LIVING WITH THE DRAGON: RE-CALIBRATING INDIA’S RELATIONS WITH CHINA

LIVING WITH THE DRAGON:

RE-CALIBRATING INDIA’S RELATIONS WITH CHINA

Anupam Srivastava[1]

[Book chapter in Kanti Bajpai and Amitabh Mattoo, eds., The Peacock and the Dragon: India-China Relations in the 21^st Century [New Delhi: Har-Anand Publications Pvt Ltd, 2000], pp. 229-250.]

India’s relationship with the People’s Republic of China over the past fifty years has traversed the entire spectrum: the initial phase of amity and camaraderie jolted by outright hostility, followed by a protracted period of mutual suspicion and antagonism, gradually thawing to a phase of “uncomfortable co-existence.” In the past decade, both sides were taking measured steps to narrow their differences and identify a domain of minimum convergence when the unintended fall-outs of the Indian nuclear tests of May 1998 rudely disrupted this process. The ensuing period has witnessed a new phase of incremental rapprochement between the two sides.

At the dawn of the new millenium, relations between the two Asian `giants,’ is precariously poised on the cusp of drastic possibilities. Sustaining the incipient process of neo-engagement can have a salutary impact on not only a range of bilateral relations but also on the evolving security framework of Asia. On the other hand, a severe downturn in Sino-Indian relations will have equally significant implications in the bilateral and regional contexts.

An enduring problem in Indian policy toward China is that there is no consensus on the “end” objectives of this engagement. Naturally, therefore, the domestic strategic discourse lacks a clear criterion for evaluating the “means” adopted thus far. It is in this context that I review contemporary Sino-Indian relations, with the aim of identifying areas of future cooperation, as well as those that represent the potential for maximum divergence. The paper begins by stressing that Chinese foreign policy displays a clear synergy with its domestic goals and priorities, enhancing its options and enabling it to optimize its foreign policy conduct. It contends that lessons from the Chinese experience should facilitate the Indian strategic discourse to create greater harmony between its domestic priorities and foreign policy conduct. It then examines Sino-Indian relations within the economic and security spheres to identify domains of convergence and divergence. Finally, it recommends that Indian policy toward China needs to move away from the current monolithic and reactive approach to a more differentiated and proactive approach.

Pragmatism in Chinese Foreign Policy

The foreign policy of a state is most effective when conceptualized and utilized as a tool to protect, pursue, and promote, its domestic interests and priorities. Establishing and sustaining such a synergy between a state’s national objectives and its foreign policy is likely to yield handsome dividends on at least four crucial counts. One, the domestic strategic discourse will identify and prioritize the key national interests and objectives. It will then debate the foreign policy paradigm and posture that will be able to optimally pursue the above-identified interests and objectives. Two, once the linkage between domestic goals and foreign policy has been established, it becomes easier to allocate national resources – whether human, physical, technological, or politico-diplomatic – to pursue the appropriate strategy. Three, greater clarity on strategy for the pursuit of national goals will in turn enhance institutional transparency and accountability in policy-making, implementation and evaluation. And finally, while the above process consolidates the domestic bases of support for foreign policy, it also facilitates the task of re-calibrating foreign policy options and postures, where necessary, to pursue salient national objectives.

A review of Chinese foreign policy demonstrates precisely such a programmatic and pragmatic linkage between its domestic priorities and external conduct. The initial decades of Chinese foreign policy since the “Communist Revolution” of 1949 were imbued with a strong ideological fervor. This continued through the 1960s, coursing through such epochal events as the “Cultural Revolution,” the “Long March,” and the Sino-Soviet ideological “rupture” of the mid-to-late 1960s. However, following the Sino-US “thaw” in 1970-71 and restoration of diplomatic relations, China’s foreign policy decidedly took a turn toward greater pragmatism and accommodation. Thus, while Chairman Mao’s China continued to situate its foreign policy enunciation within the larger moorings of Marxism, it nevertheless began to tone down its rhetoric against the imperial Capitalist credo. This re-calibration became more pronounced after the death of Mao Tse-tung (in 1975) and the ushering of the Deng Xiao-Ping era.

