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Renewed engagements, cooperation essential to boost India-China Synergy

 

 

Vinod Anand and Dr. Binod Singh

 

Since the Wuhan reset, bila-teral relations between India and China have seen a new wave of friendly cooperation and engagements from both sides. Think tanks are supposed to play an important role in this process of enhancing mutual understanding. An eight-member scholars delegation of Indian think-tanks undertook a field trip to witness the achievements of China’s Reform and Development at Forty (1978-2018) and discuss bilateral relations and the way forward from the Wuhan consensus.

 

The visit also revolved around understanding the current economic and political situation in China and their perspective on evolving strategic scenario at the global and regional levels. The visit covered the capital city of Beijing, Haikou (Hainan) and Guangzhou. In Beijing, which is the major policy-making center, the delegation members had open and candid interactions with both government and non-government affiliated think-tanks.

 

Think tanks in China have been tasked to play a major role in the rise of their nation. Hence in the last few years, China has seen a major surge in both government and non-governmental think tanks. Pangoal Institution, which is focused mostly on economic issues but also looks at strategic issues, is one such non-governmental think tank. Pangoal is unique because India is one of its major research areas.

 

The delegation visited China Institute of International Studies (CIIS), affiliated to Chinese Ministry of Foreign Affairs. Here, we learnt the official view regarding the current thinking on India-China relations and cooperation with India.

 

Chinese People Institute of Foreign Affairs (CPIFA) is as old as the People's Republic of China. It was founded by then Premier Zhou Enlai, who was concurrently Foreign Minister. CPIFA hosted the delegation at its ceremonial headquarters located in the vicinity of the Forbidden City. This was followed by an interaction with Peking University’s Center for South Asian Studies.

 

In the city of Haikou (capital of Hainan province), teams from the China Institute of Reform and Development (CIRD) and National Institute for South China Sea Studies interacted with the visiting Indian delegation on issues related with the current situation of peace and security in the region. In Guangzhou, Guangdong Institute for International Strategies (GIIS) at Guangdong University of Foreign Studies exchanged useful ideas for mutual cooperation. We also interacted with Guangzhou Academy of Social Sciences (GASS), a city-level major local think tank which advises the government on various aspects of urbanization and industrialization. What follows below are some of the important points which came up for discussion during the interactions and impressions gained from such deliberations.

 

Chinese Economic Transition and Development

 

Chinese scholars say that after 40 years of economic reform and development, China is entering a new phase of opening up. This is led by the policies announced by President Xi at the first ever China Import Expo in Shanghai in the first week of November 2018. Such pronouncements were also articulated earlier in China’s Bo Ao Forum held at Sanya, Hainan in April this year. There appears to be a major shift in the reform and the opening up patterns. The focus is now shifting towards domestic consumption and increasing the imports. Chinese think tanks have advised the government to increase import of products and services, and take measures to increase consumption.

 

People Republic of China had adopted a closed economic model based on the then Soviet model since its formation in 1949. After many debacles and crises and finally with the death of its founder Mao Zedong, Chinese leader Deng Xiaoping initiated the four modernizations that also included “economic reform and opening up” in 1978. China’s economic reform started from the agricultural sector with some pilot projects in Anhui province regarding the “commune production system” which was shifted to “household system.” Later, Chinese coastal cities were opened to foreign investment. This provided a great boost to the Chinese manufacturing sector. The city of Shenzhen today is one of the largest manufacturing hubs in the country, and also one of the major leaders in China’s high-tech sector development.

 

The Chinese manufacturing sector is not just an independent system. It comprises of a comprehensive industrial ecosystem based on numerous industrial clusters. Earlier, among some social scientists there was a concern that drastic shift from manufacturing to services will lead to a high rate of unemployment.

 

But in China, unemployment has been decreasing gradually, with new avenues for employment opening up. The e-commerce industry has employed millions of package delivery boys. This has been cited as a successful example of reemployment. China’s Information Technology (IT) sector has also grown fast in the last two decades. China is now being regarded as one of the major IT product and services developing countries in the world.

 

Many Chinese startups have become household names even in India, like Alibaba. Their strength lies in IT with innovation. China has emerged as a leader in cloud technology. Alibaba’s cloud technology is developing at a fast rate because of the large size of the domestic market.

