Indo-China border tensions - Can #China rise peacefully?

Recently the People Liberation Army (PLA) soldiers transgressed into the Indian territory and killed 20 Indian soldiers in eastern Ladakh. But India did not swallow the bait and ultimately the current dispute was resolved through intense diplomatic negotiations resulting in the PLA withdrawal, writes Vidya S. Sharma.

Each year, since the 1962 border war, China has made hundreds of incursions into the Indian territory (in 2019, for example, there were 497 Chinese transgressions in eastern Ladakh alone) but it was for the first time in more than 45 years that the PLA attacked and killed Indian soldiers.

Why a change of tactics by China this time? This also raises the broader and more significant question: Can or will China rise peacefully? I wish to examine this question because China cannot realise its ambition of becoming a global superpower unless it proves its status as a regional power. On the other hand, having lost about 43,000 sq.km of its territory in Aksai Chin in 1962, India would never allow China to capture any part of its territory by war.

This particular incursion in eastern Ladakh may have been diplomatically resolved but China has sent a message to India: it is willing to abandon the border negotiations and use force to attain – what Xi considers is the rightful place as a superpower - in the comity of nations. This is the nub of the problem.

Aggressive pursuit of foreign policy aims under Xi

President Xi’s predecessor, President Hu Jintao, was always keen to reassure all countries, especially the US and south-east Asian countries that China’s rise did not pose any threat to others and China was a force for peace.

President Xi thinks that the time for pretence is over. China is wealthy and militarily powerful enough that there is no need for China to conceal its regional and global ambitions.

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In his speech Xi often talks about “rejuvenation” of China, ie, he wishes to be remembered as the leader under whom China was as powerful and ruled over as vast a territory as the Tang and High Qing emperors did.

Soon after he came to power (in 2014), he overhauled the foreign ministry and put his men in charge who would forcefully seek China’s rejuvenation. Xi doubled the foreign ministry budget, and since then it has been rising in double digits every year.

Now there is abundant evidence of this aggressive approach in foreign affairs and Xi’s impatience to see a ‘rejuvenated” China.

Early last year, speaking on the occasion of 40^th anniversary of a landmark Chinese overture to Taipei, Xi told a gathering in Beijing: "China must and will be united, which is an inevitable requirement for the historical rejuvenation of the Chinese nation in the new era".

Beijing has hardened its position towards Taiwan. Until last year (this includes the first six years since Xi Jinping became China’s paramount leader), the government’s annual work report stressed a “peaceful reunification” with Taiwan. In this year’s annual report any reference to “peaceful reunification” has been dropped.

In the same week, the PLA transgressed into India’s territory in eastern Ladakh, PLA Air Force’s J-10 fighters were also violating Taiwan’s air space.

On 22 June, The Taiwan News reported: “For the seventh time in less than two weeks, a Chinese fighter jet approached Taiwan's airspace on Sunday (21 June).”

Similarly for the last 7 years, under Xi, we have witnessed China’s authoritarian noose tighten around the neck of people of Hong Kong. With the passage of new security bill last fortnight, any remaining façade of one-country-2 systems has been completely abandoned forcing the countries like the UK, Australia to offer safe heaven visas to many millions of Hong Kongers.

In July 2016, when the International Tribunal in The Hague ruled against China’s claims in the South China Sea. Beijing called the ruling a farce and Xi Jinping asserted that China’s ‘territorial sovereignty and marine rights’ in the seas will not be affected.

Another example of China’s brazen willingness to tear apart an agreement unilaterally is the present incursion into India’s territory in eastern Laddakh.

In 1993 and 1996 both countries had signed an agreement that prevented both India and China from building new military structures and amassing a large number of soldiers along the Line of Actual Control (LOAC). It is clear from publicly available satellite pictures that China flouted those agreements and India is now being forced to play catch up.

Canada, under its extradition treaty obligations with the US, arrested Meng Wanzhou, the chief financial officer of Huawei, so that the court could rule on her extradition to the US. Xi was not content for the law to take its course.

Instead, China resorted to bully Canada by arresting two Canadian nationals and charged them with suspicion of spying for state secrets and intelligence and illegally providing state secrets. In other words, it took them as hostages to bully/punish Canada. They are rotting in Chinese jails while Meng lives in her multi-million house and is free to go anywhere in the city.

