Dealing With China--Part-II

           

                                        The offer of a Free Trade Agreement

      In his remarks at the University of Mumbai recently the Chinese Ambassador to India Luo Zhaohui, apart from taking the initiative for a proposed Friendship Treaty, also referred to the need for a Free Trade Agreement with India. 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, as far as trade relations between the two countries are concerned. Before an assessment can be made on India’s response, it is imperative to first evaluate the present state of the trade relationship between the two countries.

     India’s 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 so now than earlier. It is to the enormous credit of Rajiv Gandhi that he was the first Indian leader to realize that a solution to the vexed issue of the boundary issue was not imminent in the near future and therefore to delay normalization of trade and economic relations with China would only be counter-productive. It was Rajiv Gandhi who took the decision to de-link 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 anticipated or expected that bilateral trade volumes would develop so fast. And develop they did with bilateral trade that mushroomed exponentially from a paltry US$265m in 1991 to US$ 70.73 billion by 2015-16. An interesting fact is that India’s current bilateral trade with China is larger than India’s combined bilateral trade with Britain, Germany and Japan! But the main problem area is that India’s trade deficit with China is unusually high and in 2015-16 it stands at US$52.69 billion. And it is expected that this will go up even further this year. This by itself should not be a cause for worry, as India runs deficits with sixteen out of its top twenty five trade partners. The inescapable fact is that India buys more than it sells world- wide.

    Almost everyone recognizes where the real problem lies behind this massive trade deficit. India’s 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. The fact is that India just does not produce enough high quality manufactured goods even for its own billion plus consumers, let alone for exports and therefore it has to rely on quality imports from abroad. There are many experts who feel that the inordinately high trade deficit between India and China of US$ 52.73b, 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, a larger import profile is but unavoidable. Since China is the major source of technology intensive products that are cost effective, running a high deficit with China is but inevitable.

    However running trade deficits with China may not be necessarily inevitable as presumed. 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 no- where near being a part of this global chain.

   Therefore what would a Free Trade Agreement with China entail and what would be its implications? Empirical studies show that for India any such agreement would be a non-starter, for India is not competitive at all. A FTA would not have any major impact on increasing Indian exports to China, for the tariffs that China levies on most items, in the Indian export basket, are already near zero. Further the manufacturing skills and abilities at present available in India, as compared to those available in China are rather low. Indian manufacturing industry, as presently constituted, would be badly hit. Although overall trade between the two countries might grow at a healthy pace, yet it would be mostly to the advantage of the Chinese. If for example, tariffs levied were to be reduced to say by 5 per cent across the board, then the increase in India’s exports would be negligible, whereas those of China would increase by an estimated 18 per cent.^[i] From the Indian point of view, therefore, this proposal is a non-starter. However one way forward could be to go for a selected sector wise free trade agreement, rather than one across the board. It is for this reason also that progress in negotiations in the RCEP are slow and tedious, as both India and China find it hard to reconcile their respective positions.

    One area where India needs to press the Chinese is in opening more facilities and for increasing border trade. At present the trade between India and Tibet across the land borders is very modest; in contrast to which Sino-Nepal border trade is thriving at US$542m.There are several reasons. Firstly, the lists containing items that can be traded are outmoded and not commensurate with modern requirements. Secondly, the timings when traders can conduct trade are very unsuitable, particularly since they cannot stay overnight in either country. Most border trade points are open only four days in a week. The time taken to reach border points is also a factor since the infrastructure, particularly on the Indian side is very rudimentary. For example, the road connecting Siliguri, the last railhead to Sikkim and onto Nathu La is about 143 kilometers long, it is a single lane and often subject to landslides. Sikkim has no airports, nor any railheads.

     The importance of border trade should be recognized as it is an important catalyst for poverty reduction in the border areas. Border villages are becoming de-populated on account of lack of jobs; thus posing security concerns for India. In the past many towns such as Kalimpong, Darjeeling or even Tawang, thrived due to the border trade with Tibet. Thus if border trade is revived, it can once again serve as a significant dynamic in their economic development.   

