China needs India to be an ally

This reflected a paradigm shift in China's stand vis-a-vis India. Till now, the Chinese government and its media were active in snowballing anti-India protests over the border standoff in Sikkim, Bhutan, Tibet tri-junction. China sent precautionary advice to the Chinese investors in India on the imminent anti-China protests, quoting examples of Shiv Sena activist's burning a Chinese flag last year as a protest against China's veto to India's membership in the Nuclear Supply Group. In an opinion piece, the powerful Chinese media, Global Times, acclaimed India's reforms, saying, India was becoming more attractive to foreign firms. It said "As low –cost manufacturing is gradually moving away from China, it is now critical for India and even the rest of the world to understand whether it can replace China as the world's next factory."

A month ago, the same media virtually alleged India for provocation in the scuffle between Chinese and Indian troops' at the Sikkim border. It fired a salvo saying that "India needs to be taught the rules". It reminded India that it was far behind China in economic and military might, and asked for mutual respect. India reported one- quarter of China's GDP and its defence budget was one-third of China, it said.

What has driven China to make a volte-face in anti-India protests? Was it China's fear of a boomerang by its own people, who are controlling business operations abroad, or fear of losing India from the net of globalisation after Trump receded, leaving a place for Xi Jinping to lead the globalisation as he did in the last Davos summit?

Presumably, there are two reasons which prompted China to reverse its anti- India protests. First, growing Chinese investment in India and Chinese engagement in various infrastructure projects and secondly, Trump's relook into Asia-Pacific policy, where India is likely to regain its role as a linchpin, entrusted on it during the Obama administration.

India-China economic relations increased manifold during Modi administration. Unlike his predecessor, Modi tried to woo Chinese investment with twin aims – increase Chinese investment in India and use it to reduce the wide trade deficit incurred by Chinese exports to India. Instead of triggering a trade war, Modi administration took amicable and economically viable measures to reduce the trade deficit.

India tends to be the next generation investment destination for China. China has emerged as a global leader in overseas investment from a global leader of foreign investment receiver. China lost low-cost manufacturing competitiveness in the wake of appreciation of Yuan, the Chinese currency. In 2015, China was number two in the world investment abroad. Besides Yuan appreciation, Chinese government relaxed several procedural hassles to promote Chinese investment abroad.

These yielded benefits to the Chinese companies, who were losing out in their domestic market. India's higher growth trajectory in GDP and a large pool of middle class, as well as, non-aging people, ensured substantial windfall to the Chinese investors in India. For example, around six top Chinese smartphone makers - Xiaomi, Oppo, Oneplus, Gionee, Vivo, Huawei - either have or are likely to start manufacturing in India. India has become the new turf for these Chinese companies to meet their global ambition. India accounted for 60 to 70 per cent of the global sales of these Chinese companies.

Chinese interests in economic engagement with India perked up after the successful launching of AIIB (Asia Infrastructure Investment Bank) a year and a half ago. China is the biggest stakeholder, followed by India in AIIB. It was a major breakthrough in establishing Asian infrastructure development funding institution and threw a big challenge to the western funding institutions and ADB.

One of the significant features of AIIB, which is benign to India, is that clean energy is not the prerequisite for power development, unlike the protocols of World Bank, IMF and ADB. In India, most of the upcoming power projects are coal –based. As a result, these power projects were deprived of fund facilities after the clean energy became a priority for funding. Given the situation, AIIB funding will be a leg up for Chinese companies over its competitors in bidding new power projects in India.

The recent Trump-Modi summit added a new dimension of spirit in the Indo-USA relation. The most critical part of this summit was Trump's clear direction for tightening Indo-USA relation.

During Obama administration, India has often been termed as a linchpin to US Asia –Pacific Pivot policy. India lost the value with Trump's negation of Asia-Pacific strategy, in lieu of his focus on "America First". But, the mercurial Trump quickly changed his vision to Asia-Pacific strategy.

In the beginning of May, USA adopted a new initiative for rebalancing Asia power strategy, namely "Asia Pacific Stability Initiative" - proposed by Senator John McCain at the beginning of this year. Pentagon endorsed a plan of US $ 7.5 billion to strengthen US presence in Asia-Pacific region over the next five years. Two security threats – rising China and nuclear North Korea - justified the initiative.

In these perspectives, India has a chance to regain its position as the linchpin in USA Asia-Pacific policy strategy. India has proved to match the taste of Trump after it refused to be party to China's OBOR.

Without India, Xi Jinping's dream project for globalisation remains half-baked. To this end, China will strive to engage India in larger economic cooperation in its Asian power game. In this exercise, China is unlikely to escalate border stand-off, which may prove inimical to the Chinese ambition for leadership in globalisation. IPA