China’s Incursions Into Indian Territory: Why Now?

There are many reasons why China chose to make incursions into Indian territory now. I summarize some of the more important ones below:

Slowing economy

There has been a tacit contract between Communist Party of China (CPC) and Chinese people: The latter are willing to forego their human rights and liberties and will accept CPC’s totalitarian and repressive regime as long as it provides them with increasingly more materially prosperous future. This contract is now in jeopardy.

According to the World Bank, the Chinese economy in 2017, 2018, 2019e grew by 6.8%, 6.63%, 6.1% respectively. At the recent National People’s Congress, no growth target was set up for this year. The World Bank is forecasting a growth rate of 1% in 2020.

Over the last forty years, China had developed into a manufacturing hub for the world. Consequently, during the pandemic, Western firms have witnessed a disruption of supplies to their operations on a massive scale

To correct this problem, we would see (a) continuation of re-shoring of manufacturing operations; or (b) shifting of manufacturing operations to smaller countries near home. For example, the EU corporations may shift their manufacturing operations in one of the countries in Eastern Europe.

This will further slow down the growth of Chinese exports that comprise about 18% of GDP.

COVID-19

It has taken longer for China to emerge from the pandemic. National security officials both in London and Washington believe China has under-reported the true levels of deaths from Covid-19.

Derek Scissors of American Enterprise Institute, a Washington-based think-tank, asserts “that China’s COVID-19 figures are not arithmetically sensible....outside of Wuhan city and Hubei province, cases are low by a factor of 100 or more.”

Scissors’ conservative estimate is that China had about 2.9 million COVID -19 cases.

China recorded 21 million fewer mobile phone subscribers for the first quarter of 2020. On this basis, The Epoch Times concludes “The reported death toll in China doesn’t line up with what can otherwise be determined about the situation there. A comparison with the situation in Italy also suggests the Chinese death toll is significantly underreported.”.

India: No longer a swing state

The above two domestic reasons required President Xi to make a move that will create a distraction domestically and thus help him rally the Chinese population to a nationalist cause.

Attacking India also fits with his vision of “rejuvenation of China” as China not only claims the Galvan Valley (where the present incursion took place) but entire Ladakh and many other areas along the border with India’s Kashmir, Himachal Pradesh, Uttarakhand, and Arunachal Pradesh, etc. In the latter province, China has been arming, financing and fomenting irredentist insurgents for several decades.

Under PM Modi, India has moved closer to the US. Consequently, Xi Jinping does not consider India is a swing state anymore, ie, a state which will pursue an autonomous foreign policy.

Attacking India also sends a message to the US that it may be building India as a counterweight to China but China is not afraid of India.

Russia-China nexus

Both Russia and China have been increasingly concerned about India’s growing co-operation with the US. China’s ties with Russia are growing fast as both countries have three things in common: (a) both are ‘revanchist powers’ that seeks to overturn the very foundations of the liberal post-World War II and wish to reverse territorial losses incurred either in the recent past or several centuries ago; (b) both are ‘defensive powers’ in the sense that both prefer to nibble at the edges of the existing world order and bring about incremental change to impose their authoritarian vision on the world; and (c) both play a spoiler role in the international arena to boost their respective domestic legitimacy and help rogue states.

Immediately after the news of Chinese incursion broke, Indian defence minister, Rajnath, made a trip to Russia to ensure that Russia will supply the spare parts and additional weapons like fighter aircraft that India may need.

Russia promised to meet India’s defence requirements but unlike the US, Russia maintained a public stance of neutrality between India and China. The latter lobbied Russia against supplying any defence equipment to India.

The reasons that have brought Russia and China together are very important to both of them (ie, to sabotage the present liberal post-World War II order and its institutions).

Consequently, China thinks it will ultimately succeed in creating a wedge between Russia and India thus weakening India’s international clout.

Strike when the enemy is weak

If we read the history of Russia-China border dispute and how it was resolved as well as the timing of its resolution it is clear that the Communist Party of China (CPC) had developed a well thought out long-term strategy on border issues with the neighbouring countries as soon as it came to power.

