By Girija Pande
Often in China, symbolic gestures are the pathways to more important semantics. The importance of Indian Prime Minister Narendra Modi’s visit to China, which is by far India’s largest trading partner, can be gauged from the fact he had a chance to visit the native place of Chinese President Xi Jinping in the historic city of Xian.
The personal rapport that Modi now enjoys with President Xi was in full evidence in Xian, the first time a foreign leader was welcomed by a Chinese president in a city outside of Beijing. To be sure, Xi was reciprocating Modi’s gesture of receiving him in Gandhinagar and Ahmedabad last year.
On his visit to India, Xi spoke about his country’s intention to invest up to US$25 billion in India. The Indian business team accompanying Modi to China signed 21 agreements worth US$22 billion. Both sides consider this just the beginning.
Ever since India and China resumed state-level summit meetings and visits of the heads of governments in 1988 with the landmark and breakthrough visit of the then Prime Minister Rajiv Gandhi to Beijing, the commercial relations particularly between the two Asian giants are on an upswing despite occasional thorny incidents at the unmarked but long international border. After Rajiv, other Indian Prime Ministers who have visited China include PV Narasimha Rao, Atal Behari Vajpayee and Manmohan Singh. Now, Modi joins the list of his illustrious predecessors and has taken a very mature step in taking the Indo-Sino relationship to the next higher level.
Modi may have exchanged selfies, tweeted on Weibo (Chinese twitter) and gifts and shared anecdotes with his Chinese hosts but the visit was not just about atmospherics alone. It was a summit meeting with a lot of serious talking on both economics and politics. By all accounts, Modi is aware that this crucial, vital and critical relationship is to be nurtured with care because in the next decade or so China and India will be world’s largest and third largest economies respectively.
This was Modi’s first visit to China as Prime Minister but he is no stranger to the dragon nation, having visited the country in the past seeking investments for Gujarat, the state he ruled as chief minister for almost 13 years. During his chief ministerial sojourns in China he even used to carry business or calling cards in Mandarin. One of India’s then Ambassadors to China, Dr S. Jaishankar, an erudite and experienced diplomat was handpicked by Modi as his government’s foreign secretary.
Modi is an ardent fan of the Chinese economic miracle which he wants India to emulate at the earliest without compromising on environmental preservation and national security. He is keen to take forward his predecessor, Manmohan Singh’s plan of developing Bombay (Mumbai) on the lines of Shanghai. He doesn’t want to stop at Shanghai-type-Bombay alone and wants China to invest heavily in India’s smart cities, rail and road freight corridors and bullet trains and tracks related projects.
Untying The Border Knots
Diplomatic niceties apart, two issues were firmly etched on the back of Team Modi’s mind when they sat on the table for a serious discussion with their Chinese counterparts: the knotty border dispute and finding ways and means to bolster the commercial relationship between the two large economies, despite the huge imbalance in trade in favour of China. Not surprisingly, political, defence and security issues were discussed behind closed doors over several cups of Chinese tea while the announcements on expanding commercial ties were made in full media glare.
Since Rajiv Gandhi’s era when a bilateral study group started working on the border issue, there has been little progress on that front and Modi’s era is no different. Nevertheless it goes to the credit of the National Democratic Alliance government that it has strongly put forth India’s point of view that solving the dispute would require a radical change in the Chinese mindset. India is very keen that the 1993 agreement of peace and tranquillity on the Line of Actual Control that PV Narasimha Rao successfully reached upon with his Chinese counterpart, should be strictly observed in letter and spirit.
India has also made known its annoyance over China’s massive investments in infrastructural projects in Pakistan Occupied Kashmir. Differences are serious but they are not insurmountable. On the contrary, both sides agreed that if the alliance between the two giants has to strengthen, the trust deficit that bedevils their relationship needs to be addressed. It was decided that there would be a closer interaction between the armed forces of the two countries and more people-to-people contacts will also be forged.
Despite the differences, there are also other key global issues where views of India and China coincide. These agreements relate to views on the glaring inequality in global governance, climate change and the urgent need to counter global terrorism. Both nations comprise one-third of humanity and are fervently eager to play a much larger role on the global stage. They realize that united they stand and divided they fall. Together they can increase their leverage in this world. Keeping this in mind and to allay any potential misgivings, India made it a point to clarify that under no circumstances was its growing relationship with the United States intended to contain China.
