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Millennium Post

How to cool down Chinese heat

Militarily India is no match for China. However unhappy and anguished India may feel about the constant Chinese provocation by way of its frequent intrusions and dogged presence of its troops inside the Indian territory in Ladakh in the north-west and Arunachal Pradesh in the north-east, the issue of stamped visa to residents from J&K and Arunachal seeking to visit China and the building of strategic infrastructures in countries such as Nepal, Pakistan, the Maldives, Sri Lanka, Bangladesh and Myanmar, encircling India, it would be simply foolish on the part of the country to step into the Chinese booby trap by adventuring into a military response. It may be time for India to keep cool and adopt a different strategy to get China on a negotiation table to improve understanding and appreciation of each other’s strength.

 The only weapon India has in its command at the moment to serve notice on China is its growing economic muscle. India’s annual import bill is well over half a trillion dollars. Officially, its import from China is worth $60 billion, almost 12 per cent of the country’s import last year. In addition, China-made products worth about $2-3 billion get annually smuggled into India. Indian imports support at least two million jobs in China, whose economic stability and prosperity largely depend on export. China is among the world’s largest export powerhouses. Several thousand Chinese workers are employed in India in project construction and industry. China has built the world’s largest dollar hoard outside the USA. The massive export income has been largely feeding the Chinese armament and security equipment industry. It supports $120-billion-plus annual defense budget.

Of late, the economic slowdown in Europe and North America has impacted on China’s exports to these traditional markets. China has since diversified its export destinations to other regions, including India, South America and Africa. China has emerged as India’s largest trading (read import) partner, replacing the United States. It has been steadily encroaching upon India’s industrial sector, manufacturing a wide range of products, from security-sensitive telecommunication equipment to household stuff such as domestic appliances and home furnishings, giving tough time to foreign rivals from the USA, EU, Japan and South Korea. A comparatively new entrant, China’s capital investment (FDI) in India has already crossed $1 billion. 

At a recent ‘India calling China’ business partnership conference in Guangzhu, led by Mumbai-based Indian Merchants’ Chamber, both China and India agreed that the present level of Chinese investment in India is too small and stressed the need for scaling it up to $100 billion by raising Chinese participation in the infrastructure sector in the next few years. Chinese $30-billion-plus telecom equipment giant Huawei Technologies, the world’s second-largest telecom gear-maker after Ericsson, is planning to ramp up its enterprise operations in India.  Huawei has already rolled out a $2-billion investment plan in India to be implemented shortly.  Should China be allowed to bite the hand that feeds? All that India needs to do is to put a trade and investment embargo on China, which will hurt China much more than the pleasure it may be deriving out of the setting up of a few military tents inside eastern Ladakh’s highly weather unfriendly upper ridges. The application of trade and investment embargo as a strategic tool on perceived rogue states was, in a way, an American invention that has been receiving wide approval of even such multilateral organisations as the UN, World Bank, IMF and European Union. At the receiving end were several countries, including the former Soviet Union and its East European block, India (immediately after two nuclear tests), Cuba, China, North Korea, Venezuela, Iraq and Iran.

Lately, China too is using the same weapon against Japan without formally declaring it to settle its territorial dispute with that country over the sovereign control of Senkaku islands in the East China Sea. China has not only reduced imports from Japan substantially, but also cut down consumption of products manufactured by Japanese companies in China to teach Japan a lesson and make it accept the Chinese demand. Simultaneously, China has nearly stopped export of rare-earth, a strategic raw material, to Japan. Like China’s, Japan’s economy too is export led. Japan is already feeling the pinch of Chinese partial economic blockade. China’s import from India is insignificant. The biggest item of import is iron ore. Yet, China is investing heavily in Brazilian mines developing them as alternate iron ore supply source even at much higher shipping costs. Paradoxically, Indian importers are increasingly betting on China only for its attractively cheaper price offerings.

China’s massive economic expansion over the last three decades founded on a strong export-led economic growth strategy, earning large foreign exchange surpluses year after year to pay for import of latest military hardware and technology and reengineering them to set up a state-of-the-art defence, telecommunications and security equipment industry is, of late, showing the signs of strain. On the contrary, India’s fast expanding domestic market is fuelling its economic growth. Export accounts for less than 40 per cent of India’s foreign trade. China is keen to be a part of India’s vast domestic market to keep its highly pampered export juggernaut moving.  An unofficial Indian trade and investment embargo on China can spoil all that. Incidentally, such a step will be most welcome by India’s traditional trading partners from the West, the biggest loser in the game of growing China-India trade relations. India has long tolerated China’s military nonsense while trying to build up better bi-lateral relations through increasing engagement in trade and commerce. If China interprets the latter as India’s weakness for cheaper Chinese products and services, it would be wrong. India should tighten its China-specific trade, investment and procurement regulations sending the right message to the newly changed Chinese regime that India can’t be taken a sucker forever.

India must stop feeding the Chinese economy. Until now, China has been seeing what India appears to be, it should now get a feel of what India really could be.

In the words of the 16th century Italian philosopher and celebrated war strategist, Niccolo Machiavelli ‘it is necessary to be a fox to discover the snares and a lion to terrify the wolves.’ IPA 
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