माफ गर्नुहोस्, यो नेपालीमा उपलव्ध छैन।

By every account, both Indian and Chinese, Premier Li Kejiang’s visit to India this May was an unqualified success. It had been preceded by a remarkably mature resolution of a confrontation in Ladakh that – if some accounts coming out of Beijing and hints given by a senior Chinese official before the visit are to be believed – had been engineered by the new President, Xi Jinping’s rivals within the Peoples’ Liberation Army.

Within minutes of arriving at Delhi airport Li Kejiang described his visit as “future-oriented”, and emphasised that he had come to India to enhance mutual trust and friendship, and deepen China-India strategic and cooperative partnership. During his visit he described the Depsang valley intrusion as “an isolated incident”, but said that it underlined the need to resolve the border demarcation issue as quickly as possible.

The 35-point joint statement of the two heads of government was unusually wide ranging, and Prime Minister Manmohan Singh made no secret of his satisfaction with the outcome of his talks. Yet doubts remain in the policy making community: If the Chinese are so keen to mend fences with India, why did their troops change the status quo in Ladakh so decisively — penetrating 19 kilometres into our part of Ladakh – now? Was it to force India to dismantle the Chumar post which overlooks the Karakoram pass? If this was the purpose then India has succumbed to China’s stick-and carrot tactics yet again.

The sceptics buttress their criticism by pointing to the lack of any substantive commitments or concessions by the Chinese in the joint statement: According to one writer, S.D. Pradhan, India gave away too much but came away with nothing more than a repetition of old assurances. In particular, Manmohan Singh’s agreement to “seek a framework for a fair, reasonable and mutually acceptable settlement (of the border issue) in accordance with the agreement on political parameters and guiding principles” amounted to accepting a new framework for settlement that commits India to making compromises from the very outset.

Why does China want to improve relations with India now?

What is missing from their analysis, however, is an assessment of China’s motives. Why should China want to improve relations with India now? Why does it want to speed up the timetable for the demarcation of the border now after having dragged its feet since 1996? Having already got an unequivocal reassertion from Manmohan Singh during the Brazil, Russia, India, China, South Africa (BRICS) summit in Durban this March that India regards Tibet as China’s internal affair, what more does China need? And if all China wanted out of the Ladakh intrusion was to neutralise a small local vantage point in Ladakh that is of limited military and no economic value, why did China’s new President Xi Jinping make it a point to tell Manmohan Singh at Durban that he wanted to resolve the border issue “as early as possible” and dispense with protocol to inform him that Li Kejiang would be visiting India on the new premier’s first foreign tour?

Why, for that matter, did a senior Chinese official who visited New Delhi a week before premier Li Kejiang also stress that “The border question must not be put on the backburner” and, giving a veiled hint that the Ladakh intrusion had not been endorsed, let alone planned, in Beijing, urge that to prevent other such hiccups in relations in future, it was necessary to move “as quickly as possible” towards a resolution of the border issue?

In the columns of the Hindu Srinath Raghavan, a noted student of India’s foreign policy, has suggested that Beijing is keen to mend fences with its neighbours that the previous regime, somewhat arrogantly, broke down. This had allowed the US to revive a policy of containing China that had earlier found few takers among its immediate neighbours. “India” he says, “is a ‘swing’ power in the present strategic constellation. Its choices could alleviate or exacerbate China’s problems. Premier Li was (therefore) seeking reassurance as well as reassuring India when he publicly stated that ‘we are not a threat to each other, nor will we ever contain each other’.”

Raghavan’s insight into the change in China’s motives is valuable, but probably incomplete. Were India to join the US’ containment policy it would make little difference to China’s military security. As for diplomatic overtures to its immediate neighbours, a country with three trillion dollars of sovereign reserves can find many ‘softer’ and more direct ways of getting them to respect its core security interests  than by roping in India.

A stronger reason for wanting to raise the level of cooperation with India to a strategic relationship would be to deal more effectively and less confrontationally with the United States and Europe, in their new avatar as empire builders. It is here that India, with its strong democratic credentials, its lack of aggressive intent, and its deeply founded relations with Europe and the US, can be a swing power in the strategic constellation. For, whether in their desire to assert the right of developing countries to a fair share of the ‘carbon space’ in the atmosphere or to ensure that the post -Westphalian international order remains multi-polar and democratic, China and India have consistently been on the same track.

It is this cooperation, which is taking shape under the auspices of the BRICS, that China almost certainly wished to strengthen. By changing the phrasing of its position on the border issue at the BRICS summit in Durban (before the Ladakh intrusion) Xi Jinping wanted to make it clear that he regards  the border issue as a stumbling block that needs to be removed as soon as possible.

