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26 April 2018, Gateway House

Modi, Xi take charge

The leaders of India and China have decided not to leave the bilateral relationship to bureaucrats or ministers, but instead handle it themselves at the very top. The April 27-28 meeting promises to be a game-changer as Xi Jinping has accepted the need to improve ties with India as a priority

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Manjeet Kripalani (GH): On the morning on April 27th, Indian Prime Minister Narendra Modi will fly to Wuhan to meet his counterpart in China, Xi Jingping. These two leaders are going to take charge of the India-China bilateral and create new geopolitics and geoeconomics for Asia and perhaps the world.

There will be nobody in the meeting except the two leaders. They will discuss amongst themselves what is best for both their countries and what is best for both the countries towards each other. Professor Nalapat discusses.

Professor, what in your view are the 3 areas which can turn the relationship currently viewed as unequals, to one of equals?

Prof Madhav Das Nalapat: This meeting is going to be between two leaders who, together administer 40% of the world’s population; between the future Number 1 country and economy in the world and the future Number 3 economy. It’s between two countries that together have 5,000 years of human history. If they come together, there will be an immediate impact on commodity markets and on many economic parameters for mutual benefit. Both leaders understand this – and therefore, they and they alone are meeting. This is not a meeting between two national security advisors or foreign ministers, but one between heads of government of two of the top four countries in the world; a summit of two powerful people who believe in the Asian Century; two powerful patriotic nationalists who want their country to reach the top of the global chain. China is closer to it than we are – Prime Minister Modi will be having a dream that some day, India is going to be the top economic power on the globe. So that’s the importance of this particular meeting.


The Chinese take the long view, and in the long view, India and China are not going to be equal. The Americans took the long view in the 1970s, and at that time, China was way below the United States in terms of economic output and resilience, but the Americans treated China as an equal because they took the long view. The reality is that in about 15-20 years, in spite of having a corrupt, dysfunctional bureaucracy that normally works against the national interest, the people of India are going to ensure their country becomes the third biggest economy on the planet.

This fact will be inescapable to the Chinese. In the late 1970s-80s there was a situation when the United States and China combined against Russia – they were the top three powers, with two of them combined against a third. The Chinese – and many of us too – believe that they’re going to be the top power in the world; the United States is going to be second, and for quite some time, we are going to be third. The Chinese are very clear they don’t want a repeat of the earlier time – to have India and the U.S. combine against them.

By ‘they’, I mean the core of the Chinese Communist Party. One of the problems on the part of China – that is, the reset policy to India – is that India is given a much lower priority than the U.S. or Japan or Europe. India has been handed over to the foreign ministry, the military, the middling rungs of the party establishment, not the top. This relationship is too important for that. It has to be handled at the top rung on both sides and the good news is that Xi Jinping, from the very start, has accepted the need for China to look upon India as a global power, a major power, and make better relations with India a priority. He has been having problems with his bureaucracy and military regarding this.

I am sorry to say that the Chinese military may look Chinese on the outside, but a large part of their brain is provided by the Pakistan army. Their thinking on India is very largely based on what their friends in the Pakistan army tell them. Therefore, it has been very clear to the Chinese leadership that the suggestions that are coming from their own establishment, the bureaucracy and military, are suggestions which have not been helpful even to overall Chinese interests, except in the very short run.

So, here, Xi Jinping is taking command of the party, the military, economic policy, foreign policy, and now, I’m happy to say, command of their policy vis-à-vis India.

On our side, Narendra Modi, when he was chief minister of Gujarat, always had an open door toward Chinese investment. He was in China and was treated exceptionally well there. I remember that Prime Minister Modi went to China, I think, about a year and a half before he took office and a signal was sent from Delhi informally to Japan and China to the effect that, this is not an important guy, don’t make a big play of him. Both the Japanese and Chinese did make a very big play of him, which was pretty shrewd, on their part.