In case of big and powerful neighbours like the USSR/Russia as well as India, the boundary dispute has been part of its larger political and geostrategic ambitions. To resolve border disputes with smaller states it has resorted to a combination of bullying and debt diplomacy.

China claimed the Russian empire was a European empire which expanded in the Far East and Central Asia beginning with the 17th century and occupied in the process sizeable territories that once belonged to the Chinese empire through "unequal treaties".

China uses the same argument when it says it does not recognize the McMahon Line as a boundary between India and China. It made claims to huge parts of Russia but settled for a lot smaller area. This allowed China to say it has shown this generosity because it values Russia’s friendship and through new treaty, Russia has gained more land (which was patently absurd).

It is the same tactic China is employing in its border dispute with India. China claims a huge territory of India: all of Ladakh, and big chunks of other border Indian provinces, eg, Kashmir, Haryana, Uttarakhand, Arunachal Pradesh, etc.

China started border negotiation with USSR when it was at the brink of disintegration, its economy was collapsing, it was having great difficulty even in paying monthly wages to its employees, and it had little influence on the international stage (the treaty was signed by Russia and ratified by the Russian Parliament.)

China thinks India is very gravely suffering from COVID-19 pandemic.

Further, the Modi Administration has passed three legislations (with the sole purpose of consolidating his party’s position domestically). However, each of these three acts has not only proved extremely divisive but they have also strained India’s relations with its neighbours and diminished its reputation internationally as a multicultural, multi-religious tolerant country. Briefly, these are:

1. In August 2019, the Modi Administration passed the Jammu and Kashmir Reorganisation Act 2019 and thus unilaterally repealing articles 370 and 35A relating to the status of Jammu and Kashmir amid a military siege and complete communication shutdown and curfew, much of which continues to date. The Modi Government did it to encourage Hindus to settle in Kashmir thus increasing its vote bank in the state. However, this act and continuing human rights abuses by the security forces have further radicalized the local Kashmiri Muslim population.

2. Also in August 2019, the Modi government, a Hindu nationalist government, in its desire to impose its version of Hindutva (= Hindu-ness) on the Indian people passed legislation to create a pan-India National Population Register (NPR) of citizens, a process which will involve asking every person residing in India to prove that he/she is a citizen so that the government can “expel undocumented immigrants”.

3. Further, in December 2019, the Modi Government passed the Citizenship Amendment Act (CAA). This law ensures that Hindus, Sikhs, Jains, Buddhists, Parsis or Jains facing persecution in neighbouring countries will be eligible for citizenship in India and not treated as illegal migrants but it excludes Muslims.

Thus by enacting (b) and (c), the Hindu nationalist government of PM Modi has weaponized the citizenship and also tried to destroy or at least weaken the secular, inclusive nature of Indian polity. These actions have also severely strained India’s relations with Bangladesh.

India’s relations with Nepal under Modi have also deteriorated. This has allowed China to increase its footprints in Nepal, resulting in Nepal claiming some of India’s territory.

Both (b) and (c) above have caused a great deal of unrest everywhere in India, resulting in the arrest of thousands of citizens of all ages and religions in all parts of India whom the Modi Government has labelled as ‘traitors’.

Poor economic management

Further, due to the Modi Government’s poor economic management, India is struggling to raise its economic stature. Indeed, the present administration has not been able to match the GDP growth achieved during the previous administration or the 2000s (see Figure 9).

The government has also shown utter incompetence in managing the COVID 19 pandemic. This has adversely affected India’s economy to such an extent that the IMF forecasting that India’s economy will shrink by 4.5% this year (as against China’s economy which will grow by 1%).

Lessons from Crimea

The annexation of Crimea by Russia has also proven to China that the West might provide real-time intelligence, arms and new weapon systems, offer diplomatic and financial support to India but it will not come to India’s rescue in the battlefield.

Finally, it is also worth noting that recent simulated war games conducted by the US have shown that it would face defeat if it came to Taiwan’s rescue. This has also added to China’s arrogance.

In summary, considering all the problems India is presently facing (most of them self-inflicted by the Modi Administration), Xi Jinping thought it was the right time to make a move against India.

Figure 1.

Tale of two economies: India and China

A strong economy will prove a decisive factor in the way India meets the challenge that China poses.

Let us briefly compare the two countries’ economic performance.

