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Friday, Apr 29, 2005

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Importance of India for China

S. Majumder

CHINA is a global economic power-house. Its contribution to the world economy was highest in 2003. It has become especially crucial for the Japanese economy, importing so heavily as it does from that country.

China has become the engine, driving export-based Asean (Association of South-East Asian Nations). It is the world's most attractive destination for foreign investors and the launch pad for MNCs wanting to get a foothold in the global market.

Why then is China is so keen on closer ties with India, which is inconsequential to its economic growth? India accounts for less than one per cent of China's global trade and its investment in Middle Kingdom is meagre.

Nor are the two countries politically close. It is difficult for New Delhi to readily accept Beijing's eagerness as the ghost of the 1962 war still haunts the Indian people. According to a Chinese scholar, there are similarities between India's attitude towards China and China's towards Japan. Though, of course, the animosity between China and Japan runs much deeper.

China's eagerness to foster closer ties was reflected in its support to India's aspiration for the UN Security Council seat and the thawing of the long-standing border dispute during the recent visit to New Delhi of the Chinese Premier, Mr Wen Jiabao.

Till 2003, (when the then Prime Minister, Mr Atal Bihari Vajpayee, visited China), Beijing was stubborn on the border dispute and reticent on the progress of economic relations. Whereas India was eager to re-invigorate its relationship with China. And then, suddenly, there was a turnaround and China went on an overdrive to strengthen relations with India during Mr Wen's visit.

This turnaround in China's attitude vis--vis India was the fallout of not any big gains for the economy, but China's aspiration to garner Asian power in the global power tango. According to a professor at Beijing University, Mr Jia Quingguo, the renewed Chinese interest in India was provoked by the US' attempts to use India to contain China. A former Singapore diplomat, Mr Kishore Mahbubani, made a similar argument. He said, "China is buying political insurance," through all its neighbours.

China knows that the US will be alarmed by its growing power and hence it wants to share its prosperity with the neighbours. China's efforts to embrace India — the world's largest democracy and a powerhouse of Asia — is an attempt to wean New Delhi from the shadows of Washington's influence in the coming decades.

Hence, India's importance to China is from the perspective of its wanting to gain a political upper-hand in Asia over the US, particularly when the world's second biggest economic power, Japan, is an ally of the US. China wants to increase its political strength using its economic power and unite the Asian economy to counter the American influence in Asia. Within two years, China has emerged the second biggest export destination for India and Asean majors (Singapore, Thailand, Indonesia, Malaysia and the Philippines), after the US. While the US still accounts for the chunk of exports of these countries, in terms of growth, China raced ahead. China has the potential for future growth of these export-based economies.

The Chinese economy is booming. Its almost insatiable need for materials made fortunes for metal and raw material processors world over. Its consistent growth in GDP and galloping exports have made it the world's biggest consumer of materials. China accounts for half the world's consumption of cement, 30 per cent of coal and 36 per cent of steel. Its demand for metals impacted the global metal prices. All this gave great scope for countries such as India and Asean to boost their exports to China. The booming growth in the export of iron ore to China left Japan in a quandary.

In energy, the hunger for oil forced China into mutual cooperation with India. China's import of crude oil exceeded that of Japan's, the second largest importer of oil, and is forecast to exceed even that of the US by 2020.

Growing needs of crude oil drove India to make substantial oil equity investments abroad. This led to cut throat competition between the two countries in the overseas oil equity investment, till ONGC Videsh Ltd and China National Petroleum Corporation inked an agreement to jointly explore oil and gas assets around the world.

China, unlike India, is strong in hardware but not in software. Though China is expected to catch up with India in software, India is also advancing rapidly.

Herein lies the opportunity for India and China to work together and lead the world in embedded technology. China's keenness was reflected in the Chinese Premier visiting Bangalore before he did New Delhi.

China is on an FTA (free trade agreement) signing binge and is keen to have one with India also. But New Delhi fears that an FTA would open the doors for cheap Chinese goods, and harm the domestic industry.

The obvious reason for China to have an FTA with India and Asean is to make its economic presence felt in Asia and resist the US. But there is the other side to this coin. For even as China wants to cosy up with India to build its power in Asia others in the continent may want to come closer to India to counter growing Chinese muscle.

This would automatically increase India's significance to Asean and pave the way for India to become a member of the bloc, something India has been striving for, for quite some time.

Will Japan take note of China's ping-pong diplomacy, even as the row between Japan and China deepens? Could this be a signal to the Japanese investors to rethink their investment expansion in China, whose only attraction is its cheap labour?

(The author is senior researcher in a Japanese MNC, New Delhi)

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