Deng, as Chairman of the Communist Party and the President of China, initiated a systematic process of structural reforms in the national economy. On the one hand, it included comprehensive plans to boost agricultural productivity, lower income inequality differentials between the agricultural and industrial sectors, expedite industrial dispersal, and complete the unfinished land reforms process. And on the other hand, it promoted select economic sectors that had the greatest potential to capture “niche” markets in the global economy and become the vehicles for further economic restructuring and growth.

While the trajectory of Chinese economic growth will be discussed later in this study, it is worthwhile to note that Chinese foreign policy during this period was consciously calibrated to complement and promote domestic priorities. Thus, on various occasions during the 1970s and throughout the 1980s, China selectively projected itself as: a Communist state; a “reformist” state in need of material and technical assistance; a developing economy; a deserving member of the United Nations Security Council; and a “responsible” member of the global non-proliferation community. The post-Deng era, with President Jiang Zemin at the helm, has persevered with and consolidated this practice.

China could successfully project these seemingly contradictory images owing to a strong implicit recognition that foreign policy, at the core, must remain subordinated to the dominant national priorities and interests. This “malleable” character of Chinese foreign policy, at least since the late 1970s, emanates from a strong pragmatism in its policy-making environs.

Of course, the highly centralized hierarchy of decision-making, ruthless denial of political dissent, and a complete absence of democratic institutions and practices, greatly facilitates the task of presenting a unified framework of foreign policy. However, the non-democratic bases of Chinese foreign policy, in itself a valuable field of inquiry, are neither the object of this study, nor germane to its conclusions. This study, while sensitive to the above, nevertheless makes the point that a synergy between national priorities and foreign policy is neither uniformly visible in authoritarian forms of government, nor is it absent from pluralistic and representative forms of governments such as in India. Instead, the study is aimed at highlighting the advantages of such a synergy, and applying it to identify domains of convergence and divergence in Sino-Indian relations.

In this context, the key elements of Chinese foreign policy include the following:

1. Foreign policy as a tool for securing salient domestic interests

2. Uses (and abuses) of rhetoric and declaratory diplomacy

3. Flexible priorities (calibrate national response based on international reaction and/or domestic imperatives)

4. (Judicious use of) Official statements versus unofficial analyses.

While the first element has been discussed above, the other three deserve a brief elucidation. Regarding the second element, China’s reaction to Taiwan (Republic of China or ROC), whom it considers a breakaway province remains fairly instructive. Starting with the Taiwan Strait crisis of 1995-96 when China conducted missile tests that landed close to Taiwanese shores, every time Taiwan has asserted its claim for separate statehood, or fortified its defenses against missile threats from the mainland, China has reacted with unbridled aggression. This reaction has persuaded the international community, including the United States, to reiterate the “one China” policy, meaning no sovereign status for ROC. Recently, when President Lee Teng-hui made a “personal visit” to the United States, and President Clinton made certain “conciliatory” remarks regarding the right of Taiwan to enhance its security, and implying US technical assistance in the matter, China reacted vehemently.[2] It threatened to take decisive military action if Taiwan were to attempt to change the status quo, and finally forced the US government to acknowledge its long-standing “One China” policy. In this instance, harsh rhetoric and unambiguous declaratory policy statements were expertly blended to safeguard its cherished national interest.

Regarding the third element, China’s recent interaction with the United States offers valuable lessons. Thus, during the US-led NATO aerial strikes on Yugoslavia, the accidental bombing of the Chinese embassy provided the perfect opportunity for China to deflect criticism against the charges of espionage from US nuclear laboratories. The Chinese government carefully calibrated the “spontaneous” domestic protest over the bombing in Belgrade that killed three persons and injured 27 others. It used the nearly week long protest to repeatedly condemn US action, and it took three days for President Clinton to reach Jiang Zemin by telephone to personally convey his condolence, and offer official apology for the lapse. By contrast, the bomb shrapnel that caused significant structural damage to the Indian embassy a few days later did not even receive an official acknowledgement by the US government.

