Can India afford to antagonise China?

Paran Balakrishnan | Updated on May 12, 2020 Published on May 13, 2020

Looking ahead: It won’t be a good idea to restrict investments from China   -  PTI

We need to play a delicate balancing game with our huge neighbour and ensure our interests are taken care of

With the Covid-19 lockdown being lifted in stages, the government is hoping to give the beleaguered economy a reviving whiff of oxygen. It’s identified companies it believes might be ready to shift to India from China over the coronavirus crisis and is sending out feelers. And, as an added lure, BJP-ruled States have taken the drastic step of sweeping away decades-old labour protection laws that critics have seen as an investment deterrent.

Seeking to steal foreign investment away from China is one thing. But India’s also decided to take on Beijing on another front in a move it might do well to avoid. Just as the Chinese are looking eastwards to invest in countries like India as they attempt to economically disengage from the US, we’ve introduced new rules around Chinese investment that could have the effect of reducing Beijing’s enthusiasm for the investment-hungry Indian market.

Question of investments

Till recently, Chinese companies in sensitive sectors like telecom or aviation would have had to answer more detailed questions about their investments and backgrounds.

Now, even the smallest investment will be scrutinised more closely. It’s hard to tell what impact that might have on Chinese investment but there may be many questions these firms would prefer not answering and easing labour laws may not compensate for throwing in this extra complication.

All this is playing out against a wider backdrop. China and the US had already been involved in a long trade war that actually looked to be winding down when Covid-19 changed the world as we knew it.

President Donald Trump, rattled by soaring US coronavirus deaths in an election year and looking for an obvious scapegoat, has renewed his fire against Beijing, threatening to abandon his new trade deal with China. And Trump’s not the only one turning up the heat on China. The EU and other Western allies like Japan and Australia have been looking to challenge China’s economic might and blaming it for a Covid-19 cover-up.

Scarcely a day goes by without so-called “middle-power” countries also taking potshots at the Chinese. On Monday, New Zealand suggested Taiwan have observer status at a World Health Organization meeting because of its successful Covid-19 strategy. The Chinese blasted that suggestion and warned relations would suffer.

It should be noted here, though, Trump’s MAGA-preoccupied America is also held in low regard by nations in Europe and Asia.

The question now is: Should India take sides? Whatever our inclinations, our diplomatic moves need to be guided by the inescapable fact that the India-China border stretches over 4,000 km along four States and one Union Territory.

Take a look at Japan which has traditionally been cautious about its dealings with its neighbour, separated by 1,800 km of blue water. The Japanese government has just tightened screws on investors with a new rule that anyone buying more than one per cent in a list of 500 companies will need prior permission, a step clearly aimed at China which is the only big investor. That move came two months after Prime Minister Shinto Abe announced a $2.2-billion package to lure Japanese firms to come back from China.

Abe’s action surprised markets because nobody had expected Tokyo to directly take on China. Even with the financial incentive, though, it could be a tough sell because many Japanese firms cross the waters not just to save on labour costs but also to cater to China’s giant market.

Traverse continents now to Australia which appears to be going out of its way to rile China, its number-one market. The Australian government has called for an inquiry into the pandemic’s origins that the Chinese unsurprisingly see as a pure finger-pointing exercise. In retaliation, China threatened to slap tariffs on Australian barley exports and went as far as mooting the prospect of an “economic boycott.”

What’s gone wrong between China and the rest of the world? The answer, quite simply, is it looks like Xi Jinping’s aggressive moves and efforts to portray China as the rising world power have alarmed the US and other western powers. Xi should have heeded Deng Xiaoping’s advice to hide his country’s light under a bushel until it became a truly unstoppable force.

The sheer scale of China’s ambitions became obvious when it unveiled the Belt and Road Initiative (BRI). The initial blueprints made it look as if Pakistan would be turned into a Chinese colony if the China-Pakistan Economic Corridor (CPEC) was executed as conceived. Even the Pakistanis got the wind up about CPEC but more importantly, it became obvious the repayments would beggar them.

All around, the Chinese have been spreading their cash and influence. Look at Khorgos, the enormous city being built on the Kazakhstan-China border.

Khorgos aims to link up Russia and even possibly some time to India. Head seaward and see a network of ports like Hambantota in Sri Lanka, Gwadar in Pakistan and newest of all, Eyl in Somalia’s Puntland State.

Why were the Chinese on this massive investment spree and where’s the money come from? One explanation is Beijing figured it was a good way to spend its $3.3 trillion foreign exchange reserves. This way, the money was loaned out and the projects almost always went to Chinese public-sector companies, which then brought the money back into the country.

That was good for the Chinese economy and if the often-time extremely poor borrowers defaulted that left them indebted to China. From a geopolitical standpoint that’s win-win for China and precisely what happened at Sri Lanka’s Hambantota where China has built a huge white elephant port. The Sri Lankans couldn’t make the repayments so gave it on a 99-year lease to the Chinese.

India’s stance

How does India, which has numerous ups and downs with the Chinese, most recently with the latest military border skirmish in Sikkim, come into play in all this? For starters, it belongs to the Quad and is facing pressure to join the anti-China coalition. In another era, it might have gotten away with pleading non-alignment but that’s not such a popular concept nowadays.

That leaves the option of cosying up to the US and backing Washington when called upon to do so, again not necessarily a desirable course.

What’s certain is Covid-19 is causing upheavals globally and it’s hard to tell what the emerging New World Order will look like. It’s already clear, though, that India will have daunting economic hurdles to overcome and it would be better to attract Chinese investment rather than turn it away. We also need to play a delicate balancing game with our huge neighbour and ensure we look after our own interests above all.

Published on May 13, 2020

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