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Economic ties hinge on China addressing strategic concerns

China and India talking RCEP is a good beginning, but there is a long way ahead.

China’s economy grew by 6% in the third quarter of this year from a year earlier—its slowest GDP rise in more than 27 years. The International Monetary Fund is suggesting that the Chinese economy could grow at 5.8% next year, even slower than the 6.1% forecast for this year. Clearly, China’s trade war with the US is taking a toll on its economic health, making the end of this conflict a veritable necessity. China and the US managed to reach a preliminary deal a few days back, a “love fest", according to US President Donald Trump, hoping that it would finally ease trade tensions though a comprehensive trade agreement is still nowhere on the horizon.

China is passing through a difficult economic phase at a time when other challenges are also mounting for Beijing. Chinese president Xi Jinping has made an already authoritarian system even more rigid and hierarchical by centralising power to an unprecedented level. For a nation that till a few years back gave a sense it has worked out an uber efficient model of political economy management, today seems to be struggling on a number of fronts.

Evolving Sino-Indian relations too should be contextualised against this backdrop. During the Mamallapuram informal summit between Xi and Modi earlier this month, it was decided to set up a high-level group to tackle India’s galloping trade deficit with the world’s second-biggest economy to be led by finance minister Nirmala Sitharaman and Chinese vice premier Hu Chunhua.

Though bilateral trade between China and India reached around $95 billion in 2018, the trade deficit at a whopping $53 billion was in China’s favour, the biggest India has with any country. Since the Wuhan summit of last year, there have been signs that Chinese policymakers are taking their imbalance with India relatively more seriously. New Delhi not only wants to boost exports to China but is also seeking more Chinese investments in an effort to correct the trade imbalance. Chinese President, during his recent India visit, suggested that China would welcome both India’s IT services and generic drugmakers who have long sought greater market access to China. For its part, China remains keen on Huawei’s entry into India, a topic that has generated much debate in the country.

Meanwhile, Modi and Xi also discussed the issue of Regional Comprehensive Economic Partnership (RCEP) and Indian concerns during their informal summit in Mamallapuram. Though India has made a set of demands including changing the base year to apply the reduction of tariffs from 2013 to 2019 and right to determine differential tariffs among others, its main concern largely centres around limited market access to Indian products, the protectionist policies of Beijing as well as the danger of Chinese products swarming the Indian market. The fact that China and India are talking RCEP is a good beginning but there is a long way ahead.

However, resolution of economic issues between China and India will also require China addressing India’s strategic concerns. China cannot expect a robust trade and technology relationship with India even as it continues to scuttle India’s rise on the global stage and remains insensitive to India’s core security concerns. So far, there is little indication that China’s strategic approach to India is evolving in a positive direction. And that will continue to have an impact on how India looks at the economic questions involving China. Beijing should adjust the strategic lens with which it views New Delhi. Otherwise, its attempts to re-adjust its economic lens will yield only limited results.

This commentary originally appeared in Live Mint.

Harsh V Pant (ORF, Kings College)
29 October 2019

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