      In 1988 when a significant shift in Indian policy took place, it was the fervent hope that the goodwill thus generated with normalization in all other sectors, it would facilitate the settlement of the boundary issue. Those hopes have to some extent been belied, but what has also emerged is that the massive trade deficit generated has added an altogether new issue between the two countries. By 2030 the economies of both China and India are expected to be amongst the top four economies of the world, but unfortunately India still does not have a full time independent trade negotiator on lines of USTR.  

---

[i] India-China Free Trade Agreement [FTA]: Viability, Prospects and Challenges. [Rupa Chanda/IIMB Management Review]

Dealing With China--Part I

      

    Recently the Chinese Ambassador to India, Luo Zhaohui while speaking at a function in Mumbai said that in order to improve relations between India and China “we should negotiate the bilateral Treaty of Friendship and Co-operation, a Free Trade Agreement and gather early harvest related to border issues”. Luo also raised the rhetorical question of how to “synergize China’s One Belt One Road [OBOR] project with India’s Act East Policy”. It is not in the public domain whether Ambassador Luo has officially proposed these initiatives to the 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. In Part-1, the proposed Treaty of Friendship and Co-operation is analyzed, and some suggestions offered on what should be India’s reaction?

    Whenever the Chinese take such initiatives, the most important aspect is that such initiatives must be examined in the context of the prevailing international situation; for rarely are they bereft of such linkages. In present uncertain times any Chinese strategic analyst based in Beijing would aver that the principal threat to China would be from its eastern seaboard, in tandem with the deep anxiety and uncertainties that the new Trump Administration has raised. This would also suggest that the Chinese would be keen to cover their flanks, so as to concentrate fully on the gathering storm coming from the Asia-Pacific region. The Chinese are completely unsure on how to deal with the rhetoric emanating from Washington that suggests that the two countries maybe sliding towards a conflict situation. It is highly unlikely that this might happen, given the enormous stakes that both the US and China have in the peaceful evolution of their bilateral relations. But the Chinese are clearly worried and rarely miss the importance of being fully prepared.

   If we were to look back in history, a near similar situation had risen in the late 1950s when the Chinese were bombarding the two Taiwanese held islands of Quemoy and Matsu, but were deterred from further military action when the US warned them that it would use “all means” [indicating nuclear weapons] to defend Taiwan [Note: Not Quemoy and Matsu]. This was a bitter period in Sino-US relations and it was also a period when the final break in Sino-Soviet relations took place when the then Soviet leader, Khrushchev refused to back China in case the US used nuclear weapons. On 19 March 1959 a revolt had also broken out in Tibet that led to the flight of the Dalai Lama from Lhasa to India for personal safety. On 6 May 1959 the People’s Daily published a scathing article entitled “The Revolution in Tibet and Nehru’s Philosophy”. It was popularly believed that the People’s Daily article was personally approved by Mao and carried a personal attack on Nehru for the first time since the signing of the 1954 Tibet Agreement. Nehru was devastated by the viciousness of the personal attack.

   Despite extreme Chinese unhappiness at what had happened in Tibet and their unflinching belief that Nehru was involved in the events leading to the flight of the Dalai Lama, the Chinese never lost sight of the greater strategic threat that was gathering in the shape of US military deployment in the Straits of Taiwan and the Soviet refusal to back them in case nuclear weapons were used. It was a threat that they could not ignore. Mao had referred to it in his conversation with Nehru in Beijing in October 1954. This is what Mao told Nehru:

      Between friends, there are times when there are differences; there are also times when there are fights—even 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. China needs very much. 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….therefore we need friends. PM Nehru can feel this. I think India also needs friends.

   Therefore it was not surprising that Chinese Ambassador arrived at South Block on 16 May 1959 and handed over a demarche. The strategic purpose clearly was to sanitize their south-western border with India. The demarche was a long rambling litany of complaints against India and was reportedly personally drafted by Mao himself, but at the end contained a most interesting proposal. It was:

  The enemy of the Chinese people lies in the east—the US imperialists have many military bases in Taiwan, South Korea, Japan and in the Philippines which are all directed against China. China’s main attention and policy of struggle are directed to the east, to the west Pacific region, to the vicious and aggressive US 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 US 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?

