Three issues bedevil Sino-Indian relations at present. These are the long-pending boundary dispute, the huge trade deficit in favor of China, and the Chinese initiated \u201cOne Belt, One Road\u201d proposal, which \u2013 while giving the veneer of advancing economic cooperation \u2013 actually has significant geo-political and geo-strategic implications. Recently the Chinese Ambassador to India, Luo Zhaohui, while speaking in Mumbai, said that to improve relations between India and China, \u201cWe should negotiate a bilateral Treaty of Friendship and Cooperation, a Free Trade Agreement and gather early harvest related to border issues.\u201d Luo also raised the rhetorical question of how to \u201csynergize\u201d China\u2019s \u201cOne Belt, One Road\u201d project with India\u2019s \u201cAct East\u201d policy. It is not in the public domain whether Ambassador Luo has officially proposed these initiatives to the Indian Foreign Office in Delhi or whether he was simply raising these publicly to elicit and test public opinion. Be that as it may, let us assume that these are official Chinese initiatives.<\/p>\n
Consider the first offer. Whenever the Chinese take such initiatives, the most important aspect to note is that such initiatives must be examined in the context of the prevailing international situation, for rarely are they bereft of such linkages. In the current uncertain times, any Chinese strategic analyst based in Beijing would aver that the principal security threat to China would emanate from its eastern seaboard, in tandem with the deep anxiety and uncertainties the new Trump Administration engenders. This would also suggest that the Chinese, well versed in the art of strategic manoeuver, would be keen to cover their flanks so as to fully concentrate on the gathering storm that they perceive might come from the Asia-Pacific region.<\/p>\n
The Trump-Xi Jinping Summit in Florida was designed for both sides to assess the relationship at the highest level. While China has continued to prevaricate on the North Korean nuclear issue, the U.S. realizes that its options for unilateral action are strictly limited, and therefore reliance on China becomes even more enduring. The outcome of the recent trade deal indicates the final burial of Trump\u2019s anti-China campaign rhetoric branding China as a currency manipulator, etc. In some aspects, the announced trade deal is nothing but China implementing what it had already promised. Yet Trump\u2019s persistence seems to have paid off. The decision to participate in the Belt and Road meeting in Beijing, however, surprised many in that this was a Chinese initiative designed primarily to challenge U.S. trading and military power in the Asia-Pacific region. This challenge remains and it would be extremely shortsighted for the U.S. to believe that a new equilibrium with China has been established. China\u2019s ultimate goal of ousting U.S. power from the Asia-Pacific is unchanged.<\/p>\n
Past as Prologue<\/strong><\/p>\n Sometimes a review of historical events offers vital and interesting clues on future developments. A near similar situation to the current one arose in the late 1950s when the Chinese were bombarding the two Taiwan-held islands of Quemoy and Matsu just off mainland China, but were deterred from further military action when the U.S. warned that it would use \u201call means\u201d (a clear reference to nuclear weapons) to defend Taiwan (not including Quemoy and Matsu). This was a bitter period in Sino-U.S. relations that coincided with the final break in Sino-Soviet relations after Soviet leader Khrushchev refused to back China against a U.S. nuclear strike. On March 19, 1959, a revolt also broke out in Tibet that led to the flight of the Dalai Lama from Lhasa to India for personal safety. On May 6, 1959, the People\u2019s Daily<\/em> published a scathing article entitled \u201cThe Revolution in Tibet and Nehru\u2019s Philosophy.<\/em>\u201d It was popularly believed that the article carried Mao\u2019s personal imprimatur and contained a nasty personal attack on Nehru for the first time since the signing of the 1954 Agreement between India and China on Trade and Intercourse between Tibet and India, under which India recognized Chinese sovereignty over Tibet for the first time ever. Nehru was devastated by the viciousness of the personal attack.<\/p>\n Despite extreme Chinese unhappiness at what had happened in Tibet and their unflinching belief that Nehru was involved in the events leading to the Tibetan uprising and the subsequent flight of the Dalai Lama to India, the Chinese never lost sight of the greater strategic threat that was gathering in the shape of U.S. military deployments in the Taiwan Strait and the Soviet refusal to back them in case the U.S. used nuclear weapons. It was a grave threat that they could not ignore. Mao had earlier referred to it in his conversation with Nehru during the latter\u2019s visit to Beijing in October 1954. This is what Mao told Nehru:<\/p>\n Between friends, there are times when there are differences; there are also times when there are fights\u2014even fights till we become red in the face. But this type of fight is different in character from the sort of fight we have with Dulles. We are a new country. Although we are counted as a large country, our strength is still weak. Confronting us is a larger power, America\u2026. Therefore we need friends. PM Nehru can feel this. I think India also needs friends.