China and the World

The elephant and the dragon

Will spat over telecoms equipment disconnect Sino-Indian relationship?

The elephant and the dragon

India sees it somewhat differently

When Mao took power in 1949, he presided over a nation with a GDP per head 40% lower than India’s.

By 2008 – Beijing’s Olympic year – that situation had been comprehensively reversed. China’s GDP per head is now more than triple that of its populous neighbour, according to IMF statistics.

The story of China’s stellar growth over the past 30 years is well known. Less appreciated, perhaps, is its impact on India. Until the early 1990s, the former British colony had strangled its economy with red tape. This was the era of the ‘license Raj’ in which the economy’ s lacklustre performance was described as the ‘Hindu rate of growth’.

The dynamism that currently propels the Indian economy can be traced back to economic reforms that took root in 1991.

These liberalising measures were partly a response to a financial crisis – with India on the verge of international default.

But at a deeper level many believe they were also a response to China’s runaway economic success. With its neighbour growing so fast, the ‘elephant’ needed to do more to keep up with the ‘dragon’ – and this sparked a decade of privatisation, deregulation and business-friendly policy.

In fact, competitive tension is the best way to understand the relationship between these two massive countries – whose combined populations account for 40% of the people on the planet. “For over 50 years relations between the two countries have been at best distant and suspicious, at worst antagonistic, even conflictual,” writes Martin Jacques in his book When China Rules the World. “The two countries have failed to reach agreement on their border, which led directly to the Sino-Indian War in 1962 when China inflicted a heavy military defeat on India which still rankles to this day.”

The border is still problematic. Disputed territories include the Aksai Chin area, held by China but claimed by India, plus large areas of Arunachal Pradesh – held by India, claimed by China.

Meanwhile, Indian strategists speak of a ‘string of pearls’ strategy, in which China is seeking to encircle India via alliances. One alleged example: a port being built by China in Sri Lanka (see WiC16), which Indian hawks fear will be used as a base for the Chinese fleet.

Last week, economic tensions heightened too. The South China Morning Post reported that “the frequently testy relations between trading partners India and China are likely to come under fresh strain as New Delhi plans to restrict the sale and use of Chinese made telecommunications equipment because of security concerns.”

India’s intelligence bureau worries that malicious software could be embedded in Chinese-made telecoms equipment, and hence cripple India’s phone system in the wake of an attack. Chinese suppliers Huawei and ZTE earn around $1.6 billion per year from sales of telecoms infrastructure in India.

India’s newly installed ambassador to China, on the other hand, is keen to downplay talk of conflict.

In an interview with China Daily, S Jaishankar described Sino-Indian relations as “a very good story”, and said media reports of border tensions were “alarmist”.

He noted too that China is India’s largest trading partner, with bilateral trade set to surpass $60 billion next year – a 30-fold jump from 2000.

“Once we have discovered the virtues of working with each other, there is really no limit to our cooperation,” forecasts the 54 year-old ambassador.

Evidently, it’s good to talk – just perhaps not over Chinese-made telecoms equipment.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.