India became independent in August 1947 and Mao’s Communist Party came to power in China in 1949.

As Figure 2 shows, India’s per capita gross domestic product (= GDP: the sum of the total market value of all the finished goods and services produced within a country's borders in a given time frame) was greater than China until 1980. In other words, India was a wealthier country in comparison to China. At around the same time China, under Deng Xiaoping’s leadership, started opening its economy to the world. Consequently, it began growing faster and by 1985 it had caught up with India and the tables were truly turned in 1990.

Figure 2: GDP per capita (current US$) - China, India

Year	China	India
1965	98.48678	119.3189
1970	113.163	112.4345
1980	194.8047	266.5778
1985	294.4588	296.4352
1990	317.8847	367.5566
1995	609.6567	373.7665
2000	959.3725	443.3142
2005	1753.418	714.861
2010	4550.454	1357.564
2015	8066.942	1605.605
2019	10261.68	2104.146

Source: World Bank

By 2015 China’s economy was about 4 times bigger than that of India. The Bhartiya Janata Party (BJP) under Modi’s leadership came to power in 2014 on the slogan of turbo-charging the economy.

But under Modi, the gap between the two countries’ economic performance has widened further. In 2019 China’s GDP was 5 times greater than that of India even though China’s annual growth has been slowing for the last several years from historical levels of 9.5%.

The Modi administration has not been able to match the economic performance of the outgoing Singh administration (from 2004-2014) even though international average annual crude oil price during the Modi administration had been lower by at least one-third than the same for 10 years of the Singh administration.

Modest economic reforms were implemented under PM Rao (1991-1996). After Rao’s defeat, no administration (including Modi) has taken any serious steps to further structurally reform the economy. Hence the economy has stalled.

China took advantage of globalization trend and today it is the factory of the world.

China & India: Military Capabilities

The popular perception is that China is militarily superior to India. This is, indeed, very true (see Figure 4 below) when one considers overall strength, eg., number of nuclear bombs, fighter aircraft, battleships, submarines, tanks, missiles, size of the army, etc.

But O’Donnell and Bollfrass of Belfer Center at Harvard University rightly point out what is more relevant to evaluate which of the two countries is better equipped to fight at very high altitudes.

Their analysis shows that the conventional wisdom that China has superiority over India “may be mistaken and a poor guide for Indian security and procurement policies.”

They go on to say: “We assess that India has key under-appreciated conventional advantages that reduce its vulnerability to Chinese threats and attacks. India appears to have cause for greater confidence in its military position against China than is typically acknowledged in Indian debates...”

O’Donnell and Bollfrass also conclude that the Indian Army and Air Force contingents “are all permanently close to China’s border, while China’s high altitude airbases are in Tibet and Xinjiang. The PLA would also be limited by geographic and weather conditions. According to the Belfer Center report, this would restrict Chinese fighters “to carrying around half their design payload and fuel. In-flight refuelling would be required for PLA Air Force to maximize their strike capacity.”

The report goes on to say: “Against these underpowered fighters, IAF forces will launch from bases and airfields unaffected by these geographic conditions, with maximum payload and fuel capabilities.”

China: An adversary and not an enemy

India cannot change its neighbourhood. A nation’s geography offers its opportunities and constraints. It follows that it is not in India’s long term interest to make an enemy of China.

But it is also equally true that as long as India is a functioning democracy that is tolerant of its various ethnic and religious groups, and every Indian citizen is treated as equal before the law, it cannot avoid having China as its adversary. This is because China will remain a totalitarian, repressive state with no respect for human rights in the foreseeable future.

The CPC’s propaganda arms (that includes its diplomatic staff) – are busy in disseminating the following message both at home and abroad: our model of development is superior to democracy. Just consider our GDP was less than India’s in the late 1970s and today it is 5 times bigger than that of India. Now it is also fond of saying that we brought the pandemic in our country under control quickly and look how incompetent the governments are in the US and India. Both countries have had many times more fatalities than we suffered.

China has pursued a deliberate strategy to intertwine the Indian economy with its economy so that in case of war the Indian economy will suffer from great supply disruption.

To consider China as an adversary means that India should be willing to cooperate with China if it is in India’s interests but must always be distrustful of China and cover its flanks.

