1. Beijing smiles at Delhi

Beijing smiles at Delhi

Pragmatic leaders Narendra Modi and Xi Jinping leverage “economics first”

By: | Updated: May 23, 2015 2:10 AM

Indian Prime Minister Narendra Modi’s China visit wrapped up with photogenic vignettes: from Xi’an’s famed terracotta soldiers to ‘selfies’ with Chinese children. Critics slammed the visit as a resounding flop, whereas optimistic observers panned it as ‘75%’ successful. It is well known that the Chinese Communist Party threw its weight behind the Modi visit. Given that the Party is not given to impulsive but orchestrated bouts, what lies beneath Beijing’s smile? It is not for nothing that Sinologist, the late Mira Sinha-Bhattacharjea, famously read Beijing’s smile as one that “must be seen entirely as part of a Chinese scheme of things.” And, as it turns out, Delhi now smiles for a reason too.

For one, a strong Modi meme dominated the Chinese media; it favourably likening him to an old China favourite: ex-US President Richard Nixon, a backhanded compliment of sorts given China’s diplomatic reticence. Whether this was a veiled refrain to the Nixon times under whose tutelage US-China parked the cold-war jargon to embark on an unprecedented decade of normalisation of Sino-US relations—beginning with the historic Shanghai Communique in 1972, coupled with the fact that Nixon struck a remarkable personal equation and admiration for both China and its leader Mao (Nixon was, in fact, one of Mao’s last visitors in 1976)—one can only guess. The comparison is obviously riddled with symbolism.

In Chinese eyes, Modi, once the political underdog, took an active interest in China when none of his savvy CM contemporaries in India in the 2000s did, ‘looking China’ to seek an understanding of the Chinese ‘economic miracle’: how China since 1978 ‘lifted’ 600 million people from poverty (the World Bank says 500 million) and its development story.

There is no doubt that Modi made a calculated move then—as he is now—reaching out to a larger Chinese audience through Weibo (microblog), an astute recognition of China’s burgeoning 600 million netizens (up from 59 million in 2002) and the power of the microblog. Weibo has 503 million users (in 2012) and growing. In times when People’s Daily and the like are becoming redundant, Modi chalked up 33,000 followers with his “Hello China! Look forward to interacting with Chinese friends.”

The obvious fallout of Modi’s trip is on the table: $22 billion in deals in areas ranging from telecom, steel, solar energy to the task force for reducing the widening trade deficit ($38 billion in 2013-14; expected to be $45 billion in 2014-15, in China’s favour) to the visa-on-arrival for Chinese citizens. Make-in-India was also a powerful message given that few businesses in China look at India.

However, it is the less obvious which needs to be gauged. There is no disputing that India needs China. India needs help with infrastructure, financing and job-creation. Needless to say, China’s experience in infrastructure—railways, highways, airports, industrial parks, ports where China has proved its acumen—would be a bonus in India. Chinese coffers and Chinese tourists and their tremendous buying power have a potential: creating jobs, bringing in much-needed investment and consumption. For instance, 100 million Chinese go abroad annually, around 2 lakh travel to India—and Modi’s e-visa has one eye on this bounty. In that sense, from Modi’s deals to the ‘selfies’, these are bricks, which will not immediately pay off but are stepping stones for a deeper engagement with China, so far been missing in Indian policy-making.

At the diplomatic and political level, Modi’s plain-speak was also welcome and fresh. Recognising that the border issue remains intractable, largely because of the complications of cartography, he asked the Chinese leadership to “reconsider its approach” with respect to India and take “a strategic and long-term view of relations,” indicating that they too could lose an opportunity turning a blind eye to India.

Modi indicated that China needs India, and he is right. First, this is because of China’s own domestic compulsions. China’s growth this year is likely to be the lowest in 15 years and may slow to 7% in 2015. China’s investment-driven growth was fuelled by extraordinarily high domestic savings rate (40-50% of GDP, an estimated $5 trillion in April 2014), cheap surplus labour (resulting from agrarian reforms in the late 1970s which ‘freed the farmers’) and the largest migration of people in history resulting from ‘hukou’ (household registration) reforms with an estimated 160-260 million migrants buttressing the economy. China was able to tide its widening inequality (Gini coefficient, a measure of inequality, crossed 0.5 in the last few years) because of its double-digit growth, 10.5% from 2001-15.

Further, exports of goods and services constituted 40% of GDP—which is starting to go down.

Today, ‘China Shining’ is beginning to fray, with plummeting global demand coupled with its own excess capacity, falling domestic consumption, declining demographic dividend all challenging propositions, given that development has been the core of the Party’s legitimacy. Investment in infrastructure such as industries and industrial parks is in excess capacity. The housing boom—real estate makes up a third of China’s economic activity—was said to have touched ‘ground zero’ in 2014. In fact, both ‘ghost skyscrapers’, which are newly built skyscrapers that lack residents, and ‘ghost cities’, which are newly built cities on the suburbs of Beijing and Shanghai (among others), are still scrambling to find residents and buyers. The Party was forced to reverse the curbs on property, lowering the down payment to 40% (from earlier 60%) in May 2015 and cut interest rates three times since November 2014. According to recent reports, new home prices fell in 47 of the 70 cities tracked by the National Bureau of Statistics.

Despite the push to domestic consumption ‘golden week’ in May, National Day extravaganza in October and the like, domestic consumption is tardy at about 40% of GDP. China years of ‘demographic dividend’ are coming to an end with a decline in population in the age cohort 14-24 years. China is a greying society with people aged 60 and above going to touch 20% of the population in 2020.

Second, China needs India given its foreign policy compulsions and complications. This should be understood in the context of the dominant Chinese diaspora in Southeast Asia—from Indonesia to Malaysia, Vietnam to Singapore, the Philippines to Thailand, Cambodia to Laos. It has been estimated that 32 million of the 50 million overseas Chinese live in Southeast Asia. But ‘blood’ has had little pull in the acrimonious waters of the South China Sea, where China has staked claim within the ‘nine-dotted line’ that harks back to imperial times. China has increased presence over the disputed Spratly Islands, building a concrete runway, which provides the backdrop to the recently concluded largest joint-military exercise, US-Philippines at San Antonio, Central Luzon. This also provides the backdrop to reports where John Kerry, US Secretary of State who visited China after Modi, did not refute reports as to whether the US is considering sending its ship within 12 nautical miles of the Spratly Islands, purported to openly challenge China. China needs, if not a ‘friend’ in India, at least a calm western front in order to meet its challenges, all of its making.

In that sense, the takeaway from the visit should be seen as repositioning India-China relations in these times of interdependence and laying a foundation for the future. Perhaps unsaid but intended in the bonhomie between Modi and Xi lies a message for both countries to heed—which Deng Xiaoping once voiced in 1978 (regarding the territorial dispute with Japan)—“Our generation is not wise enough to find common language on this question … Our next generation will certainly be wiser. They will certainly find a solution acceptable to all.” In other words, it is better to park the intractable for now, and leverage ‘economics first’.

The author is a Singapore-based Sinologist and is currently adjunct fellow, Institute of Chinese Studies, New Delhi

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