Dialogue  July-September  2009, Volume 11 No.1

China: Coping with reality

T.C.A. Rangachari

India is in the unique situation of having to deal with two contradictory adversarial situations. On the one hand, our smaller neighbours have anxieties about their security given India’s much larger size and capabilities. On the other, we have a larger neighbour with unfulfilled territorial claims which seeks to block an Indian role within, and beyond, the neighbourhood. We are, thus, in the tricky situation of having to reassure our smaller neighbours of our friendly intentions and winning their cooperation and, at the same time, remaining prepared to deal with any threat that may emerge to our territorial integrity from our larger neighbour. The former requires that India’s military capabilities be seen as limited, even benign, while the latter requires them to be large enough to be seen as a deterrent. What complicates the situation for us even more is that our smaller neighbours are not all reconciled to their disparity in size; nor to show willingness to tailor their expectations and behaviour accordingly. On the other hand, the larger neighbour is only too willing to be show itself as a counterweight to India and build relationships that undermine the possibility of the smaller neighbours seeking a relationship on a more realistic basis with India. This is a reality that we have to cope with rather than lament.                                             
    In the thirty years since reform and liberalization were introduced – China commemorated the anniversary last year – China has forged ahead of India in growth, reforms, infrastructure, FDI, scale of productivity, foreign exchange reserves, nuclear, space and military prowess. China’s economy now ranks fourth in the world in terms of GDP. China is, today, able to provide adequate food to a population of 1.3 billion. Its main agricultural and industrial output now ranks first in the world. Major world-class scientific and technological innovations continue to emerge. The high and new technological industries are developing vigorously. Rapid progress has been made in the construction of infrastructure including water conservancy, energy, transportation and telecommunication. They have had a double digit growth for several years, hold two trillion $ foreign exchange reserve, (India’s is $250 billion); have attracted some 750 billion $ in FDI cumulatively (India has attracted $ 75 billion FDI); have put a man in orbit and are working on a manned moon mission; demonstrated anti-missile capability and acquired capability to project military power well beyond their borders. During the period from 1978 to 2007, the total two-way trade increased from $20.6 to $2.17 trillion, ranking third in the world and becoming the No.1 country in terms of foreign reserves. The paid-up overseas investment amounted to nearly $1 trillion. GDP rose from 364.5 billion yuan in 1978 to 24.95 trillion yuan in 2007, the average annual growth rate being 9.8 percent, more than three times the world average during the same period. The average annual disposable income of city and town residents rose from 343 yuan in 1978 to 13,786 yuan in 2007, an increase of 6.5 times. The average annual income of farmers rose from 134 yuan in 1978 to 4,140 yuan in 2007, an increase of 6.3 times. The poor population in rural areas went down from 250 million in 1978 to 14 million in 2007. People are richer, have better food and clothes, live in larger homes and enjoy better transportation services. The economy of shortage that had plagued China for a long time before reform and opening up has been fundamentally changed.                                        
    In 1980, China set the goal of doubling its GDP in twenty years by 2000; it achieved that goal in fifteen years and then set a new target of redoubling the 1995 GDP in the next five years and achieved that too. And there has been no let up since. At the 17th Party Congress two years ago, President Hu Jin Tao announced that China will quadruple the per capita GDP of the year 2000 by 2020 through optimizing the economic structure and improving economic returns while reducing consumption of resources and protecting the environment. The Chinese have really taken to heart Deng Xiao Ping’s exhortation “To be rich is glorious” and have discarded Mao’s dying dictum “Class struggle is the key; rest is secondary.”                                                       
    Lest the above suggests that I am making China to be ten feet tall, let me also point out that Chinese society’s principal contradiction — the one between the ever-growing material and cultural needs of the people and the low level of social production will continue to be a problem for some time to come. China’s current development displays a series of new features. Overall productivity remains low, the capacity for independent innovation is weak, and longstanding structural problems and the extensive mode of growth have yet to be fundamentally addressed. There remain structural and institutional obstacles slowing down development. There are still a considerable number of impoverished and low-income people in both urban and rural areas. The foundation of agriculture remains weak and rural areas still lag behind in development. China faces an arduous task in narrowing the urban-rural and interregional gaps in development and promoting balanced economic and social development. China’s economic growth has come at an excessively high cost of resources and the environment. There remains an imbalance in development between urban and rural areas, among regions, and between the economy and society. It has become more difficult to bring about a steady growth of agriculture and continued increase in farmers’ incomes. There are still many problems affecting people’s immediate interests in areas such as employment, social security, income distribution, education, public health, housing, work safety, administration of justice and public order; and some low-income people lead a rather difficult life.                                                     
    At the human level, half of China’s population (two-thirds of India’s) still live in rural areas – roughly 700 million people in each country, most of whom remain poor. In China, the urban-rural income ratio has become increasingly disparate; it was 1.8 times more in the mid-1980s, 2.4 in the mid-1990s, 2.9 in 2001 and now around 3.5. The net incomes of about 400 million people have declined over the past decade. Domestic consumption as a proportion of GDP has fallen to 35% from around 60% in the 1980s. The Chinese get very poor return for their frugality in saving and investing almost 50 percent of their GDP. Chinese employment has hardly grown, because investment in export-led growth is highly capital-intensive: in 2005, the excess capacity in China’s steel industry was 120 million tons — more than the annual production of Japan, the world’s second-largest producer. Is channeling current account surpluses into foreign reserves instead of greater consumption, improved health care, and infrastructure the best way of deploying scarce resources particularly when the nominal returns on dollar debt – an estimated 1.4 trillion dollars of China’s reserves are invested in US $ - are as low as they have been in the last few years?

