When two giants embrace

India and China together account for two fifth of humanity. They are neighbours, and as independent nation states, were born roughly at the same time. They have ancient civilisational links, although geographically separated by the highest ice covered mountains of the world. The relationship between these two giants (both in terms of population, landmass and economy) will be a defining feature of the twenty first century. Both aspire to great power status, although how much of this aspiration is ingrained in the minds of their respective people is a matter of conjecture. Both countries have sizable populations and regions which are backward, and both are counted as developing countries.

China’s economy is five times bigger than India, and that same gap exists between their per capita incomes. In dollar terms, adjusted for purchasing power parity, China and India are respectively the second and third largest economies in the world, and also among the world’s fastest growing ones. India’s growth rate surpassed that of China three years ago, and is likely to stay ahead. China’s economic reforms began in 1978, thirteen years before India. That time gap is seen clearly in many development indicators, and some experts feel that India’s current development trajectory is on the same path as China, only thirteen years behind.

But of course there are many differences too, most notably in their political systems. China is a one party system, whereas India is a multi-party robust and rambunctious democracy. They differ in the degree of economic and political freedoms enjoyed by their citizens. China is considerably centralised, although individual provinces are sufficiently empowered to pursue their development goals with their own resources. India’s federalism is more diverse, since different political parties may form state level governments. 

Prime Minister Narendra Modi’s almost impromptu visit last week, to meet with President Xi Jinping in Wuhan is an extremely positive and welcome initiative to strengthen bilateral relations. It follows a series of several high level meetings in Beijing and Delhi between leaders of the two nations. This is the Indian PM’s fourth visit to China after he took office in 2014. Some commentators see this meeting as a precursor to the “reset” of relations, since it follows the tense and awkward standoff due to China’s military construction activity in Doklam eight months ago. The PM and President met informally in Wuhan over two days and had many rounds of discussion. The President pointed out that only twice in his five year tenure has he gone out of the capital city to meet and receive a foreign head of state, and both those occasions were for PM Modi , first in Xian and now in Wuhan. The two will meet again in a multilateral meeting of the Shanghai Cooperation Organisation in Qingdao in June.

These meetings and an emerging bonhomie should not imply that we ignore “real-politik” issues such as India’s opposition to the Belt and Road Initiative (since it passes through Pakistan occupied Kashmir over which India claims sovereignty), or India’s joining a “quad” of United States, Australia and Japan for maritime exercise in the Indian Ocean. India is also wary of undue and disproportionate Chinese influence in its neighborhood especially in Sri Lanka, Maldives or Bhutan.

The Indo China relations are based on foundational principles laid down in Panchsheel in June 1954 and reiterated in the last two years. These five principles are mutual respect, non-agression, non-interference, mutual cooperation and peaceful coexistence.  President Xi also had pointed out his version of these five principles, which do not preclude addressing thorny issues, be they Doklam or BRI type, or the Arunachal border or infringement of India’s riparian rights on downstream waters of the Brahmaputra, or China’s role in South Asia. All of these can be addressed without holding the comprehensive relationship hostage to future strengthening. 

The India China economic and trade relationship is one of the most dynamic in the world. Last year mutual trade grew by a whopping 20 percent, although it was more skewed in China’s favour. Back in 2001, India was ranked number 19 among China’s export destinations. Today it is number five. That shows how important India’s consumers are to Chinese producers. However, while China’s exports to India between 2005 and 2015 grew by almost 500 percent, India’s exports to China grew by merely 25 percent, and have stagnated. This year, just before PM Modi’s current visit, China announced that its investments as FDI into India had crossed 8 billion dollars.

It’s important that China gives better and deeper access to India’s exporters, and helps narrow the bilateral trade deficit. Sectors which have great promise are auto components, software, pharmaceuticals, cinema and tourism. Not even 0.1 percent of China’s outbound tourists come to India. Imagine if that could go up ten fold. China will host the world’s first mega import expo in November. It is very important that India’s entrepreneurs, including SME’s capitalise on this opportunity. China has committed to importing 24 trillion dollars of goods and services in the next five years, as it tries to boost domestic consumption.

It is also trying to rebalance its economy away from exports and “old economy” dirty industries to “new economy” green industries. China already has trade deficits with all the ten economies of ASEAN. If India’s producers too are part of the global value chains in electronics, textiles, chemicals and metals, which have eventual customers in China, then India’s exports to China can increase vastly. Finally, if China too can divert one or two percent of its huge foreign exchange reserves to India annually, to invest in long term infrastructure here, which can earn a much higher return, then it is a win win proposition. It reduces China’s dollar risk, and it fills the funding gap for India. 

This bilateral relationship between the two giants has economic, trade, commercial, cultural, social and geopolitical dimension. At a time when the two Koreas talk of peace and uniting their people, surely the two giants of Asia can make great strides in their mutual relations. It will not only benefit their respective economies and societies, but also contribute to world peace and stability.