Cautious optimism

How should we view this growing warmth between India and China? Surely with cautious optimism, says Binay Kumar.

The recent visit of the Chinese Premier Wen Jiabao to India did not make headline news in this part of the world. What did, however, grab headline attention was the announcement in New Delhi that, against stiff competition from American and European players, two of China's largest telecom firms have been awarded multi-million dollar contracts to supply telecom equipment to India. The coincidence of the announcements with the visit of Wen Jiabao to Delhi was obviously not lost on the western world.

These lucrative contracts for the Chinese companies came on the same day as the Chinese Premier and Prime Minister Manmohan Singh signed agreements that aim at increased trade and co-operation to take the booming two-way trade between the two countries from the current 14 billion US dollars to 30 billion dollars by 2010.

"The two sides believed that Premier Wen Jiabao's highly successful state visit to the Republic of India marked a new level of India-China relationship and opened a new chapter in the friendly relations and cooperation between the two countries," said the joint statement issued yesterday on the conclusion of Wen's trip to India.

Cognizant of heartburns and anxieties across many capitals, Indian Foreign Secretary Shyam Saran said: "It was an outstanding visit that drew the attention of the entire world. It was an extraordinarily successful visit."

But what accounts for China's warm embrace of India? Plenty.

Let me first look at the scenario in China's immediate neighborhood and the compulsions driving the recent surge of warmth. We all have noticed lately a heightened desire on China's part to seek closer strategic cooperation with India to balance - and eventually supercede - America's unparalleled post-Cold War supremacy in the Pacific and the South Asia region.

In a recently published defense report, China warned that it faced growing "uncertainty, instability and insecurity." Where does this threat come from? In the perception of Beijing this situation has arisen out of the American military presence in the Pacific region and its growing influence over Afghanistan, Pakistan, Iraq and surrounding areas.

China is also looking for support on the Taiwan unification issue. In the same report, China said that relations with Taiwan are "grim," vowing to accelerate its military buildup. China wants to ensure Taipei's eventual unification with Beijing, but a peaceful union may not be possible. If Beijing opts for force in dealing with Taiwan, it would have to deter, delay or deny American intervention in a cross-Taiwan Strait military contingency.

And what better way to complicate an American military response than to garner active support in the region for a Chinese decision to attack, or coerce, Taiwan into accepting unification?

From the Chinese perspective, India has steadily become more and more important if China has to successfully checkmate what it perceives as the long-term US designs against it. By actively providing incentives for India to reciprocate its friendly gestures, China hopes to win over India to its side. These gestures have come in many ways. Its best demonstration was its decision in 2003 to recognize Sikkim as an integral part of India. The latest carrot is its offer of support for India's permanent membership bid at the Security Council.

The incentives have also come in the form of booming bilateral trade. China has also shown a willingness to work towards building a free-trade zone between the two countries and for joining hands to make them the twin towers of the global information technology power - China in hardware and India in software.

If the intentions are so pious, why is the Indian industry so cool to the idea of a Free Trade Agreement with China? Once bitten twice shy! Having seen the plight of American manufacturing, the Indian Industrial establishment is deeply worried that any preferential trade agreement with China would do India more harm than good.

By permitting unrestricted access to the Chinese in the Indian markets, we could see our local markets swamped with cheap Chinese products, the impact of which would far outweigh the benefits to India. The local industry's concern obviously stems from similar liberal trade pacts with smaller countries such as Thailand and Sri Lanka over the past two years, which have resulted in a flood of foreign goods in the local markets with hardly any commensurate increase in Indian exports.

While China's exports to India have been dominated by electronic products and organic chemicals, India's export to China is mainly of raw materials and intermediate semi-finished products like iron and steel and ores. It would not be completely illogical to argue that China is buying raw materials from us and selling back to us the same after some value additions. We don't need a Lou Dobbs to tell us that it is not a happy situation to be in.

Be as it may, how should we view this growing warmth between India and China? Surely with cautious optimism. Though the fear of Chinese manufacturing might is not entirely unfounded, India cannot afford to overlook the fact that it eventually stands to benefit by leveraging synergies between the two economies such as the complementary strengths in Information technology.