    Nevertheless, we should give them credit for their success. Let us learn from what good they have done for themselves. And, if possible, emulate their success. We must remember that the Arjun Sen Gupta committee report has estimated that nearly 65% of India lives below any modest poverty line. 68% of Indians are estimated to be living below a minimum living standard level and 74% lives below the globally accepted poverty norm of below $2 per day per capita. Even the Planning Commission’s way of estimating poverty in terms of food consumption – which some say is starvation line - leaves 28% below the poverty/starvation line. We are far behind China in solving our economic problems and have to get our national act together.                                
    China’s national defense force and military development have seen substantial modernization and standardization. This should be of concern to us. The military strategy and policies set for the new era have been implemented step by step and the building a ‘modern armed forces with Chinese characteristics’. While there has been a cut in the numbers of military personnel to make the military lean, the sophistication of the weaponry has been greatly improved. Military and armed police units have been banned from doing business. China says it follows a national defense policy that is defensive in nature, and it does not engage in arms race or pose a military threat to any other country; that it works for peaceful settlement of international disputes and hotspot issues, promotes international and regional security cooperation, and opposes terrorism in any form; that it opposes all forms of hegemonism and power politics and will never seek hegemony or engage in expansion.       
    China is a permanent member of the UNSC. It has considerable influence in global politics and economy. And it is growing as the world realizes that it needs to accommodate the expanding influence of China at the global as well as the bilateral level There is now talk of new G-2 – US and China. Let us not treat this as fanciful. There is a serious view in the US that it would serve global – meaning US – interests if China could be brought into the system of global management as a responsible partner. We in India need to discuss the consequences of this. On earlier occasions, whenever there has been a congruence of interests between the US and China, it has worked to our disadvantage – 1971, 1998 to cite two ready examples. The US is assured, as perhaps is China, that India will not be adversarial to their interests. Can we say the same about them towards India?                                                 
    For India, it makes sense to seek good neighbourly, cooperative relations with China. India-China friendship, Jawaharlal Nehru wrote in 1940, “is very precious to us not only because of the thousands of golden links that have bound us in the past but also because of the future that beckons both of us.” As two large neighbours, as home to two fifths of the world population, as two fastest growing economies, it serves mutual interests of India and China to have friendly, co-operative relations. Nehru’s anticipation for the future still holds good. It suits China’s interest too, at this juncture, to have good relations with India. During his visit to India in 2006, China’s President Hu Jin Tao stressed that China, desiring to build a strong and cooperative relationship based on shared and common interests, had taken a “long-term and strategic view” of the relationship with India and characterized the present phase in the relationship as marking a “new historic beginning” signaling to the international community that India and China were willing to work hand in hand for long-term friendship and common development. India and China have agreed to establish a strategic and cooperative partnership; a “ten-pronged strategy” to give it content has been agreed upon. India and China have agreed also to work to make effective contributions in dealing with global issues of sustainable and equitable development, energy security, peace and prosperity in Asia and in the world, environment protection and fight against terrorism and cross-border crimes. The two sides wish to see relations transcend the bilateral dimension and acquire a global and strategic significance.                           
    We cannot, at the same time, be unmindful that in the 60 years since the founding of the People’s Republic, the relationship has gone through some turbulent times. The 1962 border war has left India still tending to a deep trust deficit engendered also by the contrary positions maintained by China on many issues of interest to India. This is valid at the political level as well as at the physical, ground level. At the former, we are aware of the Chinese position at the IAEA last year. Earlier, in 2007, China had made a grievance of India working with USA, India, Japan and Australia on issues like disaster management, anti-piracy, economic cooperation and energy. It had then criticized these countries for following a policy of ‘containment’ of China or treating China as a ‘rival’. China’s foreign ministry had warned that India’s Look East policy could suffer a set back as the ‘region’ would reject such ‘divisive’ tactics. In July 2009, China was the lone dissenter in the ADB’s approval of India’s three-year US$2.9 billion assistance plan. The Chinese opposition was attributed to inclusion of a project in Arunachal Pradesh. China, to reiterate, maintains contrary positions on a number of issues of interest to India that could be brought to the fore should China’s interests demand a relationship of a different kind.          
    As for the territorial issue, India shares a 4000 km long border with China across Tibet and South West China. In what is commonly referred to as the Western sector covering J&K, China is in occupation of 38,000 sq kms of territory that India claims is its. In this sector, unlike in the Eastern sector, China is the status quo power seeking to legitimize its possession through recognition by India. This includes the 2000-odd sq kms ceded by Pakistan to China in PoK. But, even in the western sector, there are areas that continue to remain subject to intrusions. It has been noted that such intrusions come to the fore with greater frequency whenever there are tensions of any kind. We had some tense moments during the Kargil war when repeated Chinese intrusions suggested attempts to bolster Pakistan’s campaign by seeking to bog Indian troops down. It is worrisome that the Sikkim sector has re-emerged in contention despite the understanding on the Indian side that the problems relating to Sikkim’s status had been resolved with the 2003 agreement; Arunachal continues to remain contentious. There are other areas along the India-China border where transgressions cause concern.                 
    The Beijing-Lhasa railway line which commenced operations in July 2006 has created new opportunities and also poses challenges that have to be analyzed. China says the line will contribute to its Western Development Strategy by promoting the development of impoverished Tibet. Tibetan Autonomous Region could be the largest mineral resource in the country, with a potential value of more than RMB 1 trillion ($125 billion). Work on a 270 km (168 mile) rail link from Tibet’s capital, Lhasa, to Xigaze, the traditional seat of the Panchen Lama, began in 2007 and is expected to take three years to finish. The railway will then be extended to Zhangmu via Xigaze to the west, and Dali via Nyingchi to the east.  A further extension is planned to link Shigatse with Yadong near the India-China border. On 25 April 2008, in response to a Nepalese request that the railway be extended to enable trade and tourism, the Chinese announced their intention to extend the Qingzang railway from Lhasa to Khasha on the Nepalese border. Construction of the extension is planned to be completed by 2013. Reports say that the possible stations, enroute, might include: Khasha, Xigaze and Yatung. There is speculation that the line might be further extended to Birganj and Raxaul; perhaps even to Nathu La on the India-China border and possibly Nyingchi in Arunachal Pradesh at the India-China-Myanmar trijunction.                       
    If one looks at the railway line in purely econmic terms, one could conceive of greater economic cooperation flowing from it. It might supplement the Nathu La post could become a major border trading point between Sikkim and Tibet because of the all-weather road that connects the border region with the hinterland. It would provide for easier transportation of goods as compared to the two existing trading points at Lipulekh in Uttranchal and Shipki La in Himachal Pradesh which do not have a motorable road to the border as a result of which trading takes place only for a short time of the year during the fair weather season.                                                                              
    While the Chinese have opened up opportunities for development of the Tibet region and cross-border trade with Nepal and India as a result of the transport connectivity, the prospect cannot be realized unless there is corresponding connectivity on the Indian side. Sixty years after Independence and four and a half decades after the 1962 conflict, India’s border regions remain remote – for developmental and border management purposes. To take one example, to enable the workers to remain productive at high altitudes during the construction phase, the Chinese had set up a series of oxygen factories. If they continue to remain functional, they would contribute to easing the pains of acclimatization and training at those altitudes not just for the workers but also soldiers.

