The Pandemic Depression
The Global Economy Will Never Be the Same
The relationship between China and India will be one of the most important of this century. Their interactions will help to determine the future of globalization, international institutions, and U.S. power. Their ability to cooperate will be crucial on international issues ranging from climate change to multilateral trade negotiations. Yet for all of its future significance, the relationship remains stuck in the past.
Since its defeat at the hands of China in the 1962 border war, India has viewed its neighbor with suspicion. China, victorious in war and mindful of its economic heft, has treated India dismissively. Even as China and India come into their own on the world stage, they remain fundamentally alien to each other.
The countries’ leaders, Chinese President Xi Jinping and Indian Prime Minister Narendra Modi, recognize the problem and have pledged to boost ties. But with the legacy of 1962 living on—at the border, in bureaucratic corridors, and among the countries’ super-sized publics—progress will be slow and prone to setbacks, cooperation will remain ad-hoc and pragmatic, and both Beijing and New Delhi will remain more comfortable dealing with Washington than with each other.
China and India live under the long shadow of a short war. In 1962, in the foothills of the Himalayas, near-frozen troops suffered modern India’s most humiliating defeat at the hands of China’s People’s Liberation Army. The relationship has been thawing out ever since. In India, the border war exposed the myths of Sino-Indian brotherhood and identified India’s northern neighbor as the primary threat to its long-term security. In 1998, Indian Defense Minister George Fernandes called China India’s “potential enemy number one,” and, when India tested nuclear weapons the same year, Indian Prime Minister Atal Bihari Vajpayee used China as his justification.
Relations have improved since then, but not that much. China is seen as a present danger at the border, where troop maneuvers and infrastructure projects have ramped up tensions, and because of its patronage of Pakistan. According to a 2013 poll conducted by the Australian think-tank the Lowy Institute for International Policy, 83 percent of Indians consider China to be a security threat, and Indian newspapers feature near-daily reports of Chinese provocations at the border. Accounts of the war and its aftermath adorn the shelves of Delhi bookstores: India’s China War, Himalayan Face-Off, Himalayan Blunder, and so on. Foreign policy seminars are incomplete without an octogenarian Indian colonel soliloquizing on the lessons of 1962 and the dangers of appeasing China.
For China, 1962 meant something quite different. The conflict, now nearly absent from popular memory, seemed to offer definitive proof that India would remain a second-rate power. India’s offer of political asylum to the Dalai Lama after 1959 and its relationship with the Soviet Union (with which China had fallen out after the late 1950s) made it an occasional irritant, but never a serious threat. To Beijing, India’s military appeared weak, its caste-ridden society “feudal,” and its Anglicized elite tainted by the stench of British imperialism.
That view was confirmed when India missed the boat on economic reform. After Deng Xiaoping jump-started China’s economy in 1978, China seemed destined for great-power status. New generations of politicians, scholars, and citizens grew up with increasing self-assurance that China was heading toward economic modernity and global recognition. India’s poverty, traditions, and trajectory, on the other hand, were an uncomfortable reminder of the past. “You know, when I visited India in the 1990s,” said a former Chinese diplomat, commenting on the condition of anonymity, “their officials told us that we could soon catch up with them. It seemed strange then, but now it just seems funny.”
In recent years, however, India’s increasingly prominent global role—especially through the BRICS group and the G20—has given it a more serious spot on Beijing’s geopolitical map. The countries are both weary of Western-dominated international institutions and India has featured prominently in China’s efforts to build alternatives: the Asian Infrastructure Investment Bank, the BRICS Bank, and the Shanghai Cooperation Organization. Most recently, Narendra Modi has raised eyebrows in Beijing by courting the United States, Australia, and—especially—Japan. But there’s still a long way to go before China considers India a peer. As Zhu Feng, a leading Chinese commentator and professor at Nanjing University, put it, “We don’t consider India a very successful contender and I don’t think Modi can change that.”
DREAMING IN RUPEES AND RENMINBI
In addition to undermining the political relationship between China and India, the 1962 war also destroyed their economic relationship. For nearly a generation after the last rounds were fired, ancient trade routes that had once brought Chinese silks to India and Buddhism to China lay dormant. Things picked up slowly in the late 1970s and then sped up after high-profile visits to China by Indian Prime Ministers Rajiv Gandhi and Atal Bihari Vajpayee, in 1988 and 2003, respectively. Buoyed by Chinese demand for Indian iron ore and Indian demand for Chinese nuclear reactors, electronics, machinery, and chemicals, annual trade has ballooned to $66 billion from just $3 billion in 2000.
Today, more than anything else, the prospect of profit is chipping away at mutual suspicions between China and India. Chinese companies, such as the high-tech firms Huawei and Xiaomi, are beginning to think big about India. A 135-strong delegation of Chinese CEOs accompanied Xi on his visit to India last September, and at a conference the following month in Delhi, Jack Ma, founder of the Chinese e-commerce giant Alibaba, praised Modi’s speeches as “inspiring” and announced his intention to invest in the country. India, in turn, has high hopes for its software and pharmaceutical companies in China, and increasing numbers of Indian students are learning Mandarin. In a way that would have seemed implausible even a few years ago, Chinese and Indian businesspeople are dreaming in rupees and renminbi.