 

The current focus is to revitalize the real economy by reducing institutional costs. The central government has launched many policies to revitalize the real economy, but the private sector is still facing some challenges. The central government is expected to usher in some additional measures and reforms so that it moves away from a centrally-controlled economy. To deepen the market opening in sectors which are still not accessible to foreigners, such as insurance and other financial markets, Chinese government has to open up its economy. Foreign players are also being gradually allowed to provide services in education, healthcare, and other related services.  

 

The start-up strength

 

China is home to the largest number of unicorns. It is believed that every minute, one new Chinese startup is formed. Now, major focus is on Hainan, an island province which was opened up in 1992, but nothing much had happened. The opening up of the Hainan economy is one of the major steps of central government in this decade. It is being developed as a test pilot zone for free trade area. The strategic industry being developed there is IT and big data centre. A group of 59 countries’ nationals have got visa waivers to come and visit this island province of China. As a pilot scheme launched in the province of Hainan, companies are allowed to control and regulate their own IPRs.

 

 

Under President Xi Jinping, the Chinese government’s major focus of ‘Made in China 2025’ plan is being implemented on war footing. China is attempting to move towards being technologically self-sufficient. “Made in China 2025” is a state-led industrial policy that seeks to make China dominant in global high-end technologies. But the label of “unfair” trade practices planted by US President Donald Trump is seen as a major challenge to Chinese technological development. Most of the chips and core technologies are still being supplied by the US companies. Although there is some visible impact of US trade war on the Chinese economy, yet mutual interdependence and the overall volume of the trade between them is too large to be impacted by tariff hike. Recent pause in the trade war between the US and China offers hope for an amicable solution in the coming months.

 

Structural Changes in China’s GDP

 

The structure of the Chinese economy is now undergoing a shift from the manufacturing sector to the services sector, which has been witnessing a continuous growth for last several years. According to experts at the China Institute for Reform and Development (CIRD) in Haikou city, Chinese economic growth is entering the post-industrial phase. The Chinese services sector is now contributing more than the manufacturing sector towards annual GDP growth. Although traditional investment is going down, the new investment in the services sector is going up at a good speed. In 2015, the share of services industries in the GDP for the first time had surpassed the share of manufacturing industry. In 2017, the share of services industry was 51.6 per cent. It is projected to grow up to 55 per cent in 2020. The contribution of industrial sector was 40.5 per cent, while that of agriculture was only about 7.9 per cent, indicating that China has entered the phase of the post-industrial economy.

 

Under the so-called “new normal”, China’s economy is undergoing several structural changes, where the focus is on the quality of growth. China is gradually moving its cheap and low-end manufacturing sector to either its hinterland or to neighboring countries such as Thailand, Vietnam and Bangladesh. According to CIRD scholars, the huge domestic demand potential is expected to sustain the country’s growth in coming decades. As consumption percentages in GDP reveal, China is gradually moving towards becoming a high consumption society.

 

 

It is hard to imagine that four decades ago, China was an economy of shortages. After four decades of reform and opening up to foreign investment, China has seen a vast change in its economic well-being and security. Now, China is one of the largest producers and consumer of finished durable goods. It is estimated that by 2020, the overall the domestic consumption sector will be 50 per cent of total Chinese GDP. Indeed, this is a fundamental change in Chinese economic structure. Under the current circumstances, the Chinese GDP is expected to grow at an average of 6 per cent in the coming years. The growth will be led by the services sector. In 2017, the incremental consumption was USD 514 billion. Economists in China believe that if the country can release domestic demand, the incremental consumption could rise to one trillion USD by 2020.

 

Rapid Development of e-commerce

 

The new economy and e-commerce are developing fast in China. It has emerged as the new engine of its economic growth. The latest record was set by Alibaba, of approximately USD 27 billion sales on one day. Chinese e-commerce companies such as Alibaba have a major stake in the Indian market. After the backlash and increased tariff on Chinese products entering the US market, China has reoriented its policies. There is motivation to look for new alternative trade partners, and India is seen as a potential option. There have been some gestures of increasing the import of Indian agricultural products, including mangoes. Some efforts have been made to explore the potential for increasing overall trade in other sectors.

