India and China: Is this too just rivalry as usual?

Mohan Guruswamy

The inexorable growth of China’s GDP having long surpassed Japan’s and is now taking aim at that of the USA ($14 trillion), whose economy is at present more than two and a half times bigger than that of China. It took China a little less than a decade to make a similar leap to overtake Japan. But then Japan has hardly been growing from 1995 and its GDP has been roller coasting between $4-5 trillion. If the growth of economies were a horserace, this would be akin to passing a fast starter who has slowed down to a trot. Overtaking the USA will still take some years and some effort as that country has begun posting some smart growth after the gargantuan Obama stimulus package pump primed, not just the US economy but also the world's economy, and particularly of countries like China which have a symbiotic economic relationship with it. Despite this Chinese GDP is expected to surpass that of the US well before 2030 when it will about $20 trillion.

China's growth in past three decades is the miracle story of our times. To replicate it might be a tall order for a country like India, which matches it in size and potential, but not yet in political and national will. But GDP alone does not make a nation wealthy. China’s current per capita income keeps it in the company of countries like Algeria and Albania. Even in 2050 when the Chinese GDP will be much bigger than that of the US, its per capita income will still be less than a fifth of the American per capita. If India keeps growing at the present rate of about 9%, its GDP will surpass that of China by 2045 and if India’s population peaks in 2050 at 1.6 billion, then in all likelihood, a decade or so later, so will its per capita income, now about one third of China’s.

But what does this imply for the world’s power structure? True the world’s economic fulcrum will shift to Asia. But when you get down to the basics, power is more a relation of the money available with a government than its GDP. This simply means the larger the revenues the greater the power at the disposal of a government. The US today has a Tax/GDP ratio of about 35, while that of China is less than half that. The ability to raise revenues is linked to the per capita income, income inequality and tax compliance. Given this, the ability of countries like India and China to squeeze more out of their people and squeeze greater effort is limited. So we shouldn’t be counting our chickens before the eggs hatch. Nevertheless, it is being confidently predicted that the top three places in global GDP rankings will be held by the USA, China and India, with the other major economies and powers like Brazil, Germany, Japan, Russia and UK straggling well behind in GDP terms.

Geography and recent history have made the India- China relationship a difficult one and one in which the USA will find ample space and opportunity to inveigle itself to its advantage. This is a made to order situation for strategists and leaders in the three countries to ply their trade with plenty of worst-case scenarios. It would seem that India and China are destined to live out the foreseeable future as rivals, if not adversaries. But rivals need not be enemies and neighbors need not get fratricidal. If there are two large and rising powers in a region, rivalry is inevitable. France and Germany or Brazil and Argentina come readily to mind. A hundred and fifty years ago France and Britain were bitter adversaries. The rise of Teutonic nationalism and of Nazism united the two countries against a common enemy. The “end of history” with the triumph of liberal democracy has largely blunted Franco-German rivalry by entwining them economically, while the advent of the European Union has made the borders seamless. The ratification of the Treaty of Tlatelolco of 1967 by Argentina in 1994, making all of Latin America and the Caribbean a nuclear free zone, has more or less eliminated any vestigial military fears Argentina and Brazil may have had. On the other hand go to a Brazil-Argentina soccer match or to a France-England rugby game and you will wonder if things have changed at all? Rivalries, it seems, are forever!

The situation between India and China is not very different. Nationalism arrived in both countries at about the same time in the early 1900’s with the advent of Sun Yat Sen in China and MK Gandhi in India. This was after centuries of foreign rule over the Han and Hindu ethnic majorities. After decades of turbulence both countries emerged as “free nations” with entirely different systems in the waning 1940’s. Mao Zedong and Jawaharlal Nehru were leaders with entirely different personalities and world views. Mao’s ruthless instincts were honed as the leader of the Communists in a bloody civil war. On the other side Jawaharlal’s were finessed under the tutelage of Mahatma Gandhi into that of a somewhat naïve and dreamy idealist. The isolation of the two countries that the British had so assiduously nurtured by supporting an independent Tibet was rudely shattered by its annexation by China in 1951. This and the handing over of Xinjiang by the then USSR to the new PRC made the Han and the Hindu neighbors for the first time in history. 

Since 1954 the legacy of a disputed border has flared up into a bitter row. Both countries are guilty of misinterpreting history to further their claims. India’s claim of the barren and wind swept Aksai Chin plateau rests on an arbitrary extension of the border in 1939 to the present claim line first suggested by WH Johnson in 1865. Johnson was a discontented official of the Survey of India who made his fortune by vastly extending the Kashmir Maharaja’s domain on the map. The 1939 extension was done to create a buffer between Xinjiang, which had turned into a Soviet protectorate, and British India. 