So, from the beginning, Prime Minister Modi has accepted the importance of China in a future calculus of being a great power, which is India. Which is why, throughout the Doklam stand-off, he ensured that not a single Chinese company was in any way disadvantaged by the numerous wings of our government and our bureaucracy for whom harassment is part of everyday work, it’s second nature. That, in my view, was the Prime Minister’s understanding of the importance of a strong commercial tie with China.

I long held the view that India needs to walk on two legs – the defence and security leg with the U.S., and the commercial, business, economic leg with China. Whereas in the 1970s, 1980s and much of the 1990s, while the U.S. was indispensable as a good friend, if you wanted to make economic progress – and I must say our leaders didn’t understand that – they were quite hostile to the U.S. during that time and you’ve seen the rates of growth in India during that time.

From about the end of the 1990s, having a good relationship with China was indispensable if you wanted to make economic progress. Experts and analysts are now talking about Japan or the U.S. being our partners in any activities against China. They are all completely interlocked with the Chinese economy. Their relationship – Japan’s or U.S.’ – with China is way more than ours. The number of flights between Japanese and Chinese cities – and the puny number between Chinese and Indian cities—there is no comparison.

Some of us have this notion, a dream, that all these countries are enemies of China’s and are going to gang up. They are not enemies of China, they are not going to gang up; they are, in fact, very strong business partners of China’s, and I think Prime Minister Modi is a shrewd Gujarati who understands that. So both Prime Minister Modi and President Xi understand the importance of good relations with each other. On the one hand, if we have a good commercial relationship with China, the Americans will take us more seriously. On the other, if we have a good defence and security relationship with America, the Chinese will take us more seriously.

And, seeing all this after Doklam… post Doklam – what’s happened? The Americans are now saying, Oh! No H1B visa for spouses, you’re not going to be allowed to work. They’re doing much that is hostile to our interests. They’re even going to the extent of saying that we are going to be sanctioned for buying Russian equipment. This is one of the most negative policies that any country can use on India. I would regard it a hostile policy towards India, and yet, some people in the Trump administration are saying, look, these guys are dealing with Russia, they’re buying Russian equipment, we should sanction them. And I am sorry to say, some of our bureaucrats, some of our politicians are so terrified of the Americans that I’ve been told some very important purchases are being put on hold because of the fear of an American sanction.

The Americans are not going to sanction us, we are way too important for them. And the fact that we are way too important for China has finally come to the top of the Chinese leadership. So Xi Jinping has taken command of India Policy. I hope President Trump takes command of India Policy. Obama did – for some time. During his last two years in power, Obama took command of the India Policy. Trump, in the next two and a half years of his administration, has to take command of the India Policy for the potential it has to be actualised fully.

GH: There is inequality, especially in business investments in both countries. There is large Indian trade and investment in China but restricted Chinese investment in India. However, one of the largest and most sophisticated investors in Indian startups are Chinese companies. Given the worry on China being a surveillance state, will increasing such investments pose a significant risk to India?

MDN: The British, the Americans, the Germans, the Pakistanis, the Maldivians – every one of them snoops on India. The only way India will be secure is if we have 10-12% growth, if we become a big-and middle-income economy. We are not going to be secure in any other way. That’s the first point.

Secondly, given the way the capital is structured, what stops the Chinese entity from setting up a European kind of enterprise, which is just a label on a door, and then that enterprise starts sending capital to us? Many exporters in India do that. I have tracked several. They reach some entities in the Bahamas, where nobody would even like to work – not even for two hours a day – and suddenly, the Indian company sells to this one at a very modest price, and in seconds, that company resells to someone else at a high price. It’s obviously done to undervalue your exports.

The government of India doesn’t seem to be concerned about it at all. We have a government today where the tax man is running riot, but he doesn’t seem to be bothered about the fact that Indian companies are exporting goods and the prices at which they’re doing so are way below the prices that the same goods are being charged for by other countries or that their re-export is taking place immediately. For example, a shell entity is selling to India at very high prices. It buys, say, a phone, for $100, sells it to India for $300 – a full $300 in foreign exchange is sent out. Heaven knows – how much of that foreign exchange ends up in Swiss banks, and how much in other ways, has always been a wonder to me. Our officials are so smart, they can count 2+2 easily, but they don’t seem to be understanding this massive loot of the country that is going on because of under-invoicing and over-invoicing.