     The response to the Chinese Ambassador’s demarche of 16 May 1959 was personally drafted by Nehru who assessed it as “discourteous.” The tragedy lies in the fact that this demarche and its contents were taken by Nehru as a personal affront and the hapless Foreign Secretary directed to respond within a week on 23 May 1959, to say that the statement was “wholly out of keeping with diplomatic usage and courtesies due to friendly countries.” And further the astonishing remark was made that “the government of India do not consider or treat any country as an enemy country, howsoever much it may differ from it”[Was Pakistan then a “friendly” country?].  

    But let us fast forward to present times. Placed in the historical context and considering China’s deep anxiety on developments near its eastern seaboard, what then should India make of the latest Chinese offer of a Treaty of Friendship and Co-operation? The first point to understand is that there exists in the Chinese mind the belief that Indians are by nature rather fond of “Vision Statements”, “Joint Declarations”, “Guiding Principles”, “Five Principles of Peaceful Co-existence” etc. Therefore offering a “Treaty of Friendship and Co-operation” to India, at present, would be in line with Chinese thinking about Indian nature.

 Secondly, in the Chinese mind such “lofty statements/declarations” matter for little when placed in the context of real politics. These can be easily ignored or subverted should the need arise. Take for example, the 11 April 2005 Agreement setting out the “Political Parameters and Guiding Principles” for the settlement of the boundary issues. In Para VII it was agreed that “In reaching a border settlement the two sides shall safeguard the due interests of their settled populations in border areas”. Any unbiased observer would read this to mean that in the eastern sector the two sides had agreed to settle the border on the existing status quo. And yet when the political situation turned, the Chinese referred to Para V which refers to “national sentiment” and say how could they ignore “national sentiment” and concede so much territory?  Further in May 2007 the then Chinese FM told EAM that “the mere presence of populated areas would not affect Chinese claims on the boundary”. So much for the surmise derived from Para VII.

    Therefore the question that arises is how can India pin down the Chinese in concrete terms, so that they cannot escape so easily any commitments that they might make in the proposed Treaty of Friendship and Co-operation? We too should by now be aware of the nature of the Chinese mind.

      To begin with we must not reject the Chinese initiative, as Nehru had so impetuously done in 1959; but play along for it gives us room for diplomatic maneuver not only with the US, but also in the neighborhood. And yet the Chinese must be pinned down in concrete terms. On 4 November 1962, PM Zhou clarified to Nehru in an official Note [emphasis added] that in the Eastern Sector the LAC “coincides with the McMahon Line”. Zhou further said that the Indian government must be having a copy of the original McMahon map and therefore it should be easy to read the co-ordinates of the McMahon Line. That being the case, we should insist that the Chinese live up to the initiative of their then PM Zhou Enlai and not only reaffirm that the the LAC in the Eastern Sector conforms to the McMahon Line, but insist that it be demarcated on the ground to avoid any misunderstandings.

   If the Chinese government were to agree with their own stipulation, as made by PM Zhou in November 1962, that indeed would be a concrete basis for negotiating a meaningful “Treaty of Friendship”. It would also indicate serious intent on the part of the Chinese government. Anything less than this would be another meaningless document to be "misinterpreted" as the occasion demands! 

             

The Tibetan Card

     

     A glance at some recent newspaper reports would suggest that the Indian authorities are being assiduously urged to “change” their policy on Tibet and that a new policy was in the offing that would enable India to play the so-called Tibetan card. All this is in riposte to China’s anti-Indian attitude most recently manifested, once again, in the blocking at the UNSC 1267 Sanctions Committee of naming the Jaish-e-Mohammad Chief Masood Azhar as a terrorist. But what is this Tibetan card; the playing of which that is so persistently advocated and what does it entail?

