China: Can we reset ties?

http://www.asianage.com/columnists/china-can-we-reset-ties-150

May 26, 2014

Mohan Guruswamy

In the 52 years that have followed the debacle of 1962, little has changed. We do not seem to have as yet grasped the real and futile nature of the border dispute. It seems that to us country no longer means people, but land.

Many challenges face the Modi government. On the international arena the most urgent and the most doable is a settlement with China. The new government’s plans to vastly expand infrastructure with a hundred new and modern cities, a high-speed rail network, the clean-up of our rivers, and to make India an industrial nation instead of the services-oriented economy, it is going to entail an investment of the scale we have never imagined.

India has a propitious demographic window from now till about 2060 when it must transform itself into a modern and prosperous nation. After that the demographic situation will start turning adverse with an ageing population and an increasing dependency ratio. So not only is time money, but money is also time. The time is now and ours. But we need to look for credit to build our nation. Right now the only countries with the cash reserves to be bankers to India’s plans are China and Japan. China has reserves amounting to over $3.5 trillion and Japan has a little more than $1 trillion. India has to turn to both or either. Only they can lead to the fruition of our plans.
China is in a semi-adversarial relationship with the US, and even more so with Japan. Japan is its biggest trading partner. And the US is its biggest export market and gives it a trade surplus of about $200 billion each year. It is this trade surplus that has made China wealthy as King Croesus. But it has a problem too. Most of this cash horde sits in US banks or in US treasury bonds earning it between zero to one per cent a year. With the US dollar depreciating at about four per cent a year, this Chinese reserve will turn into dust in about 30 years.
The US also has a worrying habit of freezing reserves when the going gets hot. Iran has several hundred billions in frozen assets. With so many flashpoints, particularly the South China Sea and the Senkaku Islands disputes with Vietnam and Japan, the chances of the US raising the ante should not be rated low. The Chinese need to invest this money elsewhere to get them a rate of return and also benefit Chinese industries. Right now their options are few and poor. China cannot pull back this hoard into its domestic economy, as that will cause hyperinflation. It cannot let this hard-earned money, earned by severely exploiting its own working classes, languish either. It has to put it to work. It is no secret that China is interested in investing some of the hoard in India. India has always been a good place to invest and India has never defaulted on a loan ever.

Even in the most difficult days of 1991, India pledged its gold reserves, rather than renege on its loans. Besides with its own high interest rates, India promises significantly higher rates of return. It is time to turn this situation into a mutually advantageous one. But for that we need to reset our relations with China first.
Narendra Modi realises that the Bharatiya Janata Party has come to power with a mere 31 per cent of the votes polled. That is 31 per cent of the voting translated into 282 seats in the Lok Sabha. Even in India with its long tradition of minority vote governments this is a bit of a freak happening. It most likely will not happen again. The BJP has to quickly extend its support base by delivering on the promises made. Its first and foremost task is financial engineering.
To fetch the money that will build India and create the 12 million new jobs we need each year, and also to feed a population with higher standards of living. If I were advising Mr Modi, I will say look for the money and go where the money is. For this, improving ties with China becomes crucial.
The recent availability of a part of the Henderson Brooks Report on the 1962 debacle, instead of resulting in a better understanding of what went wrong then, seems to be causing a reversion to old ways — where ignorance and political expediency drive attitudes. A democracy is often nothing but a government sensitive to public opinion and governments that ignore this do so at its own peril.
But public opinion, even when not inflamed, is quite often ill-informed. Even many among the leadership never really understood the historical background of the dispute then, or even now. The Indian government knows better, but has allowed itself to be swept by the tide of public opinion, and true to the manner the great game of democracy is played here, the Opposition did nothing to bail it out.