    It is not clear what assessments we have made of the enhanced capabilities for transporting human and material resources and, consequently for force projection, that the Chinese would have with the Tibet railroad in place. But if there is no action to develop similar transport connectivities on our own side of the border, it is clear that in the years to come, India would find itself in a highly disadvantageous situation in its dealings with China. Large tracts of our border areas are unconnected even by a road network; there are no immediate plans for connecting them by rail; and, not all the capitals in the NER have direct air connection. The developmental hindrance that this lack of connectivity imposes is evident. For our part, even for the annual pilgrimage to Kailas and Mansarovar, pilgrims have to trudge long distances on foot in highly inhospitable mountainous terrain to the Lipulekh pass where they find Chinese buses waiting to transport them!          
     There is the question of river water resources. How do we deal with our Lower Riparian status vis-à-vis China? (We are Upper Riparian vis-à-vis Pakistan and Bangladesh so we would have some idea of that position!) What are our options if China seeks to develop and utilize Nepal’s hydro power potential for developmental prospects in Tibet/Nepal now that the rail link to Tibet has opened up? Can China become the trading partner of choice for Nepal replacing India, the partner under compulsion?                    
    India’s neighbourhood has always been tough given our population, education levels, poverty and lack of governance experience in modern times. Not every neighbour in the region has evolved institutions and systems. And even in India, where there has been such evolution, massive problems still persist. We are still to develop trust and confidence in each other’s goodwill and intentions to make a success of regional integration. As the largest state in the region, India has a particular responsibility in managing the neighbourhood. Indeed, India must work for the larger purpose of creating a stake for our neighbours in regional stability and shared prosperity. If South Asia is to mould itself on the European vision of regional integration, India, as the largest country in the region, will have to take the lead and be willing, and accept consequent responsibility, to treat the developmental problems of our neighbours as our own. This fantasy might take some time to be translated into reality. If we are unable to help ensure order in our backyard, we cannot expect others to accept our demands to leave us alone, however much we may desire it.