    When China invaded Tibet on 7 October 1950 to incorporate Tibet into the just proclaimed People’s Republic of China, it presented India with an acute dilemma. What should newly independent India do? Hitherto policy matters pertaining to India were always decided by Whitehall taking into consideration British Imperial interests, including commercial and the safety and security of the British Empire in India. Therefore it was but natural, given the long history of association between Tibet, the British Indian government and China; that PM Nehru thought it fit to consult the Attlee government in London. He did so on 27 October 1950.  Attlee’s advice to Nehru came in the form of an eight point memorandum. Points [ii] and [v] of this memorandum are most important. These were (Point ii) that ‘India should do what it can for Tibet ...short of military assistance.’ And that (Point v) ‘recognizing Tibetan independence must be ruled out’ [emphasis added]. Similarly, the British also emphasised the following points to the US. These were [a] that Britain was ‘always’ prepared to recognize Chinese sovereignty [note: use of word ‘sovereignty’ and not ‘suzerainty’] over Tibet, but on the understanding that Tibet is autonomous and [b] that Tibet’s inaccessibility makes it impracticable to do anything to stiffen military resistance to China. Tibet has long been judged as incapable of anything more than nominal resistance [emphasis added]. Nehru accepted British government advice for he maintained in a Note on 18 November 1950 that ‘neither India nor any external power could prevent the Chinese take-over of Tibet.’ Having taken this position Nehru, conscious of India’s inferior military position, now defined Indian policy as consisting of [a] to ensure the safety and security of India [b] acceptance of Chinese suzerainty/sovereignty over Tibet and [c] to advance friendship with China. It was partially due to Nehru and the machinations of Attlee that the Tibetan question in the UN, raised by the hapless Tibetans, never preceded beyond preliminaries. It died a natural death, for by then even the US had decided to play safe.

      The 17 point Agreement signed between the Tibetans and China on 23 May 1951 ended any hopes of genuine autonomy for Tibet. Further the signing of the 1954 India-China Agreement symbolized the complete formalization of all developments since the invasion of Tibet by China and the total elimination of Indian political influence in Tibet. For the first time ever, India in a formal document recognized Tibet as an integral part of China. In international legal terms, it signalled the fact that the only country that had special relations with Tibet, had now agreed to relinquish these and did so without any reference or consultation with the Dalai Lama or even with the Tibetan government. For the Tibetans, it can be said that the curtain was finally drawn on their aspirations to be an independent state or even an autonomous one.

     From this point in time till 23 June 2003, India maintained that ‘Tibet is an autonomous region of China’. Even in the 1962 conflict and thereafter, India did not waver or change its position. However when PM Vajpayee [BJP government] visited China in June 2003, the formulation to describe Tibet’s status with China underwent a significant change. The new position was that “The Indian side recognizes that the Tibetan Autonomous Region is a part of the territory of the People’s Republic of China”[emphasis added]. This position has been reiterated since in Joint Statements/Declarations on 11 April 2005 and 21 November 2006 [PM Manmohan Singh]. Thereafter there was no mention of the status of Tibet in the 15 January 2008 ‘Shared Vision of the 21^st Century Statement’ or in the 16 December 2010 Joint Communique. The above formulation was revived later after May 2014.  

     By stating that India now considered Tibet Autonomous Region [TAR] to be a part of the People’s Republic of China [PRC] had certain distinct political connotations. Firstly, it was now understood to mean that India accepted that there was no ‘invasion’ of Tibet by China in 1950, since Tibet was a part of the PRC that had already been established in 1949. It also means that the entry of Chinese troops into Tibet in 1950 was only a part of territorial consolidation. Secondly, China had lopped off considerable parts of erstwhile Tibetan territory and incorporated these into other provinces. Thus by recognizing TAR, as opposed to Tibet earlier, India also recognized its new territorial limits and the incorporation of parts of Tibetan territory into other Chinese provinces; contrary to the position of the Dalai Lama. It may also be noted that China describes Arunachal Pradesh as "Southern Tibet".

   Thus if this be the stated position that India had taken all along, where is the space for playing the Tibetan card? Not only would India have to renege on all previous positions taken since 1950, but also consider that there is no other foreign state that recognizes Tibetan independence. China considers Tibet to be a “core” issue and therefore any change in position by India would mean that a challenge to China’s territorial integrity had been made. Its reaction would inevitably be violent. As far back as 1954 PM Zhou had told Nehru in Beijing that China was a ‘peace loving’ country, but if its territorial integrity was threatened it would react with full force. All those who insist on playing the Tibetan card should be mindful of what this entails and not treat this issue with a light heart!