Beneath all the excitement, however, turning economic enthusiasm into political goodwill is no easy task, not least because the economic relationship remains deeply unbalanced. India runs a $37.8 billion trade deficit with China, and its exports to the country are overwhelmingly composed of raw materials rather than finished goods. For many Indian commentators, it is difficult not to view these present-day difficulties through the lens of the past. Sino-Indian economic ties are “no different from the imperial legacy when the British grew opium in India for export to China,” writes the Indian commentator Shishir Gupta in Himalayan Face-off. Just 24 percent of Indians considered China’s growing economy to be a good thing for India, according to a 2012 Pew Global poll. (By contrast, 44 percent of Chinese respondents considered India’s growth good for China.)
The two countries’ economic ties aren’t just imbalanced; they’re also shallow. Despite its decade-long overseas spending spree, China’s investments in India have not kept pace with the trade boom. In fact, China’s investments in India total just $500 million, less than Malaysia, Canada, and Poland have invested in the country. (Indian investments in China are also relatively small, at some $470 million.) All of this has political implications: Investing in overseas firms involves putting down roots in foreign countries, which provides businesspeople with a stake in strong bilateral relations and a reason to lobby for improved ties.
But Chinese companies in India are often ensnared by the Indian bureaucracy’s fears of over-dependence on China or of espionage. Indian firms in China struggle to gain market access in information technology and pharmaceuticals. They also deal with deep-seated perceptions that they have little to offer. The slow pace of reconstructing economic ties has also left Indian and Chinese firms virtual newcomers to each other’s markets and with few organizations or experienced compatriots to turn to when they run into trouble. Indian firms in China, for instance, are forced to rely on either an embassy with just 30 diplomats; trade bodies, such as the Federation of Indian Chambers of Commerce and Industry and the Confederation of Indian Industry, with just one representative in China; or an Indian diaspora that is effectively non-existent.
Put simply, economic ties may not yet be enough to drag the Sino-Indian relationship into this century.
Perhaps the largest obstacles to a burgeoning relationship are the Chinese and Indian people themselves. The Chinese and Indian publics do not know each other well—and what they do know is colored by historical baggage. This, combined with strong nationalist strands in both countries, makes it difficult for the political relationship to progress.
According to a July 2014 Pew Global poll, just 30 percent of Chinese hold a favorable view of India, and a mere 31 percent of Indians hold a favorable view of China. (Fifty percent of Chinese and 55 percent of Indians hold a favorable view of the United States.) This is partly because there is little interaction between the two populations. Of the 100 million Chinese who travelled overseas in 2013, just 160,000 ended up in India. (1.4 million visited France.) Of the 270,000 Indian students studying abroad in 2013, just 9,200 were in China; at the same time, only 2,000 Chinese students were studying in India. On top of this, the visa process is cumbersome and direct flights are limited: only one airline, Air China, covers the Beijing-Delhi route, and no direct flight links the commercial hubs of Shanghai and Mumbai.
At a deeper level, the two societies simply aren’t very appealing to each other. Most Chinese have never eaten Indian food or watched a Bollywood movie and give India little credit for founding China’s largest religion, Buddhism. Many have tried Yoga (which, in China, boasts an estimated 10 million regular practitioners), but consume it largely as an import from the West. And, for a population just one generation removed from near-universal poverty, Western celebrations of India’s mystical asceticism hold little appeal. China doesn’t fare much better in India, where, despite the conspicuous success of Chinese food, few other aspects of China’s ancient or modern culture resonate. The countries’ academics and experts are also poorly placed to teach mutual understanding. China has produced a handful of experts on Indian languages and literature but few experts on Indian politics or economics. “High-quality China studies in India is a good 10 to 15 years away,” said Jabin Jacob, of the Institute of Chinese Studies in Delhi, and The Hindustan Times’ former China correspondent, Reshma Patil, writes in her recent book, Strangers Across the Border, that Indian academic writing on China is “largely stuck in a time capsule circa 1962.”
All of this is exacerbated by disconnects in the Indian and Chinese systems of governance. China’s state-led efforts to boost its rapport with India seem to elevate rather than allay its image problems in democratic India: In Delhi and Mumbai, Confucius Institutes, designed to promote Chinese language and culture abroad, have struggled to establish themselves because of security concerns and disputes over teaching methods. India’s boisterous civil society fares equally poorly in China, where NGOs, public debate, and intellectual life are strongly circumscribed by the heavy hand of the party-state. Track-two dialogues, where argumentative Indian public intellectuals butt up against studiously dull Chinese apparatchiks, are perhaps the most striking example. “We have two completely different systems,” said Mohammed Saqib, Secretary General of the India-China Economic and Cultural Council in Delhi, in an August 2014 interview: “The ways of working and the ways of thinking are different. The only real exception is our family values, which are quite similar.”
TWO COUNTRIES, ONE VOICE
Xi Jinping and Narendra Modi are clear about the potential of the Sino-Indian relationship. Writing in an Indian newspaper ahead of his visit to India last September, Xi depicted the countries as “two important forces in a world that moves towards multipolarity” and promised that “if [China and India] speak with one voice, the whole world will listen.” The leaders have emphasized the countries’ shared history of trade along the ancient Silk Road, their shared ties of Buddhism, and the nations’ past economic glories. “If you go back 300 years into history, the largest GDP contribution in the world used to come from India and China,” Modi told Chinese journalists in a briefing last September.
To move forward, however, the leaders need to deal with more recent history. This means encouraging creative thinking to alleviate the border dispute, eliminating bureaucratic hurdles to the bilateral business relationship and, above all, working to improve attitudes on both sides through academic exchange and people-to-people contact. The obstacles may be formidable, but the outcomes will be critical to regional—and global—geopolitics.