On the other side in China the obsequious courtiers of the Qing (Manchu) dynasty were not averse to some cartographic conquests of their own. Ge Jianxiong, a well respected history professor at China’s prestigious Fudan University, has written that “the notions of Greater China were based entirely on one-sided views of Qing court records that were written for the courts self-aggrandizement.” Ge has also written criticizing those who feel that the more they exaggerate the territory the more “patriotic” they are. The present Dalai Lama lent weight to this by formally staking a claim over Tawang to the newly independent India in 1947. Such is the stuff that wars are made off and the two countries are in a military face-off since 1962. 

To be fair to the Chinese they have at several times offered a package deal of settling by foregoing each others un-historic and unsubstantiated claims in Ladakh and Arunachal Pradesh. India’s leadership has balked at this lest it be accused by the opposition of the day of selling out. Only in recent days a new wisdom seemed to creeping into South Block, but the Chinese have suddenly turned recalcitrant. They now seem to suggest that the package deal is no longer on offer?

That Sino-Indian relations are strained is to state the obvious. Ironically enough they have been on a slow downslide ever since the 2006 visit of Hu Jintao which was intended to showcase the upswing in the relations between both the countries. It began when the Chinese Ambassador to India, Sun Yuxi, made a rather indiscreet and untimely comment to a TV news channel that the status of Arunachal Pradesh was still an unresolved issue between the two countries. Whether Sun Yuxi made this comment as mere restatement of the old Chinese claims for the record or to deliberately stir the pot can be debated. Sun Yuxi had told me that he did not intend it to stir things up and that a partly American owned Indian TV channel repeatedly and deliberately played it up to blight the improving ties between the two nations. Sun Yuxi also, quite significantly, added that while he might have been indiscreet his statement won him a great deal of support from many groups in China who maintain a hard-line view about India and its increased chumminess with Washington. The leadership of the PLA is most certainly among these forces. He also hinted that the Chinese Foreign Ministry was more inclined towards a softer line over India. 

This line generally favors an extension of Chairman Deng Xiaoping’s offer to Prime Minister Rajiv Gandhi in 1988 to settle the border dispute on an as is where is basis. The increasingly beleaguered Rajiv Gandhi felt that he did not or could not expend the political capital on a deal to essentially forego claims on Aksai Chin for an alignment along the disputed McMahon Line. The two leaders then agreed to keep the issue frozen for settlement at some future time. (See “India China Relations: The Border Issue and Beyond” by Mohan Guruswamy and Zorawar Daulet Singh for a detailed discussion on this).

Following this and the visits of Prime Ministers Narasimha Rao and Atal Behari Vajpayee, it was generally accepted in India that the Chinese claim on Arunachal Pradesh was now in the past and that only the issue of actually defining the lines of control in Ladakh and aligning the border along an agreed McMahon line remained. Vajpayee even formally recognized that Tibet was an integral part of China in exchange for a similar recognition of Sikkim as a part of India. Every Chinese General Secretary since Zhao Ziyang too has visited India. The relations seemed to be vastly improved. The result of the Sun Yuxi statement was that what had become a mere border alignment issue was once again transformed into a territorial issue. In the recent days the situation has been vitiated by a series of stories in the Indian media, many of them false, suggesting fresh troubles on the border.

As if the border row wasn’t enough to heat up relations, other issues too have cropped up. The question of the Dalai Lama’s continued residence has emerged as the waters of distrust began receding. China’s inability to deal with increased Tibetan resistance to its policies of assimilation also makes it angrily point a finger at India. India has been very correct in restraining the Tibetan government-in-exile and strained sinews in a China like manner to allow the Olympic torch pass through New Delhi unhindered. When in India the Dalai Lama is restricted to just performing his ecclesiastical duties which include a large Indian flock adhering to the Tibetan school of Mahayana Buddhism. The Chinese have now take out umbrage over his visit to the ancient monastery at Tawang. This is his fifth visit to Tawang. So the obvious question is why now?

The global economic crisis has exacerbated problems within its rapidly growing economy. With US markets rapidly shrinking China needs to find markets elsewhere to sustain its export led growth model. The rapidly growing Sino-Indian trade but increasingly unbalanced in China’s favor mostly due to an undervalued Yuan is yet another festering issue. China derives much of its export prowess due to its undervalued Yuan and exploitative practices in the work place. The economic profligacy of the USA and China’s somewhat naïve hoarding of trillions of dollars as reserves makes it the USA’s co-equal in causing the global economic mayhem. There is no sign that China has derived lessons from this and will take a more positive attitude to reconstruct global economic order. 

China still does not seem to have grasped the essential reality of its trade relationship with the USA. Many American economists have taken to describing it as akin to that of a dope peddler and drug addict. China supplies cheap goods to the USA and then proceeds to invest its trade surplus in US securities, which in turn fuels more American consumption. This gives China the two digit GDP growth rates it has got addicted and the Americans the high standards of living they have got addicted to. The way out of the current crisis is only when the US starts to curb its appetite for overseas goods and overseas adventures like in Iraq and Afghanistan, and China gets used to more realistic and manageable growth rates, in which case the revaluation of the Yuan becomes a mandatory obligation. The problem is that the Chinese consider any such suggestion as a criticism of their wise policies that made them a world player! Sensible opinion from India and elsewhere will only keep pointing out to this as the key destabilizer of global economic order.