China’s domestic concerns

However, the strongest reasons for wanting to remove hurdles to deeper cooperation with India may spring from its economy. While public opinion in the West continues to regard China as an industrial behemoth that will power its way inexorably to G-2 and even G-1 status within the next decade, the new Chinese leaders see daunting challenges arising in virtually every sphere of economic governance. By far the biggest challenge is that it is facing a sharp slowdown in economic growth and has run out of stratagems for raising its tempo once more.

What is worse, as the Bo Xilai affair showed, rising corruption in its ranks is posing a threat to its legitimacy that is being exacerbated by the social impact of the recession. This is because in China recession creates not only the familiar economic problems of unemployment and insolvency but, thanks to its unique form of ‘cadre’ capitalism,  tends to erode the legitimacy of the Communist Party just when it can least afford to let that happen.

The roots of this destabilising interaction can be traced back to the winding up of central planning in the first half of the 1980s. This shifted the power to invest into the hands of more than 60,000 provincial and local government bodies and set off a race to invest that became the prime cause of China’s breath-taking rates of growth in the 1980s and from 1991 until 1996. But this scramble to invest ended by creating huge excess capacities in virtually every major industrial sector that forced the Chinese economy into a steep – and only partially acknowledged – slowdown that lasted for six years until 2002.

The stresses this sharp “recession” created sowed the first seeds of disillusionment with the Communist Party. It dried up the revenues that local governments had garnered from more than seven million “collective” enterprises set up between 1978 and 1995 and forced them to fill the budgetary gap through unauthorized taxes, fees and fines levied upon the rural population. Since these did not suffice most local government authorities also set up rural credit societies that offered huge returns to depositors, who were mostly moderately well off peasants and small entrepreneurs. But by 2002 all but a few of these had lost their savings.

The cumulative impact of these measures was to transfer most of the burden of recession on to the shoulders of peasants, migrant workers and redundant state enterprise workers. This happened even while the cadre capitalists who had invested and lost the public’s money continued to fatten. The resulting resentment was reflected by a tenfold rise in mass protests against state authorities from 8,700 in 1994 to 87,000 in 2005.

Today Xi Jinping faces a repeat of this entire cycle. The Chinese economy has entered another sharp slowdown and the number of protests has risen to between 180,000 and 230,000 in 2010. Only this time he does not have the option of reflating the economy through a fiscal stimulus, that the Jiang Zemin government employed in 1997 and the Hu Jintao government in 2008.

This got used up when Hu Jintao announced a 4.3 trillion yuan (US$586 million) fiscal stimulus programme for 2009-10 but the provinces invested close to 12 trillion yuan in just 14 months. Not surprisingly, therefore, on June 15, 2011 the People’s Daily warned, “We absolutely cannot do another 4 trillion stimulus package”. This was repeated by then premier Wen Jiabao in Jiangsu a month later. “The last stimulus programme”, he said, “left us with excess capacity in 21 industrial sectors; a build-up of stockpiles; a reduction in investment efficiency; increased environmental costs; worse inflation; a build-up of local government debt; plus an asset bubble.”

China may therefore be entering a long period of adjustment similar to what Japan entered in the beginning of the 1990s. This opens a vast new area in which the two countries can cooperate. India needs to invest US$1.5 trillion during the next five years to bring its infrastructure up to acceptable international levels. Chinese companies are cash rich, but in the current recessionary phase have run out of investment opportunities within the country. This opens up an obvious area of cooperation, from which both countries can benefit.

Promising signs for shared rivers

Another promising area is the development of the river basins that the two countries share. More specifically, China, India and Bangladesh can cooperate on the building of hydropower projects on the Brahmaputra – the river China calls the Yarlung Zangbo. Both President Xi and Premier Li were at pains to stress to Manmohan Singh that China would not impound the waters of the Brahmaputra by building a dam – its projects would be run-of-the-river, which would produce electricity but not hold back the water. China has not shown the same sensitivity with other downstream countries, especially on the Mekong. Chinese authorities are also keen to scotch that recurrent rumour that the waters of the Brahmaputra will be diverted to northern China. They keep pointing out that there is no such official plan – it was started by one paper by an academic in Nature, and the academic herself has said later she had made a mistake.

In sum, China has vast amounts of surplus capital but few profitable avenues for its investment. It also needs to find new markets for its exports. India, with its hunger for capital and fast growing domestic market, can help it do both. But it can only do so when the two countries have cleared the obstacles from the past that litter the road to the future.

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