India must also not see the relationship as a zero-sum game. The Chinese behaviour towards India is a perfect case study of this phenomenon.

For example, China is keen to trade with India and the balance of trade is in its favour (ie, it exports more to India than imports from India). China-based companies have heavily invested in the Indian IT sector.

However, China blocked for as long as it could the addition of Masood Azhar (chief of Pakistan-based Jaish-e-Mohammad terrorist outfit) to the UN’s ‘global terrorist list’.

China has also been blocking India’s admission to the Nuclear Suppliers’ Group (NSG) on the ground that Pakistan, a known proliferator of nuclear weapons technology, be also admitted.

Similarly, China has established docking facilities for its navy in Myanmar, Sri Lanka, Pakistan to contain India.

China’s rise

How China has risen also gives us a good indication of how it will behave in the future.

There is now overwhelming evidence to show that China has amassed its wealth by conducting economic espionage and theft of intellectual property of Western firms on an industrial scale, reverse engineering, coercing foreign companies to transfer their technology to their Chinese partners if they wished to sell anything in China, etc.

Early this week on July 7, in a speech delivered at Hudson Institute, in Washington, D.C

Christopher Wray, director, Federal Bureau of Investigation bluntly stated: “The greatest long-term threat to our nation’s information and intellectual property, and to our economic vitality, is the counterintelligence and economic espionage threat from China. It’s a threat to our economic security—and by extension, to our national security.”

FBI Director went on to say, “Chinese theft on a scale so massive that it represents one of the largest transfers of wealth in human history.”

William Evanina, Director of the National Counterintelligence and Security Center, estimated the Chinese theft of American intellectual property costs the US “anywhere from $300 bn. to $600 bn.” annually.

It is not only the Western countries it is targeting, but it also does it to every country - foes and friends alike.

In my article written for The Economic Times (New Delhi) I had discussed how the academics at the University of Toronto in 2010 (while trying to work out how and to what extent the Dalai Lama’s IT systems had been hacked) found out that China’s Sichuan-based cyber-thieves had not only stolen the documents relating to Indian missile systems but they had penetrated IT systems of various other government departments, and some of the largest Indian companies (eg, Tata, YKK India Pvt Ltd., DLF Limited, etc.).

It has now stolen so much intellectual property in all leading-edge disciplines that it is now able to innovate in its own right (eg, Huawei is a leader in 5G) and has the ambition to become an unsurpassed leader in artificial intelligence and robotics, amongst other things.

In addition to stealing all kinds of technical know-how, it is actively trying to destabilize governments, institutions and by conducting cyber-spying on an industrial scale and by interfering in their civic and academic institutions.

Economic penetration of India by China

In response of Chinese incursion into Indian territory, the angry Indian citizens and politicians of all shades have been demanding retribution, vandalizing shop selling goods imported from China.

BJP-led state governments of Haryana and Uttar Pradesh cancelled contracts given to Chinese companies without thinking of the legal and reputational consequences of their actions. New Delhi has demanded all companies responding to its tenders must state clearly the origin of their products and the percentage of indigenous content.

Prime Minister Modi banned TikTok from India. He called for India for ‘self-reliance’. This is a shorthand for the continuation of import substitution policy vigorously implemented by Mrs Indira Gandhi and re-branded by Modi as 'Make in India'.

The Communist Party of China-controlled media has been quick to threaten India by saying that by banning Chinese products and investments, India would be committing economic suicide.

It is very easy for politicians to call for ‘self-reliance’ but difficult to achieve for many reasons. Let me elaborate on it a little bit.

In March 2020, Ananth Krishnan of Brookings Institution India Centre published a research paper, Following The Money: China Inc’s growing stake in India-China relations.

He found Chinese investments range from buying groceries to hailing a cab to ordering food online and making digital payments. It must not come as a surprise to Indians and especially to BJP and its supporters.

Modi has been one of the biggest champions of building robust economic ties with China. According to my calculations, Modi and Xi have met at least 18 times.

During Modi’s first term (2014 to 2019) Chinese penetration of the Indian economy intensified. Consequently, India’s trade deficit with China almost grew by nearly 70%: from US$36 billion in 2014 to US$53.5bn In 2019.