 

 

Socio-Economic Impact

 

On the social front, the country’s leadership is paying attention to structural challenges in the economy. There has been the major focus on poverty reduction under President Xi’s regime. China has around 100 million people trapped in poverty. The Chinese government has launched one of the world’s largest social security projects. This covers each and every individual/ household in the rural areas, and provides basic support for the living. The Chinese government has been implementing plans to move villagers to small town and cities. Many of the Chinese villages have been either deserted, or are inhabited by only grandparents. China is heading towards becoming a village-less society in certain regions.

 

The Chinese population is gradually ageing. Old-age parental care and housing is an emerging industry. In metropolitan cities, there is a dearth of labour in the construction sector. In households, maids are from the Philippines, Vietnam and many other ASEAN countries. In mega Chinese cities, the salary of construction workers has reached 10,000 RMB or even nearly USD 2000. This is a serious crisis. It has delayed many large projects. The construction sector in China seems to have reached saturation point, with the labour seeking opportunities abroad. Measures have been taken to decongest mega cities such as Beijing and Shanghai.

 

In the new era, there have been significant changes in the Chinese society’s behaviour, especially the way they spend and consume. With the help of QR code payment technology, China will become a largely cashless society in the coming years. People from all age groups now make mobile payments via the applications Alipay or Wechat. With the help of technology, China is pushing hard to create safe platforms for all users. On the political front, the Chinese communist party continues to strengthen its ideology, and consolidate its control over any political dissent.  

 

 

Despite announced reform measures, there are still many institutional barriers to foreign players in China. It will be a long time before China becomes a level playing field for them. The institutional and structural barriers are mainly in the area of supply and demand side. There are sectors with over-capacity. China’s housing sector is overheated and oversupplied. As per some estimates, more than 35 per cent of the constructed houses are unoccupied. Such cities are being called “ghost cities.” But a lot of rural demand has not yet been exploited. Steel and iron are still required to construct rural China. The structural gap in consumption is huge in rural and urban China.

 

Reenergizing India-China Relations in post-Wuhan Era

 

Economic Cooperation

 

There have been talks of renewed agenda for India China cooperation in the post-Wuhan era. Scholars across China believe that China and India have the historical opportunity of cooperation, as both have strong political leaders President Xi Jinping and Prime Minister Narendra Modi at the helm of affairs. China expects India’s support in the fight against the so-called US unilateralism. Being part of WTO and the BRICS arrangement, India naturally supports multi-lateralism both at the global level and in Asia. New Delhi is not in favour of either US-led or China-led world order.

 

For India, the foremost issue is trade imbalance, which is a major concern for Indian policy-makers. According to an SBI ‘Country Wrap’ report, India’s trade deficit with China expanded to USD 51.11 billion in 2017, and further to USD 62.94 billion in 2018, from USD 38.72 billion
in 2013.

 

Exploiting India-China Tourism Potential

 

Scholars across the aisle felt that for India and China, one of the important fields of cooperation is tourism. Chinese tourists are famous for their spending powers, and have contributed much to the global tourism industry. According to Chinese scholars, India is an attractive destination for Chinese tourists, especially with the increasing interest of the Chinese in yoga and Buddhism.

 

There is need to enhance mutual understanding and promotion of culture. Some wrong perceptions about each other also need to be set right by enhancing people-to-people contact. In recent years, one major positive development has been that Indian movies are becoming highly popular in China. These movies have contributed to greater Chinese interest in India.

 

India-China tourism cooperation has huge potential but remains under-exploited due to poor air connectivity and infrastructure deficit on tourist sites in India, especially at the Buddhist pilgrimage sites.

 

Most Chinese know about India through the internet, through Indian movies and some Chinese classics such as “The Journey to the West”, which talks about the journey of Chinese monk Xuan Zang to India. These sources have at times promoted negative perceptions about India. Simplifying the visa process and increasing the number of air routes would go a long way in promoting tourism. For many Chinese, it is their life time ambition to visit places where Buddha Shakaymuni achieved enlightenment and preached, viz. places such as Bodh Gaya, Nalanda, Rajgir and Sarnath.

 

Promoting City-to City and State-to-Provinces Relations

 

Being two large nations, India and China are home to numerous cities and local governments, but they hardly interact with each other. To promote inter-city and inter-province level relations, India and China have signed many agreements, but none of them have been effectively implemented. One of the most important ways to achieve the inter-city cooperation is to establish sister city relationship.

 

Guangzhou is the third largest city in China, only behind Beijing and Shanghai. It claims to have more than 77 sister city relations throughout the world. Guangzhou had signed a similar agreement with Ahmadabad in 2014, but not much has been achieved. Both sides have not utilized the potential of this relationship.