So, the Chinese can come to India in many ways. But they are not going to come unless they are treated with respect. The Chinese are Asians – they, we, believe in face. Even an entity like the Bank of China being allowed to come to India – what does that say when every day, the newspapers are talking about Chinese entities being espionage agencies. Much espionage takes place through companies—and those companies are not only Chinese, they are companies belonging to at least three different countries in the world. So this obsession we have with China being a security or espionage threat is absurd.

Our main security threat is the lack of economic and social development; the inequalities in our society; the tensions in different social groups. This is the main social threat we have – like Deng Xiaoping had. We need to focus, 100%, for one generation, on growing India. We have to follow Deng Xiaoping. When Modi came as chief minister of Gujarat to China, and I happened to be there, I wrote a piece for the Sunday Guardian about how he could be the Deng Xiaoping of India. I haven’t seen too many signs of that.

GH: Gateway House has recently published a study on Chinese investments in India’s neighbourhoods, which maps out the strategic sectors and geographical areas in South Asia that China has invested in, and their repercussions on the recipient countries. The China-Pakistan Economic Corridor (CPEC) remains a bone of contention between India and China. How can both countries move beyond the CPEC and focus on greater economic cooperation in South Asia?

MDN: The so-called China-Pakistan Economic Corridor, passing through Kashmir, and being called CPEC, is absolutely impermissible – they have to change the name. But importantly, let us have an economic corridor with China, with Nepal, Myanmar. Let us also do it.

You have the Bay of Bengal Initiative for Multi Sectoral Technical and Economic Cooperation (BIMSTEC), for example; you can have a China-India Economic Corridor. I heard of a China-India Economic Corridor going through the entire red corridor: if the Chinese start working on building roads, highways and other infrastructure, there’s going to be very little that is red in that corridor in about 10 years’ time. So the reality is, we have been blocking Chinese investment in India. It’s not because the Chinese are spreading their investments outside India as a matter of strategy; they are doing it as a default option because we have closed our door to China.

The Chinese don’t close their door to anybody – not the Japanese, Americans, not the Indians. But we have done that, and the reason is that our intelligence agencies are led by the nose by the agencies of certain countries that do not want India and China to work commercially together in a smooth way. If that happens – telecom, infrastructure, energy, even automobiles tomorrow, there is going to be a serious problem of competition from China and many of the companies from these countries are going to be affected. So they welcome Chinese tourists, but tell us not to take them in because they are all subversive. They welcome Chinese investment, but tell us not to touch it: ‘This is terrible, you will have a debt trap and be in serious trouble.’ Those handling policy in India seem to be falling for this kind of line of thinking.

An intelligence agency should not be led by the nose on foreign policy because each agency will reflect the views and interests of that particular country. And many major countries have a clear interest in ensuring that commercial and business cooperation between India and China remain at the low and anemic level it is at. One of the main reasons why the government of India has not signed two more of those defence agreements is the weapons lobbying in India – the arms merchants from certain countries, who do not want India to sign those agreements and have the Americans coming into India.

I am now totally in favour of allowing the F-16 production base to come here. They will, on the condition that the F-8 team will come, and this will be followed by the F-35. But why isn’t it happening? Because the Russian, the French and other arms lobbies are working night and day to prevent it. Thus, our mind space has been invaded, occupied by entities that have outside interests. And so has our education space. In geopolitics, for example, most of our concepts are based on what is good for the West or for China, or even in some cases, what’s good for Pakistan – but not what’s good for us. It’s not India-centric at all. So we talk about ‘India First’ and we put India last in our policies. So this big bogey of China wanting to take over India, launch a military campaign, use CPEC, have tanks flooding Rajasthan and going into Delhi….The Chinese are not crazy, neither side would like a war with the other.

This meeting between Xi and Modi, two sane, sensible, powerful leaders who understand, will be a tragedy if the two countries fight each other. And I think they are going to do everything to ensure that that doesn’t happen.