A Chinese prediction: What will Trump's China Policy Be?

       Reading the Chinese press these days the one issue that re-occurs with increasing frequency is; what would Trump's China policy be like? Most commentators profess bewilderment, partly because there is so little material, published or otherwise, to base judgment on and partly because some also subscribe to the view that Trump is both mercurial and impulsive. Therefore making a prediction becomes problematical. Nevertheless, based on what ever material is available, some Chinese commentators have been willing to stick their neck out and hazard a guess. If these views are amalgamated, the following would seem to be the current thinking on what Trump's policy towards China might eventually pan out to be. Since the Chinese press is "controlled" it would be fair to assume that it invariably reflects official thinking.
     The Chinese seem to have placed great reliance on the views expounded by Kissinger on Trump on his last visit to China, where he also met with President Xi Jinping. The Chinese have noted that Kissinger arrived in China, after he had met Trump and therefore his views on what Trump's policy is likely to be is assumed to carry Trump's imprimatur. Kissinger is reported to have told the Chinese that Trump was not an isolationist and that isolationism was not an option for US policy. Based on this assumption the Chinese are convinced that no matter how much the situation changes, the two countries need each other and therefore they do not expect "too much turbulence" in Sino-US relations.
    This assumption is further fortified by the belief that Sino-US economic relations are far too vast and varied and inter-dependent and that any unilateral action, such as trade sanctions, would lead to a trade "war" that would be totally ruinous for both countries. Sino-US bilateral trade last year touched US$ 558 billion, with direct US investment into China touching nearly US$ 70b. Similarly Chinese investment into the US has touched US$ 46b. The Chinese market is also the main source of income of several important US companies. On the other hand, if Trump does levy anti-dumping or countervailing duties on Chinese goods imported into the US, then China is prepared to go to the WTO to challenge Trump's impositions. The Chinese feel that they now have developed sufficient competence to handle such trade disputes in WTO and "win" them.
    The Chinese are convinced that Trump will not fundamentally change the US alliance system in the Asia-Pacific as that has been the fulcrum of US policy. It is far too important a strategic asset for the US. It is conceded that the US would "demand" greater coverage of "costs" of military deployment and probably both Japan and South Korea would oblige. It is also conceded that Trump, in line with his statements that he would prefer a "strong US military", may indulge in a Naval expansion that would see the US Navy expand from its present strength of 274 ships to 350 ships. This would also be in line with Trump's rhetoric that the US military should be so strong that "no one would make trouble for us". 
    The real trouble and exasperation for the Chinese is in discerning what Trump might do with regards to Taiwan. No Chinese commentator seems to be sure and apart from saying that the subject was very "sensitive"; there is no one unified view emerging. But all seem to urge Trump not to be "hasty", whatever that might mean! It is for this reason that the Chinese reaction to Trump's telephone call to the Taiwanese leader Tsai, was rather very mild and seemed to pin the blame more on the Taiwanese leader than on Trump. Chinese rhetoric on the subject, on the other hand is quite clear, that the "one China" policy must be maintained by the US. The Chinese see no allowance for any dithering on the question of Taiwan. All Chinese commentators maintain that US commitment to a "one China" policy is the bedrock of Sino-US relations and that this must not be disturbed under any circumstances.
    There is no doubt that the Chinese leadership is faced with an acute dilemma. Should they adopt a hardline policy towards Trump at the very beginning? Or should they wait to see how Trump's policies develop? The fact that the incoming Trump Administration has been filled with persons like Peter Navarro, who have written and expressed extreme hardline views on China, cannot but be a  cause for concern for the Chinese leadership. Like most countries the Chinese too wait patiently to see what happens next!
    