In mid-June, the bipartisan committee chaired by Congressmen Charles Cox officially unveiled its voluminous reports that contain a scathing criticism of China.[3] This report catalogues systematic and long-standing espionage of nuclear secrets from the Los Alamos National Laboratory in Albuquerque, New Mexico, including extensive data on the tests of the W-88 bomb, the most powerful thermonuclear weapon in the US arsenal. The data allegedly contain results of a series of test-explosions of the W-88 design, providing China invaluable information on reconfiguring its own version of a miniaturized thermonuclear device, without having to conduct extensive tests of its own.

While the reported espionage has engineered a massive restructuring of the US Department of Energy, that regulates its national nuclear laboratories, China dismissed the allegations as “patently absurd.” At the same time, it took care to specify that within a pluralistic polity such as in the United States, there are sections of interest that want to derail Sino-US relations, and were using this as an excuse. While Beijing understood this, it wanted Washington to control this process and confirm that it matched Chinese committed to improving bilateral relations. Not surprisingly, on July 29^th, after a fractious debate, the US Congress voted 270-145 to reject the motion that sought to deny China the “most favored nation” status for the coming fiscal year.

Regarding the final element, China’s recent relations with the Russian Federation are revealing. Over the last few years, it has moved steadily to improve its relations with Russia, from enhanced arms purchases and economic interaction to responding positively to former Prime Minister Yevgeni Primakov’s idea of a “strategic” partnership with Russia.[4] Indeed, while Primakov envisaged a “strategic triangle” involving Russia, China and India, China has never officially commented on that subject.[5] But while China has visibly improved its relations with Russia, it has also engaged in a quiet “takeover” of the Russian Far East.

During the current decade, Siberia and the contiguous territory has witnessed the influx of over a million Chinese citizens, that have incrementally consolidated their position in the region. Equally unobtrusively, China has made massive capital, technical and political investment in the former Soviet republics in the Caucasus and Central Asia. An enhanced Chinese influence in this oil-rich region has served to further circumscribe Russian ability to reassert its preeminence in the “post-Soviet space.” In this instance as well, China’s official statements belie its quiet actions that are based upon, and often revealed through, a host of unofficial analyses. The ability to maintain a studied distance between official policy and substantive conduct provides Beijing much-needed space to maneuver its foreign policy to promote domestic interests.

This study does not recommend that India incorporate any of the unsavory aspects of Chinese foreign policy. But it certainly wishes to underscore the crucial role of foreign policy, and its flexible postures, that enable China to pursue and promote its domestic interests. Examination of the Chinese case provides India with important lessons that will assist it in not only improving its relations with China, but also in calibrating its foreign policy toward other regions of the world.

Need to Re-calibrate Indian Foreign Policy

Indian foreign policy has evolved gradually, from a personality-dominated domain of the select few, to a more discursive style. Indeed, in the early years when Mr. T.N. Kaul was at the helm of the foreign ministry, a joke doing the rounds in Indian policy circles was that “Indian diplomacy consisted of 10 percent protocol, 40 percent alcohol, and 50 percent T.N. Kaul.” Over the years, however, the overwhelming influence of Jawaharlal Nehru and then Indira and Rajeev Gandhi in the foreign policy decision-making has ceded ground to greater participation of the national legislature, and public policy analysis in the media. This trend needs to be sustained, even accelerated.

An examination of the evolution of Indian foreign policy reveals the scope for reform and improvement on three inter-related axes, one attitudinal, one institutional, and one paradigmatic. Regarding the first, Indian foreign policy is still largely captive to the anachronistic notion that being attentive to systemic inputs from the disparate branches of the government and the larger polity is neither conducive to cogent policy making, nor would it permit continuity in the policy trajectory. Both of these assumptions are inherently flawed and sadly out of step with contemporary international reality. Indeed, it is precisely such a mindset that has prompted derogatory characterizations such as “masterly inactivity” and “no action foreign policy.”

