Why India is reconsidering its attitude towards China

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China is presenting an increasingly tough face to the world.

India has been really shaken up by this conflict.

For China and Chinese tech companies, India is the crucial testing ground.

Even before this clash, India had been increasingly concerned about its yawning trade deficit with China.

In June, the Indian and Chinese armies engaged in a brutal clash in a remote, Himalayan border region between them. This really shocked the whole of Asia and beyond. Amy, how’s it looking from your side? Has this all blown over now, or is it still very much a live issue in India?

Things have not blown over at all. In fact, the two sides are engaged in a massive military buildup along their disputed border, with tens of thousands of men, heavy machinery, equipment, weapons. It’s the biggest military buildup in the border area since the two countries fought a war in 1962. This is also having major ramifications in New Delhi. India has been really shaken up by this conflict, and they are rethinking every aspect of their relationship with China, including what had been a very rapidly-growing economic relationship.

I think the commercial relationship between India and China is going to be one of the key areas of concern. Chinese technology companies, in particular, have poured billions of US dollars into Indian startups and other Indian tech companies over the past few years. In fact, last year alone, Chinese tech companies and the venture capital funds that back them poured in more than $3bn. So this point really can’t be overstated. For China and Chinese tech companies, India is the crucial testing ground for whether it’s big companies can really grow internationally.

There are two key concerns here for the future. One is whether Indian companies will be willing to accept Chinese money and Chinese co-operation going forward. And the second big concern is whether Chinese companies and the big Chinese funds will feel secure enough to continue investing in the Indian market.

We’ve already seen signs of India trying to take policy decisions that will hit at Chinese companies. There’s been a slow-rolling of customs clearance of Chinese imports at the ports and airports. And India has announced a ban on 59 high-profile Chinese apps including the video-sharing platform, TikTok.

In recent years, India has been increasingly dependent on Chinese imports for a variety of critical items, including pharmaceutical raw ingredients, components for its low-cost mobile phone industry, automotive industry components. And this had led to a huge feeling of dependence on China. And at the same time, India has struggled to be able to export into China. It finds the market quite impenetrable. And in services, which are areas where India does have strong competitive , advantage China had really shut it out or kept Indian companies at a bare minimum.

I think, at this point in time, in the wake of this border clash, India is really re-evaluating everything and asking itself whether it can afford to be so dependent on a country for both capital and critically strategic imports, like pharmaceutical ingredients and telecoms equipment, if that country is hostile to it.

It doesn’t seem logical for China now to be wanting to stir up passions within India. Already China’s relationship with many of the key players in the world are at a low ebb. The US relationship is at its lowest point since the 1970s. Ties with European Union are strained, and similarly, with much of the Western world. In Asia, China’s assertiveness in the South China Sea is alienating at least half of south-east Asia.

So the question as to why is really key. I think my answer would be twofold. First of all, it should be recognised there is a possibility that this was a case of overreach by a local commander on the border in this disputed area between India and China. But that has to be said against the fact that, for several years now, the Chinese military has been pushing and encroaching into the Indian part of this disputed border region. So perhaps it wasn’t as accidental as some people are saying.

I think the other point is probably the key point here. And that is that, more and more, China’s relationship with the outside world is being defined by the security state at home. We’ve had about 40 years of engagement between China and the outside world. This has been a period of great enrichment for the Chinese economy and for all the countries that have engaged with China economically through trade and investment.

But now it seems, more and more, that it is the security agencies in Beijing that are calling the shots. And it is their version of international engagement that we’re beginning to see more and more of. In other words, China is presenting an increasingly tough face to the world – a tough face of a rising power that wants to be taken more seriously on its own terms.

Well, I know that for India, this really came as a complete surprise. India now feels that it’s really at a critical moment where, if it yields and allows these Chinese encroachments – or what it sees as these Chinese encroachments – to stand, that it will be setting itself up for China to just think that it can have its way. And so I think India feels that it’s really kind of an existential crisis. In fact, many people I speak to express concern about the possibility of another flare-up or further conflict, just because the situation is so tense.

Until now, India’s traditional foreign policy stance has always been one of non-alignment. India’s current Prime Minister, Narendra Modi, uses a sanskrit phrase of India’s foreign policy approach. It translates to, “the world as one family”. India has been growing much closer to the US in recent decades, but at the same time, it has really tried to avoid being pigeonholed as some kind of ally of the US. India has always been cognizant of any statements that it makes, trying not to antagonise China.

But in the recent years – I think in the last year, particularly, India has felt that its efforts to be very sensitive towards China’s concerns have not been matched. And I think now, in the wake of this border clash – this first deadly border clash since 1975, India may finally shift from this position of “let’s be friends with everyone”.

So it seems from what you’re saying, Amy, is if one of the big risks for China is, that as China becomes the world’s rising superpower, and as it becomes more assertive in its foreign relations, it could end up – rather than advancing its interests, it could end up building an international coalition against it.

India will also be getting a lot closer to some of the other countries in the region that have strategic concerns with China, particularly Australia and Japan. And I think now that will come more out in the open. There’s a group called the Quad, which is Australia, Japan, India, and the US. Some policymakers believe that India will become more actively and openly involved in Quad activities and will, basically, finally choose a side.

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