      
   
       

China Slams India on HH Dalai Lama's Meeting With President Mukherjee

     

       Ever since His Holiness the Dalai Lama [HHDL] took refuge in India in 1959, the Chinese authorities have lost no opportunity to slam the government of India for allowing HHDL to meet high dignitaries in India. Not only that even on his visits abroad, the Chinese authorities have taken deep umbrage if any foreign leader met with HHDL. The Chinese have even gone to the extent of threatening economic and political consequences. As the Chinese economic and military strength grew exponentially, most states began to defer to the wishes of the Chinese authorities. It was therefore a very pleasant surprise when little Mongolia, on China’s northern doorstep, refused to bow to a Chinese dictate and received HHDL and was even prepared to face the consequences of defying China. The Chinese were livid and demonstrated their ire when they unilaterally blockaded the Sino-Mongolian border and refused to allow any trans- shipment of goods. Mongolia being land locked is heavily dependent on China; just as Nepal is on India.

   However the recent Chinese outburst against the “Indian side” for allowing HHDL to meet with President Mukherjee during a children’s conference shows just how touchy the Chinese authorities have become. A Chinese Foreign Ministry spokesman, Geng Shuang had the following to say: “The Chinese side is strongly dis-satisfied with and firmly opposed to the meeting. We urge the Indian side to see through the anti-China separatist nature of the Dalai-clique, fully respect China’s core interests and major concerns, and take effective means to remove the negative impact caused by the incident to avoid any disturbance to the China-India relationship”. Of particular point to note in this statement is the reference to China’s “core interests”, as also to “major concerns” when referring to HHDL. What has not been clarified is whether HHDL is a “major concern” or whether the reference to “core interests” is a reference to Tibet. If HHDL has now become a “major concern”, it obviously means that the Chinese authorities are sufficiently rattled to go to the extent that they did with Mongolia to order a blockade. What made the Chinese even more irate was the appeal of the Mongolian Ambassador to India, Gonchig Ganhold that India should help Mongolia to deal with “China’s counter-measures against Ulan Batore”.

    It was not very long ago that the Chinese authorities were proclaiming a “new peripheral” policy that was designed to bring states on its borders closer together and to attempt to encourage them to take advantage of the rise of China as an economic power. The “One Belt, One Road [OBOR]” was one such major initiative of President Xi Jinping. The Chinese authorities were never tired of proclaiming a “win-win” situation, if states accepted the OBOR concept. As President Xi said “China should promote neighborhood diplomacy that turned its neighboring areas into a community of shared destiny”. But at the same time, President Xi emphasized that while China would adhere to the path of “peaceful” development; it would not abandon its legitimate rights and interests, or the nation’s “core interests”. Therefore the message was quite clear. If the circumstances so required, the Chinese leadership was prepared to play rough as well.

   In view of recent Chinese belligerence, I requested Prof John Garver, who is the Professor Emeritus in the Sam Nunn School of International Affairs at Georgia Tech and who has done seminal work on Chinese foreign policy, as to what he thought about recent developments in China’s peripheral policy. Prof Garver’s views are as follows:

     [Begins]:

 China under Xi Jinping has abandoned Deng Xiaoping's wise directive of 1990: "keep a low profile, hide your brilliance under a basket, and never claim the lead." Now, under Xi Jinping, China's interests and ambitions will grow as China's power grows. Chinese analysts expect "China's rise" to produce some initial resistance.  But eventually other countries [first and foremost China's neighbors] will recognize the wisdom of coming to terms with a rising China. The dream of many Chinese is for China to become the leading Asian power and a co-equal of the United States as a global leader. Demonstrable progress toward that "Dream" of the "great rejuvenation of the Chinese nation" justifies and legitimizes the absolutist rule of Xi Jinping and the CCP party-state.

    China will expect its neighbors to "respect China's core interests” as the quid pro quo for China's "friendship."  Abstaining from activities facilitating the efforts of "splitists" [as Beijing dubs the Dalai Lama to be] is, from Beijing's perspective, an essential part of this requirement. I don't think China's leaders fully understand how China's neighbors perceive China and its policies. I think the most likely course over the next decade or so will be a steady growth of Chinese assertiveness and, contrary to China's expectations, slow formation of a coalition of China's neighbors increasingly apprehensive of China's power.