Last Wednesday, praising India’s drug industry Modi said, “India’s pharma industry is an asset not just for India but for the entire world...”. But Mr Modi forgot to mention that many of India’s biggest drug companies will have to shut their doors overnight if China stopped supplying them with intermediate chemicals.

Krishnan estimates that the current and planned Chinese investment in India amounts to a little over US$26 bl.

India does not have a venture capital market to speak of. This has allowed Chinese tech giants like TikTok, Alibaba Group, Tencent, Steadview Capital and Didi Chuxing to become some of the biggest shareholders in the Indian start-up sector.

Krishnan’s shows that at least US$4 bn. of Chinese venture capital has funded at least 92 Indian start-ups – including 14 of India’s 30 billion-dollar unicorns. These start-ups include some of the household names in India, eg, Ola (over $500 mill. jointly by Tencent and h Steadview Capital), Flipkart, Byju (over $50 mill. by Tencent Holdings), Make My Trip, Oyo, Swiggy, Bigbasket (over US$200 mill. By Alibaba), Delhivery, Paytm (over $550 mill. by Alibaba), Policy Bazaar, and Zomato (over US$200 mill. By Alibaba).

Some of the Indian digital companies are owned outright by Chinese companies, eg, Flipkart and Paytm, etc.

Aside from its exports to India, China has further integrated India’s economy with its own by investing in manufacturing. The Modi Administration has allowed Chinese IT and tech companies like Xiaomi, Oppo, Vivo, and Huawei to set up 100% owned plants in various parts of India.

Numerous Chinese companies now produce locally. For example, 66% of the market share in the fast-growing Indian mobile phone market is held by four Chinese companies. Each of these companies has multiple manufacturing plants in India. It is worth noting up to 90 per cent of the components required for mobile phones in Asia are imported from China.

In the last five years Chinese auto companies like MG motors, BYD auto, Colsight, YAPP Automobiles, among others, have shown rapid growth.

Krishnan notes that Tiktok, Vigo Video, ShareIt, and Cam scanner comprise more than 50% of the total app downloads by Indians. They are all of the Chinese origins.

The optical fibre sector has also seen significant Chinese investments under Modi. Chinese companies like Fiberhome, ZIT, TG Advait, and Hengtong have made huge investments in India. Last year, the Modi Administration allowed Chinese tech giant Huawei to conduct 5G trials in India.

How should India respond?

So far I have attempted to demonstrate President Xi is impatient to “rejuvenate” China. To achieve his aim he is conducting an aggressive foreign policy and is eager to project China’s military might to bully smaller neighbours into submission (refer to the creation of artificial islands in the South China Sea and his offer to The Philippines).

I also discussed that to achieve his aim he must first reclaim the territory that belongs to China but is now controlled by India (China ceded those lands to British rulers of India when China was weak). For it, like with Taiwan, he would be prepared to go war.

Intertwining China’s economy with India has been a part of this strategy (as China has done with the US and other Western countries) so that in case of a war, maximum damage can be wrought upon India.

How should India respond to this challenge?

China may be militarily more powerful but it is possible to successfully counter the threat that China poses. The short answer is a strong economy and united and tolerant and democratic India.

Any effective response will require a long term strategy just like the one followed by Xi’s three predecessors: Deng Xiaoping, Jiang Zemin, and Hu Jintao. They quietly built China’s economy that provided the funds to develop, modernise and arm China’s defence forces, take millions of people out of poverty and build world ranking universities and modern infrastructure.

As a pre-condition, the people of India need to be united

This crisis offers two choices to Prime Minister Modi: (a) to be remembered as the leader who appealed to the base nature of human beings (like Hitler, Mussolini did) and sowed deep division in the Indian society; or (b) as one of the great leaders of post-independent India.

Can he rise to the occasion?

It will require him to stop taking his orders from Amit Shah (his Home Minister and the real power within the ruling BJP and Dr Mohan Rao Bhagwat, the leader of the Rashtriya Swyamsevak Sangh (RSS), the parent of the BJP.

He will need to rule for every Indian and not just for those Hindus who subscribe to the RSS’ version of Hinduism and envision India that is intolerant of minorities and hates secularism.