United In Commerce
India is keen to accelerate both trade and investment ties with China, which is integral with its “Act East” and “Make in India” policies. While two-way bilateral trade reached over US$70 billion last year, the growing trade deficit of nearly US$40 billion rankles India to no end. China remains India’s largest trading partner – a position that is likely to continue in the medium term, while India has become China’s sixth largest market and growing fast. In a recent book “The Silk Road Rediscovered,” which I co-authored with two American professors, we project the two way trade to grow by 11-12 per cent per annum, but the trade deficit to widen further to nearly US$60 billion. This is not a cause for alarm because India largely imports capital goods from China to address its infrastructural deficit, while exporting primary commodities like cotton and minerals to the dragon. Importing cheaper Chinese equipment for the power or telecom industries, much of it financed with low-cost, long-term Chinese loans, is after all not a bad proposition until India can build its own global export capacities. This is precisely NDA government’s ambitious plan – to grow Indian manufacturing capacity on lines similar to the much vaunted East Asian model of Foreign Direct Investment (FDI) linked growth.
For India to succeed as a global manufacturing powerhouse, it has to first address two key challenges. It suffers from an acute shortfall in infrastructure and requires nearly US$1 trillion worth of capital investment to bring it up to the same level as many of the other emerging markets. India also ranks low in terms of ease of doing business, which deters foreigners from making any significant investments in the country. Stifling bureaucracy and complicated tax rules have long been a bane of the Indian economy.
This is where India can learn from China in good measure. NDA government has set in motion a massive drive to rejig India’s creaking infrastructure and all avenues are being explored to fast track developments of roads, railways, ports, power generation and airports among others. India is seeking China’s investments in areas such as power generation, transmission, telecom and railways, which hopefully will be cost effective as well as tied into cheaper long-term financing by Chinese banks.
Squaring the Circle
In Shanghai, Modi directly made a strong pitch to chief executives of major Chinese companies, including Jack Ma of Alibaba, asking them to invest in Indian manufacturing sector in a big way. He spoke at length about India’s long term annual growth trajectory of 7.5-8 per cent, which in the next five years will exceed China’s own slowing growth rate of 6-7 per cent. He also promised that India will set up special manufacturing zones for Chinese entrepreneurs from where they could access the lucrative and growing Indian market as well as produce for exports to the region.
India recognizes that a section of Chinese manufacturing companies is slowly moving operations out of China due to the need to restructure their industrial base. Higher costs, appreciating currency, non-availability of blue collar workers – especially in China’s south-eastern seaboard, have been plaguing the Chinese manufacturing sector. Plans to automate, relocate and rationalise manufacturing operations is now underway. This gives India a unique opportunity to offer its large domestic market to attract those Chinese companies who will otherwise relocate part of their operations to South East Asian countries.
Apex Avalon Consulting, one of India’s largest management consulting organizations, has tracked Chinese cost structure in detail vis-a-vis India over the last five years. In a recent path breaking report prepared for the Confederation of Indian Industry (CII), Avalon stated that the traditional Chinese cost advantage over India had narrowed dramatically. For example, in auto components, where both India and China export to global markets, the Chinese cost advantage due to their scale and logistical supply chain superiority was down to six per cent, about half what it was just five years ago. With continuing favourable trends in rupee-yuan parity, this, too, could disappear in the near future. If Chinese manufacturing base expands in India, the South Asian giant will also gain because of the access it will get to the formidable supply chains of Asia in general and China in particular. India in turn will finally get integrated into Asia’s very efficient manufacturing ecosystems of components, sub-assemblies and Original Equipment Manufacturers (OEM) segments.
The energy and passion Modi displayed in the three cities he visited in China was nothing short of a consummate artist! This, and his strong personality deeply impressed the Chinese leaders who are keen to expand their country’s political and commercial ties with India, which they see as a fast rising Asian power in the coming decade.
Modi is on track to do what no other Indian leader has been able to achieve, squaring the circle of substantial Chinese investments into India.
Girija Pande is the chairman of Apex Avalon Consulting, Singapore; and co-author of The Silk Road Rediscovered. He is also advisor to many foreign investors and Foreign Investors on India.
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