China, Southasia and India
There was a time, not so long ago, when King Gyanendra was believed to have a 'China card'. By advertising his regime's willingness to cosy up to Beijing, it was argued, Nepal's other foreign partners – and especially Sinophobic India – would be scared into giving him an easy ride. Of course, it did not work out like that. Indian diplomats in fact like to boast of the "close dialogue" they maintained with China through Nepal's crisis earlier this year. The king played his China card but, as Rhoderick Chalmers of the International Crisis Group put it, "it turned out to be the two of clubs."
The episode is typical of the ambiguity and misunderstanding with which China is perceived in Southasia. Does emerging China represent a commercial opportunity or an economic threat? Are the smaller countries of the region to perceive Beijing as an ally against the overweening ambitions of the regional hegemon, or as New Delhi's 'strategic partner'? There are three main reasons for the uncertainty: that the relationship is in flux; that China is a closed society and its policymaking is opaque; and that it can be both opportunity and threat, friend and enemy at different times, or even simultaneously.
The central thread in all this is the China-India relationship, which is having an ever-bigger influence on Beijing's bilateral ties with every other Southasian country. Diplomatic relations between Delhi and Beijing are better than at any time since the war in 1962. China's president, Hu Jintao, will travel to India before the end of 2006. Whatever the other stops on his itinerary, the visit will reinforce the message that China has no higher priority in Southasia than improving its relations with India. Some Indians are rather carried away by this – they propose that this might be the dawn of a new era of partnership and cooperation, an 'India-China nexus' that will change the world.
There are strong grounds for scepticism. First, Indian suspicion about China run deep, and the disagreement that caused the 1962 war still looms large. Usually labelled a 'border dispute', it is not some minor cartographic tiff. The size of the Chinese-controlled territory India claims in Ladakh is as large as Switzerland. China's claim to what is now the state of Arunachal Pradesh covers an area three times larger. Since 1988, working groups have been discussing the dispute. Their main aim has not been to reach agreement so much as to shelve the issue, allowing relations to improve in other areas.
New impetus was injected, however, when Prime Minister Atal Bihari Vajpayee visited China in 2003. Talks on the border were transferred to a much higher level. A settlement, involving 'swapping' claims and some minor face-saving border adjustments, still seems remote, due to the political difficulty of selling such a deal in India. New Delhi diplomats pooh-pooh the notion that Hu's visit might herald a breakthrough on the border dispute, but an agreement is no longer inconceivable.
Blooming bonhomie
Chinese scholars say that their government's renewed interest in India was provoked by America's attempts to "use India to contain China". Kishore Mahbubani, a senior Singaporean diplomat who now heads the Lee Kwan Yew School for Public Policy, has made a similar point rather differently: that China is "buying political insurance now" from all its neighbours. It knows America will be alarmed by its emergence as a great power and, far-sightedly, wants them to shun any lurch into an anti-China alliance.
China's 'all-weather' friendship with Pakistan has always complicated relations with India, but Beijing has long stopped voicing explicit support for Islamabad's stance on Kashmir. It also shares India's concerns about Pakistan as a base for the export of violent jihad. Pervez Musharraf has recounted the telling-off he received in Beijing over the Pakistani-trained militants pitching up in China's western, partly Muslim, region of Xinjiang.
Yet some Indian analysts still talk of China's 'strategic encirclement' of India – ie, its attempts to make friends with all of India's neighbours, from Sri Lanka to Burma. Indian diplomats complain that China "does not want to accept us in the same league", pointing to Beijing's reluctance in welcoming India as a permanent member of the United Nations Security Council. This is one reason why India sets such store both by its nuclear arsenal, and by its work-in-progress on civilian nuclear cooperation with the United States.
When India became a declared nuclear power in 1998, Vajpayee wrote to President Bill Clinton, citing as a reason for the move, "an overt nuclear weapons state on our borders, a state which committed armed aggression against India in 1962". China, which had reacted calmly to India's bomb, was peeved at being used as justification. At the time, Chinese officials implied that they were ready if it was an arms race India wanted. Such nuclear sabre-rattling has died down in the new bonhomie that has flowered since.
As China's economy grows, however, it will probably want an army commensurate with its economic might. India may find it hard to believe Chinese intentions are benign. India and China will also find themselves in competition for natural resources, especially energy, despite their agreement to 'cooperate' in acquiring such resources. They will also find themselves fighting for market share, despite the much-hyped 'complementarity' of their economies.
Hardware-software
Two-way merchandise trade between China and India, expected to be more than USD 20 billion this year, has increased tenfold since 1999. Just a few years ago, many Indian businesses viewed China as a competitive menace that was about to destroy them through the use of an undervalued exchange rate, free or subsidised real estate, and unlimited access to credit. Today, it is more often seen as a land of opportunity.
Nevertheless, there remains a huge imbalance in the trading relationship. This is not so much in the direction of trade – which, on India's figures, shows a small Chinese surplus – as in its relative importance. China is now India's second-most important trading partner, and its biggest source of imports – 7.3 percent of the total in 2005. India, however, accounts for less than one percent of China's overall trade. This is a symptom of the two countries' relative weight in the world economy. In each of the past four years, China's total foreign trade has increased by an amount greater that the total of India's foreign trade.
This imbalance is accompanied by continued Indian nervousness – in official circles, at least – about Beijing's long-term intentions. This is one reason for scepticism about some of the rosier claims for Sino-Indian economic cooperation. The idea that somehow Indian software skills can team up with Chinese hardware to produce a world-beating 'Chindia' combination so far seems fanciful.
Indian software firms have no option but to expand fast in China, because their multinational clients demand it. But they know that, in the long run, China is a big potential competitor. Correspondingly, among some Chinese policymakers, India's rise is being viewed with a certain edginess. They have noticed that the emergence of China as a lower-cost competitor was a proximate cause of Southeast Asia's financial crisis in 1997. Looking around for the source of such a threat to China's present dominance, India seems the obvious candidate. It is not, but it probably needs to be – as China grows richer and ages, and a young India grows up looking for work in the global economy.