It will require him to withdraw his cow vigilantes (most of them are RSS members) back to the barracks. Presently, they regularly beat, harass, lynch and on occasions kill Muslims on the pretext they eat beef or were about to kill a cow. They do so under the protection of local BJP and RSS leaders and go unpunished.

This advice was given by President Obama to Modi both through diplomatic channels and he told him so in person.

As described above in the section, “Strike when the enemy is weak”, by pursuing the RSS’ Hindutva agenda to shore up BJP’s vote bank, the Modi Government has deeply polarised the Indian society (refer to CAA, NPR, revocation of articles 370 and 35A of the Indian constitution, revision of school textbooks, unleashing of cow vigilantes all over India, etc.).

Modi cannot formulate an effective response to China unless he unites Indians first. He cannot achieve this aim unless he faithfully follows the oath (to defend the constitution) he took at the time of becoming Prime Minister.

The Modi government’s credibility has been further dented because under his leadership the economy has stalled and the administration has proven utterly incompetent in containing the COVID 19 pandemic.

To heal the nation’s wounds, he must consider forming a national unity government. It is not a necessary condition but if such an approach was followed then the task of uniting the country would become easier.

Such a move will also mean that domestic politics will not interfere with national security.

The Modi Administration must accept in a democratic country the Government must listen to opposing voices whether in the parliament, members of the media or outside in the community or the streets.

When the Modi government puts pressure on corporations not to advertise on a TV channel or newspaper that publishes a critical story or harass government’s critics by unleashing the Enforcement Directorate, Income Tax personnel and police or demonizing them as traitors he divides the nation.

Even Rahul Bajaj, the doyen of the Indian industry, recently said: “corporates live in fear, can't criticise Modi government.”

To put simply, the Modi Administration, instead of ruling Indians, needs to learn to serve people as politicians do in all other democratic countries

Asia power index: China vs India

I mentioned above the need for PM Modi to rule for all Indian. I had a very pragmatic reason for suggesting those actions.

Figure 4: Asia Power Index (July 2020)

Country	Military	Diplomatic	Cultural	Overall
US	94.7	79.6	86.7	75.9
China	66.1	96.2	58.3	75.9
India	44.2	68.5	49	41
Japan	29.5	90.9	50.4	42.5
Australia	28.2	56.9	26.7	31.3
S Korea	32.9	69.7	33.8	32.7
Indonesia	16.8	57.5	18.1	20.6
Vietnam	20.7	46.4	19.2	18
Singapore	25.2	54.3	27.5	27.9

Source: Lowy Institute (Sydney)

Figure 4 above compares India, China, US and some other countries in the Asia Pacific region for their respective standing in three areas: military, cultural and diplomatic.

China, purely in military terms is one and a half more powerful than India but not so when it comes to soft power (ie, cultural and diplomatic heft).

India enjoys this advantage over China because India is respected for its democracy, the rule of law, freedom of speech, and its ethnic, cultural and religious diversity. These are the values that endear India to people all over the Western world. This is one of the main reasons that in comparison to the Chinese nationals, the Indians are more easily integrated into the West and not treated with suspicion.

Such initiatives of the Modi Government as National Population Register, Citizens Amendment Act, the repeal of constitutional articles 370 and 35A, creating an environment where even the captains of industry fear expressing views of critical of the government, have gravely hurt India’s international reputation as a tolerant civilisation in the eyes of all Western countries.

Diplomatic initiatives

India must continue to deepen its relations with the US in all respects but India also needs to help the US to appreciate that for geostrategic reasons India needs to maintain good relations with Russia and that its multi-faceted relations with India are not against the US but helps the US’s international objectives because they serve as a break on Russia-China axis.

India should strengthen its relationship with a country to its east, eg, Japan, Australia, Vietnam, Indonesia at all levels: defence, trade, political, etc.

India should use its soft power and diplomatic network make the life of China more difficult. For example, it may speak out more openly in favour of the Dalai Lama’s cause. Similarly, it should consider speaking out against Uyghurs’ repression by China.

Extricating Indian economy from dragon’s claws

It is clear from the steps the Modi Administration has taken so far that it realises two things that: (a) era of building economic ties with China and postponing the discussion of the border dispute to some time in the future is over; and (b) any effective response would require to first ease out China from the Indian economy.