 

Many scholars from both sides (including the authors of this paper) have consistently emphasized that inter-city and inter-province relations can be good channels to promote India-China relations. The progress on this front has been disappointing due to bureaucratic and structural delays in implementing the existing agreements.

 

For any viable and long-term relationship, it is important for the cities and states to get to know each other’s strength and complementarities. Given the large size of India and China, this becomes more relevant than in any other case.  

 

 

The Chinese scholars emphasized that in China, people do not really hear much about Indian cities. Therefore, Chinese companies and officials do not have much understanding about where to go in India and invest or, for that matter, even spend their leisure time, or where to go for recreational purposes. Mumbai, Bengaluru and Hyderabad seem to be most attractive to Chinese. Even Jaipur, emerging as a smart city, has made some positive impression on Chinese minds.

 

 

Indian cities seem to be lag behind Chinese cities in some respects especially with regards to high tech amenities. Chinese scholars believe that Indian cities rank high on social inclusiveness, which they feel is lacking in Chinese cities. They are quite keen to learn from the Indian experience of inclusiveness and public participation. The Chinese scholars suggested that leading Chinese companies line Huawei and Alibaba can help in building smart Indian cities., Andhra Pradesh is getting its capital city Amaravati constructed. Chinese companies with expertise in city infrastructure development and designing of smart cities can help such projects. India needs to promote this by sharing more information with Chinese companies.

 

Smart Cities Cooperation

 

Guangdong is one of the most industrialized provinces in China. It was the pioneer in carrying out economic reforms and development. Guangzhou, the capital city, is being developed as a smart city. The local think tank GASS is playing a leading role in providing the blueprint for the sustainable development of this cosmopolitan city. A major focus area in Guangzhou is promotion of smart logistics. But e-commerce has generated many side effects in Guangzhou. The public heaps discarded packing material on the roadside. In 2017, 3.9 billion packages were used in Guangzhou, accounting for 200 packages per head. This was termed as an environmental challenge. It was suggested that since both India and China have a huge population, they can share their wisdom to solve these problems and build smart cities.

 

Chinese think tanks are closely following the ‘Make in India’, ‘Digital India’ and ‘smart city’ projects. For the Chinese scholars, a major topic for India-China cooperation was building smart-cities. The Chinese side has shown keen interest in working with India for specific mutual cooperation, as both face similar challenges of rapid urbanization and sustainable cities. Chinese experts have visited India and studied India’s pattern of city development and urbanization. They hold some very interesting opinions. India can learn from China in this field.

 

At the same time, Chinese scholars acknowledge that Indian cities are more diverse and socially inclusive than Chinese cities. For the Indian cities to be called ‘Smart Cities’, Chinese scholars say logistics, traffic management and decongestion of the Central Business District (CBD) area should be prioritized.

 

It is also obvious that Chinese interest in Indian smart cities is motivated by their commercial interest. After facing restrictions and ban in several countries, Huawei, ZTE, Lang Chao and many other Chinese Information Communication Technology (ICT) hardware development companies have been lobbying hard to partner with Indian smart city development projects. The fast-growing Indian telecom sector is a highly attractive business area for them. Chinese companies are already major players in this sector. Despite inherent security concerns, India has not announced any policy to ban Chinese telecom companies to participate in building its critical infrastructure.  

 

India China 2+1 Cooperation in Regional Security and Development    

 

For regional security and trust building, the Chinese side has proposed the ‘India China 2+1’ concept, which is about holding dialogues between India and China involving any third country such as, Nepal, Sri Lanka or even Afghanistan. They expect that Indian scholars will deliberate on this proposal. China is keen to explore the potential of ‘India China 2+1’ in the South Asian region.

 

China still wants India to reconsider its stand on the Belt and Road Initiative (BRI). In 2019, China is going hold the second round of “TheBelt and Road Forum for International Cooperation.” It expects India to send its delegation and be a part of the Chinese overreach to the world. India has made it clear that the projects of BRI pass through the disputed territory of India and Pakistan. Hence
it is an issue of sovereignty which cannot be overlooked. 