The influence of the domestic imperative in the international politics of democratic countries must never be underestimated. It is also an inherent characteristic of democratic societies that very little flexibility is given to the decision-makers in choosing a policy from a wide spectrum of options. If for instance, Jawaharlal Nehru had accepted Chou-en-Lai’s offers of a settlement on a give-and-take basis, he would have been accused of giving up our “sacred” territory. As it is the Opposition was exploiting Nehru’s discomfiture over his failed China policy and his naïve reliance on Hindi-Chini bhai-bhai and Panchsheel with the worlds foremost practitioners of realpolitik.
In the highly partisan atmosphere that characterised our politics then, as it is even now, any stick is good enough for the Opposition to beat the government with and vice-versa. The settlement of the border dispute on the “as is where is” basis was on offer till the turn of the century. India always felt that it could not sell it to the domestic constituency. The fear of the ultra-nationalists outside government, and keen to score debating points has always been real. Now the ultra-nationalists are in power, and pragmatism has a better chance than ever.
The press even in those troubled days was not very helpful either. The major English language papers almost in unison shrilly demanded that the Chinese be expelled and often accused the government of not doing its duty. The influential English language media with few notable exceptions, being still conditioned by their pro-British past was generally pro-Western and thus found this a good opportunity to needle the government on its policy of non-alignment seen by them in Dullesian terms as being pro-Soviet. Given this atmosphere, partisan political interests took precedence over national interests. This is not unfamiliar even today. The need to develop a non-partisan national consensus based on a rational survey of facts and events never was greater, yet was as far as it often seems even now.
Against this surcharged backdrop, Nehru had to come up with something. This something was the Forward Policy. This policy called for establishing posts in the disputed areas often behind the Chinese line of forward posts. Thus a number of small forward posts were set up with meagre resources, poor communications and extremely vulnerable supply lines.
Most of these posts had to be supplied by airdrops and quite a bit of the supply would end up in Chinese hands and often the People’s Liberation Army would hand these over to our men to derive a psychological advantage. Nothing describes the Forward Policy better than the words of an Indian Army officer: “We thought it was a sort of game. They would stick up a post and we would stick up a post and we did not think it would come to much more”. It came to be much more, as it had to, and the consequences were felt in 1962 when a full-scale border war broke out. The Forward Policy was against all sound military advice.
In the 52 years that have followed the debacle of 1962, little has changed. We in India have not yet been able to get together a non-partisan consensus on crucial issues such as this. We do not seem to have as yet grasped the real and futile nature of the border dispute. It seems that to us country no longer means people, but land. Or else why would we care so little about our people and their interests and honour, and care so much for an uninhabitable desert?
While it is possible for us to settle our eastern border disputes with China on the basis of a clearly demarcated McMahon Line, there seems little or no chance that the Chinese could be persuaded to handover Aksai Chin to us, and thereby delinking Tibet from Sinkiang. There also seems an equally remote chance that we might be able to retrieve it from the Chinese by military means. Even if we summon the political will to stake a fortune, the sheer lack of any tangible benefits, material or spiritual, will only make this even more foolhardy.
There are still many indications that the Chinese would settle along these lines. We in India still seem prisoners of our past and continue to take an excessively legalistic view of past events and present inheritances. We have even bound ourselves in knots with a jingoistic and unrealistic parliamentary resolution that binds us to an undefined boundary bequeathed to us and to the “liberation” of occupied territory, so desolate and inhospitable that let alone animal life, even plant life is hard-pressed to exist upon it!

By freeing ourselves from this mindset we could meaningfully negotiate a settlement with the Chinese, whose only aim in this sector seems to secure the Sinkiang-Tibet highway through the Aksai Chin. While this will not entirely dissipate the rivalry between the two countries it will remove a cause of frequent tension that only serves to underline our unfavourable strategic position.
The challenge now for our national leadership is to harmonise reality with sentiment, pragmatism with unhistorical belief and national aspirations with imperialistic legacies. To be able to do this we first need to extricate such sensitive and critical issues from the ambit of partisan politics.
By doing this, we can once again bring into alignment our political objectives, with military means and reality. We can then negotiate from a position of strength and give ourselves secure, defensible and natural boundaries in the north at least. And who knows this may even lead to lasting good relations between the two great countries. Finally, it will be Chinese investments in India that will ensure that relations with India remain stable.

The writer held senior positions in government and industry, and is a policy analyst studying economics and security issues. He also specialises on the Chinese economy.