The Indian government has disbarred Chinese companies from participating in Indian highway projects, including via the joint venture route and also from taking equity stakes India’s micro, small and medium enterprises (MSME) sector.

Instead of putting higher tariffs on Chinese imports, the Indian government has wisely chosen to discourage imports from China. Such a policy will allow importers to find alternative suppliers in other countries in an orderly way and it would not disrupt the supply chain of Indian companies.

Need for structural reform

Figure 5: Fiscal stimulus applied by various Asian countries

Bloomberg, ING

Figure 6: Asian corporate tax rates (%) - India has become competitive

Bloomberg, ING

Figure 7: INR – Remains Asia’s weakest currency

Bloomberg, ING

Figure 8: India: Unemployment rate from 1999 to 2019

Source: World Bank

Figures 5 to 9 above give a picture of various aspects of the Indian economy.

They collectively show under Modi the economic growth rate (GDP%) has continued to fall (Figure 9). This is despite the fact in the last budget, the Modi Administration stimulate the economy by:

• Applying the biggest fiscal stimulus (2% of GDP) of any Asian country (see Figure 5), and;
• by reducing the cut corporate tax rate to make it competitive in comparison to other Asian countries (see Figure 6).

To provide further support to the economy, the Reserve Bank of India loosened the monetary policy (ie, injected more liquidity into the economy) by reducing the interest rate by 135 basis points (ie, 1.35%).

Yet the economy continued to slow down (see Figure 9) and Indian Rupee remains the weakest Asian currency (see Figure 7).

The reason for slowing down of the economy are: (a) India Inc. is heavily indebted; (b) ill-thought-through demonetisation which did not have the support of Raghuram Rajan, the then Governor of the RBA; (c) overall unemployment (Figure 8) has risen (for 2019 was 5.36%, a 0.03% increase from 2018); (d) consequently the demand is too weak.

As Mr Modi tries to kick-start the post-pandemic economy he has the opportunity to introduce some economic structural reform so that the economy comes out of the coma.

Modi should take this opportunity to take initiatives to improve the skills level of the workforce and improve infrastructure. Similarly, any assistance offered to any company under in ‘Make in India’ programme should be conditional on that company modernising its plants. These conditions will ensure the products manufactured in India are of the same quality as produced in China and will also be competitive on the world market.

Conclusion

Under President Xi, China has been pursuing a very aggressive foreign policy. It has ditched the policy of seeking peaceful reunion with Taiwan. It has unilaterally reneged on its undertaking it gave to Britain about Hong Kong. When arbitration tribunal in The ruled against China, Xi said he would not accept its decision. It has been violating Taiwan airspace regularly.

Similarly, under Xi China is eager to project its military power.

It is more likely than not that sometime in the future armed conflict will take place between China and India (unless India surrenders the territory demanded by China). Until now, whenever China has made incursions into the Indian territory, New Delhi has tried to resolve the crises diplomatically.

The COVID-19 offers Modi a unique opportunity to structurally reform the economy so that it grows faster and thus generates extra funds needed to modernise the Indian defence forces. India also needs to further deepen its ties with the US and other countries in the West. In Asia, it needs to look east and strengthen its ties (including in the are of defence) with counties like Japan, South Korea, Indonesia, Australia to build a credible coalition against China as each of these countries shares India’s view of China, ie, it is a ‘revanchist’ and expansionist power wishing to destabilise the world order that has kept peace in the region for the last 70+ years and let them grow peacefully.

India must shed its hesitation of not commenting on issues that China considers its internal affairs such as its repressive policies against Tibet, Uyghurs (are recognized as native to the Xinjiang) and Christians. It must speak out publicly on such issues.

India must also improve its ties with Bangladesh and Nepal. China is the main game in town. Not Pakistan. Nor Indian Muslims.

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Vidya Sharma advises clients on country risks and technology-based joint ventures. He has contributed many articles for such prestigious newspapers as: EU Reporter (Brussels), The Australian, The Canberra Times, The Sydney Morning Herald, The Age (Melbourne), The Australian Financial Review, The Economic Times (India), The Business Standard (India), The Business Line (Chennai, India), The Hindustan Times (India), The Financial Express (India), The Daily Caller (US), etc.  He can be contacted at [email protected].

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