Establishing an alliance with the US does not mean we have to turn our backs on China. On the contrary, the aim of multi-alignment is to explore areas of common interest with a variety of partners, rather than commit to just one (or none). In any case, we couldn’t disengage from China even if we wanted to; we share a 2500-mile-long border and a vital economic connection. China is India’s largest trading partner, with bilateral trade skyrocketing from $2.9 billion in 2000 to more than $84 billion in 2017, though the trade deficit has also ballooned.
Yet China can never truly be trusted. As the world’s largest trading partner, it may be a key pillar of the global economy, but it is also inscrutable and aggressive in its quest for hegemony, playing by its own set of rules in everything from trade practices to territorial disputes.
By lavishing aid on countries from Central Asia to South America, Beijing has bought loyalty and acquiescence all over the world, minimizing blowback when it decides, say, to hoard rare-earth metals or build artificial islands in the South China Sea. China has also grown increasingly skilled at wielding what the Economist calls “sharp power”: the use of manipulation and coercion to influence other countries, in contrast to the blunt force of its “hard” military and economic power or the “soft” impact of culture and values.
There is growing evidence of covert Chinese meddling in politics and academia all over the globe: influencing politicians in Australia, infiltrating government offices in Canada, using fake LinkedIn accounts to cultivate sources in Germany, and pressuring academic publishers to remove sensitive or unflattering books from their databases, the Washington Post reported. And the Communist Party has demonstrated alarming hubris in amending the country’s Constitution to abolish term limits, giving President Xi Jinping unlimited power – possibly for life.
Give our proximity and our kinship as Asia’s developing giants, China poses a unique challenge for India. It is both helpmate and bully, collaborator and rival, lifeline and threat. We simultaneously appreciate, envy and fear our big neighbour to the north, which sustains us even as it unnerves us with taunts across the border and aggression in the region’s seas.
In 2017, for instance, China both picked a fight with us on the Doklam plateau and took advantage of the region’s fixation on nuclear North Korea to build new military facilities on its man-made islands in the South China Sea. While we don’t want to antagonise China, we won’t be its doormat, either. That means we must remain ever nimble, treating China alternately as a peer, a partner and an adversary, depending on the circumstances.
Where our interests converge, we should embrace; where they diverge, we must pick our battles carefully, adopting a hard line only when Beijing’s actions pose a direct threat. Otherwise, we keep a low profile and grant the Chinese plenty of leeway, with the understanding that they are no more interested than we are in escalating hostilities. Beijing knows well that if tensions rise too high, we have Team Democracy behind us.
As Asia’s two great ancient civilisations, China and India have co-existed side by side for centuries. India became one of the first countries to recognise China’s communist leadership after the 1949 revolution. Despite occasional flare-ups along the disputed border, the relationship has been largely peaceful. The one major exception, of course, is the 1962 war, a humiliation that lingers painfully in India’s collective memory and perhaps unfairly heightens our fears of China to this day.
Since then, military actions along the border have been minor and relatively short-lived; as much as the Chinese may relish testing and provoking us, as on the Doklam plateau, they appear increasingly wary of pushing it too far. “China sees India as the biggest rising developing power that in the longer run...could pose challenges,” Bonnie Glaser, of the US Center for Strategic and International Studies (CSIS), told the Times of India. “In the near term, China worries most about India’s cooperation with other countries, forging coalitions with Japan, Australia, and the US, to counter Chinese power influence in the region.”
Until relatively recently, China and India followed similar developmental paths. In 1985, our GDPs, measured at PPP, were almost identical. But then China took off, liberalising earlier, faster and more zealously than India, where the promise of the early 1990s became mired in bureaucratic paralysis. As China soared to dizzying heights, India plodded along, making slow, incremental progress. The world came to see us – and we came to see ourselves – as a serial underachiever: talented but floundering, unable to fully harness our natural gifts and become anything other than a poorer, less successful, more democratic version of China.
That has changed in recent years. Though China remains Asia’s reigning powerhouse, with an economy that dwarfs India’s overall, India is catching up. Broadly speaking, our growth trajectories are moving in opposite directions, with China’s slowing while India’s gains steam.