     [Ends] 

     Thus the Chinese authorities probably expect that India would desist from permitting HHDL from playing any public role, other than living quietly in Dharamsala. But the reality is that Chinese peripheral policy is not making much progress, for with the notable exception of Pakistan, the Chinese are having issues with almost all their important neighbors. While relations with North Korea remain unequivocal, those with South Korea have recently soured. With Japan the dispute over the Senkaku [Diaoyu] islands remains as tense as ever. And with Trump rattling the Taiwan issue and US Admiral Harris raking up South China Sea dispute; China’s periphery is suddenly alive. Having successfully stoked the fire of nationalism and having made it synonymous with the Chinese “dream”, it remains to be seen how President Xi Jinping handles these delicate foreign policy issues. A deemed failure could also have domestic political repercussions, considering that the next party Congress is only a year away.

Increasingly Flustered and Alarmed China Cautions Trump on Taiwan

         President- Elect Trump's tweets and his recent interview with Fox News on Taiwan has made the Chinese leadership not only anxious, nervy but increasingly uneasy. The Chinese leadership responded to Trump's rhetoric by a People's Daily Commentary [less serious than an editorial or a signed article] that for China the "one-China" principle was the foremost pre-condition for building formal ties with other countries. The People's Daily reiterated that "no country is willing to bargain over core national interests and that China is no exception.... that there was no room for compromise". On the other hand, the Chinese leaders also did not wish to jeopardize relations with Trump and therefore quickly sent State Councilor Yang Jiechi to meet with Trump officials, notably NSA-designate Flynn.
      The question that therefore assumes importance is: Will Trump, after he assumes the US presidency in January 2017, persist with his present stance on Taiwan and Sino-US relations; or will he significantly modify his views? Should Trump persist, under what circumstances might this lead to a conflict situation arising between China and the US in the Asia-Pacific region? To answer this very important question, I put this across to Prof. John Garver, who is the Professor Emeritus at the Sam Nunn School of International Relations at Georgia Tech[Atlanta]. Prof John Garver is the author of eleven books and over a hundred articles dealing with China's foreign relations. His book entitled "The Protracted Contest: India-China Rivalry in the 20th Century" is considered a seminal work on Sino-Indian relations. Prof John Garver, is one of the most renowned scholars in the US on China and on Chinese foreign policy.
    This is what Prof John Garver had to say:
   [Begins] :
  
    I don't think this is very likely.   Both Beijing and Washington
    know a full scale war between them would be immensely costly,
    dangerous and very difficult to "win."  A war with the United States
    would undermine China's currently highly successful "rise" (still
    enjoying U.S. support).  For the Beijing regime a perceived "defeat"
    also carries the danger of regime collapse.  Beijing might threaten war
    over Taiwan, scaring a lot of people, but that is likely that this
    will be psychological, not bloody warfare.   
   
    The most likely scenario would be some provocative action by North
    Korea that triggered a South Korean response leading to renewal of
    the war suspended since July 1953.     If South Korea and the US
    moved to preempt (via conventional air and missile strikes) North
    Korea's nuclear capabilities, a war could result.   Seoul and
    Washington would do everything possible to secure Chinese acceptance
    of North Korea's forceful de-nuclearization and possibly the
    demise of the North Korean regime along with Korean unification
    under Seoul's leadership. But if China faced the prospect of a
    US-South Korean unification of the Korean peninsula under the
    Republic of Korea framework (i.e. alliance with the United States
    and the prospect of US troops on China's northeastern borders),
    China might intervene militarily, primarily to have a strong voice in
    the terms of the post-war settlement regarding the future of the
    Korean peninsula. I suspect that Beijing and Washington would
    maintain close contact during a second Korean war to avert
    miscalculations as occurred in 1950. 
   
    Accidental collision of Japanese and Chinese airplanes or ships in
    the East China Sea would lead to eruptions of anti-Japanese
    nationalism in China which, in turn, could compel the regime to
    "teach the dwarf pirates" (China's affectionate name for Japan) a
    lesson." The U.S. would intervene to end this Sino-Japanese
    confrontation, and I suspect that Beijing would be willing to go
    along. Beijing understands that bloodshed could prompt Japan to
    more quickly and more completely rearm --- to China's disadvantage.
    Of course, Beijing could also calculate that bloodshed in the East
    China Sea would mobilize Japan's pacifist forces and sentiment,
    helping to thwart Shinzo Abe's efforts to make Japan a "normal"
    (military) country.  [Ends].
       