<\/p>\n Therefore, it was not surprising that the then-Chinese ambassador arrived at South Block (the Indian Foreign Office) on May 16, 1959 and handed over a written d\u00e9marche. It contained a long rambling litany of complaints against India and was reportedly drafted by Mao himself. Toward the end, it contained a most interesting proposal:<\/p>\n The enemy of the Chinese people lies in the east\u2014the U.S. imperialists have many military bases in Taiwan, South Korea, Japan, and in the Philippines, which are all directed against China. China\u2019s main attention and policy of struggle are directed to the east, to the west Pacific region, to the vicious and aggressive U.S. imperialism and not to India…. India is not an opponent but a friend of our country. China will not be so foolish to antagonize the U.S. in the east and again to antagonize India in the west… Friends! It seems to us that you too cannot have two fronts…. Is it not so? If it is, here lies the meeting point of our two sides. Will you please think it over?<\/p>\n Nehru personally drafted the response to the Chinese ambassador\u2019s d\u00e9marche, and assessed it as \u201cdiscourteous.\u201d \u00a0The tragedy lies in the fact that this d\u00e9marche and its contents were taken by Nehru as a personal affront. The hapless foreign secretary was directed to respond within a week, on May 23, 1959, to say that the statement was \u201cwholly out of keeping with diplomatic usage and courtesies due to friendly countries.\u201d Moreover, the astonishing remark was made that \u201cthe government of India does not consider or treat any country as an enemy country, howsoever much it may differ from it.\u201d (Was Pakistan then a \u201cfriendly\u201d country?) Mao would have been deeply offended at Nehru\u2019s response.<\/p>\n Three Current Issues<\/strong><\/p>\n Let us fast forward to current times. Keeping in mind the historical context and considering China\u2019s deep anxiety at present on developments near its eastern seaboard, what then should India make of the latest Chinese offer of a Treaty of Friendship and Cooperation? The first point to underscore is that there exists in the Chinese mind the belief that Indians are by nature rather fond of \u201cvision statements,\u201d \u201cjoint declarations,\u201d \u201cguiding principles,\u201d \u201cFive Principles of Peaceful Coexistence,\u201d etc. Therefore, offering a Treaty of Friendship and Cooperation to India, at present, would be in line with Chinese thinking about the nature of the Indian mind and the belief that it can be easily satisfied by initiating, yet again, such high-sounding joint statements.<\/p>\n The Boundary Dispute<\/strong><\/p>\n Second, in the Chinese mind such lofty statements\/declarations matter little when placed in the context of real<\/em> politics practiced by its leadership, as they can be easily ignored or subverted should the need arise. For example, take the Sino-Indian Agreement of April 11, 2005 that set out the \u201cPolitical Parameters and Guiding Principles\u201d for the settlement of boundary issues. In Paragraph VII it was agreed that, \u201cIn reaching a border settlement the two sides shall safeguard the due interests of their<\/u> settled populations in border areas\u201d [emphasis added]. Any unbiased observer would read this to mean that in the eastern sector of the Sino-Indian Boundary, the two sides had agreed to settle the border on the existing status quo since settled populations exist right up to the boundary. And yet when the political situation turned, the Chinese referred to Paragraph V and said that they could not ignore \u201cnational sentiment\u201d and concede so much territory.\u00a0 Further in May 2007, the Chinese Foreign Minister told the Indian External Affairs Minister that \u201cthe mere presence of populated areas would not affect Chinese claims on the boundary.\u201d In other words, the Chinese were reneging on Paragraph VII.<\/p>\n Therefore the question that arises is how can India pin down the Chinese in concrete terms, so that they cannot escape so easily from commitments they might make in the proposed Treaty of Friendship and Cooperation? And what is the proof of Chinese sincerity?