In 2015, GDP growth in China missed the 7 per cent mark for the first time since 2009, while India’s topped 8 per cent. In 2017, both fell to about 6.7 per cent, though in the October–December quarter India outpaced China, 7.2 per cent to 6.8 per cent. The IMF predicts that the general trend will hold, with India’s growth reaching nearly 8.2 per cent in 2022 and China’s falling below 5.8 per cent.
GDP growth figures, of course, must be consumed with a heaping spoonful of salt; measuring – let alone predicting – economic growth is a notoriously elusive pursuit, with different sources using assorted variables and methodologies. This is especially true for rapidly developing China and India, where economists from across the spectrum have persistently questioned the reliability of their government-supplied growth figures.
Indeed, many attribute India’s upward trend to the government’s new way of measuring economic output, introduced in 2015 to keep the country more in line with international standards. Delhi may have shown “incompetence” in implementing this new system, Ruchir Sharma told Bloomberg, but Beijing is guilty of flagrantly “managing the numbers”.
Even Chinese premier Li Keqiang has scoffed at the notion of self-reported growth; he once told a US ambassador that China’s GDP numbers were “man-made” and “for reference only”. The only measures that counted, he said, were electricity use, rail-cargo volume and loans issued. He’s right; these days, GDP growth alone is hardly the be-all, end-all measure of a country’s progress.
What matters more in the long term is the quality of that growth. And on that score, India may well have the stronger hand. Our growth has been gradual and organic, grounded in domestic consumption, while China achieved rapid expansion largely by boosting exports and taking out massive loans to remake its infrastructure. They can’t keep that up indefinitely; Bloomberg estimates that by 2022, China’s total debt will be 327 per cent of GDP, making it one of the world’s most indebted countries. By some estimates, China has as much as $7 trillion in hidden bad debts, dwarfing the official estimate of $250 billion and greatly increasing the risk of a financial crisis.
Of course, economists have been warning for years of the imminent collapse of the “Chinese miracle”, yet the juggernaut rolls on – at a slower pace, to be sure, but that’s to be expected, even welcomed, in such a runaway economy.
In fact, China has adopted some of the free-market strategies long favoured by well-established democracies – including India – to produce steadier, more methodical growth: reducing barriers for foreign investors, encouraging entrepreneurship and developing its own home-grown tech industry, among others.
At the 19th Communist Party Congress in 2017, which cemented Xi Jinping’s political control for the foreseeable future, the government for the first time demonstrated rising concern about the long-term impact of the national credit boom. When Xi presented the economic plan for the next five years, he pointedly declined to name a specific GDP growth target, indicating a desire to rein in debt and let the rate adjust to its natural level.
Some estimates put that figure at less than 3 per cent if Beijing were to take into account all its debt. Xi also reiterated the importance of reducing economic dependence on manufacturing and boosting domestic spending; between 2010 and 2015, household expenditures as a percentage of GDP barely budged, from 36 to 37 per cent. By contrast, household expenditures in India hit 59 per cent of GDP in 2015 and in the US, 68 per cent.
Yet Xi has tightened state control even as he vows to promote market reforms. The muddled message has caused the government to overreact to the natural hiccups that mature market economies take in stride; when the stock market dropped precipitously, for instance, Beijing suspended initial public offerings (IPOs), slashed interest rates, instituted new trade restrictions and even shut it down temporarily. Such measures remind foreign investors of how inexperienced the Chinese are at navigating free markets and how quickly the state can seize control.
Rising production costs, rampant corporate espionage and greater government interference have further frustrated foreign companies operating in China. Among those that have shuttered or decreased their offices on the mainland are Microsoft, Adobe, Panasonic, Yahoo and Adidas.
What does this mean for India? Certainly it creates new opportunities, elevating our role as an economic and strategic leader in the region to help combat the uncertainty wrought by China’s slowing economy. At the same time, it heightens the importance of crafting a careful, nuanced and forward-looking China policy.
Excerpted with permission from Super Century: What India Must Do To Rise By 2050, Raghav Bahl, Penguin Books.