         Quite clearly therefore the shrill words being exchanged between the US and China over Taiwan are more psychological in content than confrontational. As the People's Daily sermonized, the US needs to be "rational, respectful rather than impulsive". Is Trump listening?


   


    

 

India's Trade Deficit With China Skyrockets to US$52.69 billion.

           

      India’s trade deficit with China in 2015-16 stands at US$52.69 billion. And it is expected that this will go up even further this year. This by itself should not be a cause for worry, as India runs deficits with sixteen out of its top twenty five trade partners. The fact is that India buys more than it sells world- wide. But the real problem is that there is no obvious solution in sight as yet and therefore the question that arises is for how long can this huge deficit with China be maintained?

    India’s trade relations with China have had a checkered history and unfortunately continue to remain hostage to political developments between the two countries; albeit much less now than earlier. It is to the enormous credit of Rajiv Gandhi that he was the first Indian leader to realize that a solution to the vexed issue of the boundary dispute was not going to be forthcoming in the near future and therefore to delay normalization and development of trade and economic relations with China would only be counter-productive. It was Rajiv Gandhi who took the decision to de-link 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 anticipated that bilateral trade volumes would develop so fast. And develop they did with bilateral trade in 1991 jumping from a paltry US$ 265m to mushroom to a healthy US$ 70.73 billion in 2015-16. Of interest is the fact that India’s current bilateral trade with China is larger than its combined bilateral trade with Britain, Germany and Japan.

   Almost everyone recognizes what the real problem behind this massive trade deficit is. India’s 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. The fact is that India just does not produce enough high quality manufactured goods for exports, let alone for its own billion plus consumers and therefore has to rely on quality imports from the outside world. There are many experts who feel that the inordinately high trade deficit between India and China of US$ 52.73b 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; a larger import profile is but unavoidable. Since China is the major source of technology intensive products that are cost effective, running a high deficit with China is but inevitable.

    However running trade deficits with China may not be necessarily inevitable as presumed. 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 no- where near being a part of this global chain. Both India and China are likely to be among the four largest economies in the world by 2020 and yet India still does not have a full time trade negotiator on the lines of the US Trade Representative [USTR]. Trade negotiations with China are therefore only but episodic.

   So what can be done? Two things stand out for immediate consideration.   

      The Chinese say that in the next few years they will import goods worth US$10 trillion and invest abroad about US$ 500 billion. We need to tap into this urgently. At present Chinese FDI into India is rather abysmal, with the total reaching a mere US$ 396m for the period 2000 to 2014. This figure is about 1 per cent of the total received by India and of this US$251m came in the last two years. During the visit of the Chinese President Xi Jinping to India in September 2014, he promised a further Chinese investment of about US$20b. The Chinese also proposed to set-up Industrial parks in India and every effort should be made to speedily execute these projects. Take the example of the manufacture of the iPhone in China. Most of its parts are imported into China from South Korea and Japan and China is the last stop in the manufacturing chain in East Asia. China only value adds a small proportion to the full product, but the important point is that it is a part of the Asian value chain. India needs to join this chain.    

   The second point for consideration is that there is a general lack of awareness in India about tapping the highly lucrative Chinese foreign tourist market. About 150m Chinese travel abroad annually and are estimated to spend about US$229b abroad. The number of Chinese tourists visiting India is abysmally low, but this may also be due to the visa regime being rather strict due to perceived security reasons. PM Modi during his last visit to China took a decisive step and introduced the concept of e-visas for facilitating travel by Chinese tourists, but much more needs to be done to attract Chinese visitors. The Buddhist circuit based on Gaya and Nalanda in Bihar needs to be directly air linked to Asian cities such as Bangkok, Singapore and Shanghai to facilitate travel. It is time for India to play the Buddhist tourist card.

   Ever since 1988 it has been India’s policy to limit our differences with China, contain them and  to narrow the strategic deficit, but at the same time to enlarge the scope for co-operation and collaboration. Let not the mushrooming trade deficit become yet another milestone around the neck of Sino-Indian relations. The time for taking decisive steps is there for the asking.