<\/p>\n To begin with, India must not reject the Chinese initiative, as Nehru had so impetuously done in 1959, but play along, for it gives India enough room for diplomatic manoeuver not only with the U.S. but also with states in the South Asian neighborhood. And yet the Chinese must be pinned down in concrete terms. On November 4, 1962, Prime Minister Zhou clarified to Nehru in an official note that in the eastern sector of the Sino-Indian Boundary, the Line of Actual Control \u201ccoincides with the McMahon Line.\u201d \u00a0Zhou further said that the Indian government must have a copy of the original McMahon map, negotiated at Simla in 1914 (the Tripartite Conference between British India, China, and Tibet), and therefore it should be easy to read the coordinates line from that copy. That being the case, India should insist that the Chinese live up to Zhou\u2019s initiative and not only reaffirm that the Line of Actual Control in the eastern sector conformed to the McMahon Line, but insist that it be demarcated on the ground to avoid any misunderstandings.<\/p>\n If the Chinese government were to agree with its own stipulation, as made by Prime Minister Zhou in November 1962, this indeed would be a concrete proof of Chinese sincerity and a solid basis for negotiating a meaningful Treaty of Friendship. It would also indicate a serious intent on the part of the present Chinese government. Otherwise, the Chinese ambassador\u2019s proposal is basically a nonstarter. The boundary question, therefore, is likely to linger.<\/p>\n The Balance of Trade<\/strong><\/p>\n Both India, and to some extent the Chinese, recogniz that the huge trade deficit that exists and currently favors China is untenable. Something must be done to ameliorate the situation. It is in this context that the Chinese ambassador offered a Free Trade Agreement between the two countries. It is not in the public domain whether the Chinese authorities have officially proposed the same to India, but nevertheless it is an important development. Before an assessment can be made of India\u2019s response, it is imperative to first evaluate the current state of the trade relationship between the two countries.<\/p>\n India\u2019s trade relations with China have had a checkered history, and unfortunately continue to remain hostage to political developments between the two countries, albeit considerably less now than earlier. It is to the enormous credit of Prime Minister Rajiv Gandhi that he was the first Indian leader to realize that a solution to the vexed issue of the boundary dispute was not imminent, and therefore to delay normalization of trade and economic relations with China would only be counterproductive. He made the decision to delink the two issues. It was also during his visit to China in December 1988, that for the first time a Joint Economic Group was established. However, it must be pointed out that no one in the Indian leadership at that time paid much attention to this aspect of the relationship, for no one ever anticipated that bilateral trade volumes would develop so fast.<\/p>\n But develop they did. Sino-Indian bilateral trade in 1991 was a paltry US$265 million. It mushroomed exponentially to US$70.7 billion by 2015-16. Interestingly, India\u2019s current bilateral trade with China is larger than India\u2019s combined bilateral trade with Britain, Germany, and Japan. But the main problem is that India\u2019s trade deficit with China is unusually high: in 2015-16 standing at a staggering US$52.7 billion. And it is expected to rise even further this year. This by itself should not be a cause for worry, as India runs deficits with 16 of its top 25 trade partners. The inescapable fact is that India buys more than it sells worldwide.<\/p>\n Almost everyone recognizes the real problem behind this massive trade deficit. India\u2019s trade basket consists of cotton, gems and precious metals, copper, and iron ore. All are commodities. China, on the other hand, exports manufactured capital goods, mainly for the power and telecom sectors. India just does not produce enough high-quality manufactured goods even for its own billion-plus consumers, let alone for exports. Therefore it has to rely on quality imports from abroad. Many experts feel that the inordinately high trade deficit between India and China of US$52.7 billion is not a very serious issue for a country such as India that is on its way to establishing an industrial base and seeks high growth rates. Under such circumstances a larger import profile is unavoidable. Since China is the major source of technology-intensive products that are cost-effective, running a high deficit with China appears inevitable.<\/p>\n However, running trade deficits with China may not be necessarily inevitable. According to the Chinese, the problems faced by India are elsewhere, and essentially relate to restrictive labor practices, land and tax laws, rickety infrastructure, and inadequate power supply. In addition, while China is a part of the global supply chain, being the last stop of the manufacturing chain in East Asia, India is nowhere near being a part of this global chain.<\/p>\n