The Indian foreign policy establishment needs to recognize that in an increasingly interdependent world with cross cutting cleavages, policy making in all countries and all spheres has by necessity become a collective enterprise. In the definition of national security, for instance, economic well being and access to advanced technology and international capital have become just as important as military strength. Further, the growing “dual use” nature of modern technology, which can be applied just as easily to civilian uses as dedicated military uses, makes it imperative that the policy architecture be centrally coordinated, but with transparent “feed back loops” that connect the upper echelons with the various constituent units.

This leads to the second axis, relating to the institutional aspects. It is abundantly clear that the Ministry of External Affairs (MEA) and the Prime Minster’s Office (PMO) dominate Indian foreign policy making to an unhealthy extent. The recently revived National Security Council (NSC), that existed, as per statute since the days of the V.P. Singh government, is a necessary step in the direction of diluting this institutional imbalance. Additionally, the constitution of the NSC Advisory Board, albeit without statutory powers, permits articulation of the larger domestic discourse into the policy making echelons. It would also be desirable to enhance the institutional input from inter-ministerial agencies such as the Cabinet Committee on Political Affairs (CCPA) and the Cabinet Committee on Security Affairs (CCSA), as well as the Standing and Consultative Committees of the Parliament.

On the matter of CCSA and national security, a further point needs to be made. The Indian armed forces are required to make a technical assessment of threats to national security, and then recommend means to respond to those threats. Yet, when it comes to the budgetary stage of resource allocation, the armed forces are consciously kept out of the policy process. The traditional justification for this has been to keep the armed forces insulated from the political process. While the inherent sentiment is laudable in principle and strengthens Indian democratic credentials, in practice this extreme marginalization is inimical to national security. If the Indian armed forces had a propensity to take control of national affairs, they were presented with numerous opportunities over the years, particularly as their role in internal security keeping has kept growing. Such marginalization not only robs them of adequate resources and policy input, it is also a veritable insult to their sense of patriotism and dedication to the constitutional framework.

The third and final axis deals with the overall paradigm of Indian foreign policy that would do well to take a leaf out of the Chinese experience. To iterate an earlier point, China’s foreign policy over the last three decades has grown in step with rising economic capabilities, and has traditionally played second fiddle to the latter. The recent “mega” statements have come only after decades of low-key statements and patient diplomacy. The Indian paradigm is almost completely inverse to this arrangement. Ever since independence, the Indian foreign policy has traversed the moral “high road,” making grand declaratory statements on international issues. From leadership of the Non-Aligned Movement (NAM) and the global “south” to seeking universal time-bound disarmament prior to relinquishing its own nuclear options, the record is as impressive as it is diverse. In between, the foreign office has rarely flinched from condemning US aggressive designs in different theaters across the globe, expressing solidarity with the Soviet Union (now Russia), seeking permanent membership of the UN Security Council, and also underlining India’s “manifest destiny” to occupy a preeminent position on the global stage.

I feel nothing but patriotic pride in India seeking and securing a higher status in world affairs. At the same time, one must be realistic about such targets, and recognize that there is always less room at the top of a pyramid than at the bottom. As such, accommodation into the higher ranks is not borne out of philanthropic motives, but a realistic assessment of the entrant’s qualifications and ability to play by the rules of the “big boy’s club.” It is important to prove one’s credentials to the system on its own yardstick of measurement before seeking and expecting the system to reward one’s claims.