India-China trade is burgeoning and is now headed to pass $70 billion by the end of 2012. The trade balance favors the Chinese to over $20 billion. The irony of this is that even this relatively small amount of money will then as a part of China’s US securities portfolios and thereby feeding the consumption frenzy in the US even more. Clearly a way has to be found out of this situation as well. China’s suggestion that the Renminbi also becomes a world reserve currency finds few takers in India. One will not be too surprised if this too is taken as a sign of India’s essential anti-China orientation? On the other hand the Chinese may not be reckoning that India might prefer a more market oriented Rupee-Renminbi trade arrangement to keep the books balanced and business orderly? The bridge needs to be crossed soon. But it is still not seem to be on the agendas of the two leaderships.

In the recent years there has been much speculation about the emerging rivalry between India and China. A good deal of this owes to the fact that India too has joined China in the high GDP growth club. While Chinese reforms which began in the mid 1970’s gave it an edge, India’s reforms which began in the early 1990’s have begun to show signs of having taken root. Since the turn of the century India has been posting annual growths of close to 9%. Given its more favorable demographic profile India’s GDP is predicted to soon grow at a faster rate than China’s. If these projections are realized, in another quarter of a century India’s GDP will not only overtake that of the USA, but will hover pretty close to that of China. While this should not be a cause of friction, it actually does cause some. Higher GDP’s means bigger military budgets. With bigger budgets both nations will inevitably sense greater threats. The unsolved border issue then assumes a critical dimension.

Then there are smaller irritations which crop almost every other month. For instance, the misuse of business visas by Chinese construction and other companies to bring in what is now estimated to be 58000 workers into India is another one. Latest in the series of provocations is the issue of visas on a separate sheet of paper to Indian residents of J&K and Arunachal Pradesh to highlight their disputed status. Prior to this China has objected to the Asian Development Bank’s loan for a hydel project on the Siang river in Arunachal. Compounding these is the rather dubious role played by China during the Vienna conference to ratify the IAEA’s exemption for India from the stringent provisions instituted after India’s 1974 nuclear test. China has also opposed the expansion of the UN Security Council’s permanent membership and by extension India’s entry into it.

India has always been concerned about the China/Pakistan axis against it. In the recent days several new publications and books have exposed how extensively China assisted in the development of Pakistan’s nuclear program and its missiles. It is believed that not only did the Chinese give Pakistan the design for its weapons, but also allowed it to test it in its test grounds in Lop Nor, Xinjiang in the early 1993. Documents seized from Pakistan’s rogue nuclear scientist, AQ Khan, revealed that the Chinese actually gifted Pakistan 50kgs of fissile Uranium to build its first lot of nuclear bombs. Since Pakistan’s nuclear program is entirely India centric this is quite revealing about Chinese hostility then towards India. New Delhi is even more concerned about this aspect of China’s behavior, particularly since it too faces an Islamic jihad in Xinjiang. This co-operation endures despite well known concerns about the safety of Pakistan’s nuclear weapons? The Chinese however insist that this was in the past and China is now committed to improving ties with India. But the proof of the pudding is in the eating and China, despite its much vaunted policy culinary abilities, has not yet put it out on the table! 

Now we must consider another relationship, for long disdained by economists and social scientists- growth and size of population. GDP has a directly relationship with the size of nation’s population and its demographic profile. If a population is suitably educated, vocationally skilled and in good health, particularly it’s productive age cohort of between 18- 60 years, then the size of this productive age cohort will determine GDP growth. At this moment of time, China has the world’s largest productive age cohort. But by 2050 India’s productive age cohort will be a couple of hundred million more than that of China’s. That is because populations too rise and wane as families get smaller and death rates overtake birth rates. By 2050, many of today’s major economies will be showing deep declines in population. Japan, Russia and most of Western Europe will lose huge numbers. Russian population will decline by as much as 40-50 million or a third of what it is now. As China’s population starts flattening its dependency ratio – that is the number of people, young and old, who need to be supported by the families or society - will start rising. China’s dependency ratio will be 64 as opposed to India’s 48. So there is some hope after all for us, if our leaders don’t mess it up?

Finally, let me leave you with this. In village of Lokur in Dharwad district of Karnataka, India’s biggest joint family, the Narsingannavar’s, live on a 200-acre estate. The Narsingannavar family now numbers 188 persons of all ages. The family estimates its annual consumption expenditure to be over Rs.14 lakhs annually. Their collective property is worth over Rs.20 crores. This should make them among the more wealthy families in India. But the Narsingannavar family still has to live frugally eating millet rotis and locally grown vegetables. They get new sets of clothes once a year. But since the family has over one hundred voters, no gram panchayat can be elected without their support and this gives it much clout even in the district. China’s story, as is India’s, is much like this. The coats may be frayed at the elbows but when they walk, talk, smile or snarl, the world will take note.

Email: mohanguru@gmail.com