEP should not be viewed as a zero sum game.

India–China Trade

On the face of it, there has been some decline in trade-deficit but the re-routing of the trade through Hong Kong is apparent. Besides this, there is growing competition with China in Africa, South-East Asia. China’s growing foothold in India’s neighbourhood is a matter of concern for India. Hence India needs to further deepen its engagement in its neighbourhood to counter increasing Chinese influence.

Attracting Chinese investment

The trade deficit is huge and it cannot be dealt with immediately. Generating exportable surplus is a big challenge for India. Hence what is needed is Chinese investments in India. India can draw lesson from Vietnam on this. Nevertheless, there are only a few sectors in which China can invest in India.

Asian Infrastructure Investment Bank and India

India is the second biggest shareholder in the Asian Infrastructure Investment Bank (AIIB). The AIIB is likely to consider a commitment of USD 200 million. Total lending to India so far is pegged at USD1.07 billion, including Morgan Stanley Infrastructure Fund.

India’s position on Belt and Road Initiative

India’s stand on Belt and Road Initiative is unlikely to change. Nature of China-Pakistan relations is not going to change, it may get stronger and stronger. India should consider pushing its relations with Taiwan.

Dealing with China

Strategically, in order to deal with other countries, there is a need for internal strengthening and development.