 

According to the Indian perspective, developments on China Pakistan Economic Corridor (CPEC), which has now entered the second stage, are not very positive. Many countries such as Sri Lanka and the Maldives have fallen into a debt-trap vis-à-vis China. This has engendered domestic political instability in these countries. That ‘Belt and Road Initiative’ (BRI) has become a ‘debt trap’ for small nations in the region was contested by Chinese scholars. They were more inclined to project BRI as a ‘Game Changer’.

 

With regard to the situation in the South China Sea (SCS), Mr Wu Shicun, the President of NISCS, said that the overall security situation in SCS remains unchanged, yet the possibility of an escalation in regional tensions giving rise to instability cannot be ruled out. He recalled that from 2013 to 2016 when Philippines initiated litigation regarding SCS, China suffered many problems. Now, things are relatively peaceful and stable, he said.

 

China is the major coastal state for SCS, and claims a major part of the sea. India’s official position on the SCS issue was conveyed to the Chinese scholars. India’s main interest in SCS is freedom of navigation and overflight, as over 50 per cent of India’s trade passes through this area. India also is in favour of peaceful resolution of disputes in the SCS. From the Indian perspective, peace and security are of prime concern in order to pursue national interests.  

 

Indo-Pacific and China’s Concerns

 

Chinese think tank scholars hold that Japan initiated the process of Indo-Pacific strategy to offset China’ influence in the region. The US has pushed the same concept in order to increase military presence in the Indian Ocean and also in SCS. The US, Japan and Australia have been promoting a narrative of militarization of South China Sea as an excuse to maximize their influence in this region.

 

The concept of Indio-Pacific has not been well accepted by the Chinese. They were concerned that India has joined the United States, Japan and also Australia to form a quadrilateral alliance, also at times referred to as “arc of democracy”. They believe that this is a US design to contain China, and India is leaning with the US. The Chinese side often raises this issue with visiting Indian delegations. They expect India to uphold the fundamentals of India’s foreign policy of not forming any alliance with any power.

 

The Chinese expect India not to get very close to the United States. During our interaction, the President of South China Sea Institute in Hainan, Mr. Wu Shicun, expressed concern regarding the recent trends in Indo-Pacific consultations between the four major powers. He wanted us to clarify whether this was aimed at containing China.

 

We explained the Indian perspective to him in detail. The same is clearly reflected in the statements made by Prime Minister Modi at Shangri La dialogue and our Ministry of External Affairs. India advocates free and open sea for all nations, and sees ASEAN at the centre of the Indo-Pacific affairs. ASEAN centrality is at the heart of this concept. It is open and any country can join it. It also comes with the premise that the benefits of globalization should be available to all. Connectivity is a major element of this concept.

 

The Quadrilateral is still evolving. Its outcome will depend on the rapidly changing strategic environment at global and regional levels. India is a member of BRICS (Brazil, Russia, India, China, and South Africa) and Shanghai Cooperation Organization. Recently a Russia, India and China (RIC) summit on the sidelines of G20 meeting was also held. It was emphasized that India believes in strategic autonomy and does not buy the supremacy of any one country. Indian policy has been to work with China on various regional and multilateral fronts. India’s approach has been pragmatic, and it pursues its national interests.

 

India’s “Act East Policy” has also attracted the attention of the Chinese researchers. Their main concern is the policy activism from the Indian side from “Look East” to “Act East.” It was explained to them that the dominant impulse of Act East policy was to engage the countries economically and explore mutual synergies in other spheres, especially in people-to-people relations and traditional cultural linkages.

 

China keen on strong relationship with India

 

China is keen to keep its bilateral relationship with India on an even keel despite many structural and fundamental differences on a number of issues. These include CPEC violating India’s sovereignty, Beijing’s stance on cross-border terrorism, India’s Nuclear Suppliers Group membership and the border issue. There is a great degree of enthusiasm in both countries for taking forward our multilateral and regional cooperation after Wuhan consensus. Post the Wuhan informal summit, there have been plenty of Chinese articles discussing how to improve India-China relations at all levels. Such proposals and recommendations at times overlook Indian concerns and interests.

 

Chinese scholars have expressed interest in working with India in the development of African countries, but no substantive proposals have been made. They acknowledge that India enjoys enormous soft-power in the region, and can leverage it for commercial cooperation. In recent years, there has been a backlash in some African countries against Chinese projects which have got mired in controversies and corruption. Some Indian scholars also believe that India and China can work together in Africa in order to develop that region.