No sooner had Indian commentators completed a series of sombre reflections prompted by the 50th anniversary of the Sino-Indian war of 1962 than the second India-China Strategic Economic Dialogue began in New Delhi in November. Normally, such occasions produce the usual range of anodyne government statements. But this time appeared to be encouragingly different, with some concrete announcements regarding proposed Chinese investments in building high-speed rail lines for the Indian Railways and modernisation of railway stations, and towards the establishment of 2,500 MW of wind-generated electric power. A target to increase bilateral trade to $100 billion by 2015 was also announced.
Since India is hungry for infrastructure investments, and with China holding a huge surplus of foreign reserves, Chinese investment in India is one way to bridge the yawning deficit in the Sino-Indian balance of payments. Still, two questions arise: first, are targets for economic engagement too ambitious? Second, will deep economic engagement reduce the risk of conflict with China on political and security grounds? For the answers, let us take a look at recent east Asian history.
India’s economic connectivity with China remained poor until the advent of the new century, with bilateral trade being only $2 billion in 2001. Even with a huge jump to $74 billion in 2011, the amount is still modest compared with Sino-Korean trade at $214 billion. Today, China is Japan’s topmost destination in terms of trade, outward investment, tourism and student travel. In turn, Japan occupies either the first or the second place in all these four areas in China’s reckoning.
The Association of Southeast Asian Nations (ASEAN) runs a huge trade surplus with China. China, Korea and Japan have all significantly increased the portion of their trade – denominated in renminbi – and with the free trade area with ASEAN coming into force shortly, the economic integration of east and southeast Asia will be near-complete. India has watched this scenario unfold, and the resulting rise in prosperity of its Asian neighbours.
But does close economic connectivity translate into national security and friendly inter-state relations? The example of east Asia suggests a more complicated story. Despite the great interdependence of Japan and China on each other, there still remain deep historical and other issues between them, which cause considerable political irritation and social angst. China also has problems with some of its ASEAN neighbours over the South China Sea. Nevertheless, all these countries, including China, seem to have mastered the art of living with the Jekyll of close economic relations side by side with the Hyde of occasional political tension. This is a lesson that India should imbibe — that in this complex world, businesses as also governments must learn what Mao Zedong called “the correct handling of contradictions”.
The east and southeast Asian countries have been able to manage these contradictions and build close and multi-dimensional mutual economic connectivity because of the knowledge about each other gathered over years. This informal knowledge has been buttressed by formal institutional links through business chambers, professional associations, specialist agencies, universities and tourism. At the same time, east Asian countries know that the alternative – conflict in the form of a shooting war – is intolerable.
Consider the “thought experiment” of a Japan-China conflict. Given the intricate supply-chain relationships that operate across Asia, such a conflict would paralyse, for example, the production of almost all electronic goods known to man. Shipping would grind to a halt. While there can be no absolute guarantees, greater mutual interdependence certainly reduces the risk of armed conflict.
In the India-China case, the knowledge, cultural factors and other institutional arrangements that support economic engagement with China are as insignificant as to be almost absent. India and China are like neighbours in a big city. They are strangers to each other, creating an environment ripe for misunderstandings and exacerbating the notorious “trust deficit”. India and China’s businesses and government sectors must, therefore, urgently create these facilitatory processes that can then support a wide canvas of Sino-Indian economic and people-to-people engagement. In this canvas, the border issue will certainly figure – but not at its centre – and hopefully over time, will find itself at the periphery.
What should be the scope of this canvas? Perhaps a target of $250 billion of bilateral trade might be a good number to aim for by 2020. A two-way tourism figure of two million people (currently 0.6 million annually) would seem both feasible and desirable for its massive employment possibilities. Chinese investment in India’s infrastructure could be made even more beneficial to the country if long-term contracts could make it worthwhile for Chinese companies to train Indian labour in larger numbers, especially as Chinese labour costs escalate further. China and India could engage in collaborative innovation to address some of their – and the planet’s – pressing problems: clean water, a sustainable environment, renewable energy, eradication of tropical disease and inexpensive housing. Working together, the two countries could dramatically cut the timeline for creative discoveries.
Their reconnection through a full-throated Sino-Indian economic engagement will, of course, produce its share of problems and its naysayers, as does every transformation. But its sheer scale and momentum has the potential to be a game-changer for both nations, and indeed for the world. If this could be the legacy – much delayed – of the 1962 conflict, it is worth waiting 50 years for it to start unfolding.
The writer is an Honorary Fellow of the Institute of Chinese Studies, Delhi