As for Doklam, the Chinese have been even more hysterical about it in their media than we have been.. I don’t know who in the military or foreign ministry gave them the go ahead for this. I think that must have been one of the reasons why the top leadership said, ‘enough is enough, we can’t allow India policy to be dictated at such a low level’.

What is the big deal about Doklam? Not a single bullet was fired, not a single soldier was hurt. Soldiers from both sides threw stones. The Chinese may have abused in Mandarin, the Indian soldiers in Hindi. Neither would have understood each other. No Chinese company – and no Indian company in China – was affected, nor were visits. Doklam was a molehill that was made into a mountain by the establishments and media in both countries. And this played into the hands of the countries that are looking at India and China and want to see a conflict. Xi doesn’t want it nor does Modi. The realisation that people in high positions in both countries are pursuing policies that could lead to a conflict has led to both of them agreeing to meet these two days in Wuhan.

GH: If India China come together as cooperative partners in Asia, what will be the impact on the U.S.’ place in Asia and on Pakistan? What will the Asian landscape look like?

MDN: We need the U.S. to maintain privacy in the Indian Ocean, it is very important that India be the prime power there. We can’t do it alone. We are working with the Quad countries, to which I would like to add the Philippines, Indonesia, Vietnam and make it seven-cornered. So we need the U.S. very much in this, and vice versa: the U.S. needs us too.

We are both facing radical groups. There are many radical groups all over the West. India and the U.S. must come together to face them. They are in Africa, parts of South East Asia, West Asia. and we need to come together to face this danger. Whether it’s Indian Ocean primacy or radical groups; the giant promotion of technology which empowers individuals rather than groups or bureaucracies – we need to come together with the U.S.. That is not going to change. The Chinese and U.S. engagements are two separate things. Neither country will give you a good deal unless you have the other on your side. The Chinese are not going to give us a good deal in economics and commerce unless the U.S. is present as our defence partner. The U.S. is not going to give us a good deal on defence, security and technology unless we have a very good arrangement with China on commerce and trade. A healthy relationship with either country is not possible unless one has healthy relationships with both countries. This is something our brilliant analysts in both China and India need to understand. I am in favour of working with a strong relationship with both countries.

I also believe in the future of the three countries. The United States and China are not going to go to war. If there is a conflict with North Korea, the U.S., of course, with South Korea, may devastate a large part of North Korea. But they are also, in my view, going to open the door to Chinese forces to come and occupy the nuclear facilities of North Korea. And let’s not forget: the nuclear facilities of North Korea are mostly on the China border. So I don’t believe the Americans are going to let their troops or the South Korean ones anywhere near the China border. I think there is going to be a nod and a wink for Chinese forces to come and take over the nuclear facilities to “protect the North Koreans from the South Koreans and the U.S”. But in effect, it is to take control of North Korea’s nuclear programme.

This is shadowboxing. There won’t be a trade war. If there is a trade war between the U.S. and China, the dollar is going to be worth five rupees. That is not going to happen. The Chinese economy is going to have a 100 million more unemployed people: that will not happen.

So this dream world we seem to be inhabiting – India and the U.S. jointly fighting in China – it is a dream. As for Pakistan – it’s unavoidable that that country will break up. It is important from the human rights point of view that the Sindhis, Saraikis, Pashtuns, and the muhajirs, be given honour and respect. For both the Chinese and Americans, Pakistan is only the people in khaki, people from outside in khaki; there is no Pakistan. So the only people they – both China and the U.S. – are backing and supporting, is the Pakistan army, which is the enemy of the Pakistani people. The Pakistani people need to ensure that the military becomes an army that returns to the barracks, and not this malign force – or Pakistan will break up.

The Chinese are very realistic people, and if they see that a country is heading for a break-up, I don’t believe they are going to try and pump a lot of money into it or create problems for it. India, Iran, Afghanistan, the U.S., China…all of us need to work together to understand how to deal with a Pakistan that is so obsessively moving towards suicide.

Produced by Manjeet Kripalani & Aashna Agarwal
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