The need, therefore, is for the Indian foreign policy establishment to calibrate its posture in sequential steps, beginning with modest enunciation of its arc of interests and priorities. Then, in step with growing national capabilities, a more ambitious agenda can be incrementally unveiled.[6] Most security analysts, in interactions with their international counterparts and governmental actors, come away with a deep sense of resentment felt by the latter, on account of what may be termed India’s “grandstanding.” [7] Instead, a more incremental approach would afford greater maneuverability to Indian foreign policy, and permit it the space for pragmatic bargaining that is the hallmark of successful diplomacy.

It is precisely in this context that India should recalibrate its relations with China, on at least two specific counts. One relates to “demystification of the dragon,” and the other relates to “differentiation” of the relationship. Following the defeat in the border war of 1962, Indian policy toward China has been highly reactive, often magnifying the threat from its larger neighbor to the northeast. True, there are justifiable grounds for this threat assessment, but a reactive policy will neither help receive desired international attention nor ameliorate the ground reality. A substantive shift in the bilateral power calculus will occur based only on realpolitik, as India improves its national capabilities, earns increasing acceptance of its preeminent status in the Indian Subcontinent, and integrates more closely into the global economic matrix and international security regimes. Remaining a voice of dissent from the outside, regardless of how just and principled the stance, will not bring India to the center-stage of world affairs.

India should recognize that China occupies the same rung of developmental imperatives as itself in many important areas. Thus, they both are developing economies with large territory and porous boundaries, acute population pressure, varied ethnographic profiles, need for advanced technology and capital, and problems pertaining to industrial dispersal, income distribution, agricultural and industrial productivity, and much more. As such, even though China’s economic reforms precede India’s by about two decades, given the strong fundamentals of the Indian economy, this gap can be substantially narrowed in the medium term. The need, therefore, is for India to make a pragmatic assessment of its options in engaging China, and devise a differentiated strategy for dealing with its larger neighbor.

It is within the above context of the larger foreign policy landscape that this study now examines Sino-Indian relations in the economic and national security domains. The key point that bears iteration is that national capabilities are a function of economic as well as military strengths, and foreign policy is most effective when designed to safeguard and promote domestic interests and priorities.

The Economic Context

In 1998, the two-way trade between India and China stood at a paltry $1.4 billion, a negligible fraction of each economy’s total exports.[8] While the same can and should be drastically improved, review of Sino-Indian economic interaction per se is not the focus of this section. Instead, it examines their respective economic trajectories, their role in improving national capabilities, and to an extent, the scope for improving bilateral economic cooperation.

China’s Economy – Strengths and Limitations

At the outset it must be stressed that when analyzing economic transformation in any country with a large population, something that China and India have in common, macroeconomic indicators often mask and distort the true picture. Further, when an economy begins to grow from a very low base, initial growth figures appear far more spectacular than they are in real terms. A truer picture emerges from detailed sectoral analyses, comparing inflation- and depreciation-adjusted figures over time. However, while the same is clearly beyond the purview of this study, it must nevertheless be pointed that on many sensitive yardsticks of measurement, including factor productivity and availability of technology-embedded physical and human resources, China enjoys only a marginal lead over India and both remain in the bracket of medium level of industrialization.

Having said that, it should be acknowledged that the Chinese economic reforms, begun in the mid-to-late 1970s, have dramatically altered its macroeconomic indicators. The total Gross Domestic Product (GDP) has quadrupled, the exports have increased almost 600 percent, aggregate domestic savings have increased from 21.06 b yuan in 1978 to 3,674 b yuan in 1997, annual per capita income for urban and rural households have increased over 300 percent, etc.[9] It is estimated that at a steady annual growth rate of 7 percent, the Chinese GDP will overtake that of the United States by 2010.[10] With the return of Hong Kong (world’s eighth largest trading economy) to China on July 1, 1997, the aggregate figures for China look even more impressive. However, China has a long way to go before it can break into the club of developed nations, and some of its economic policies and options that have spelt success in the past might also circumscribe its growth options in the future.

A key component of the Chinese growth strategy has been to establish Special Economic Zones (SEZs) along the southeastern borders, with easy access to the sea for transportation. The central government slashed bureaucratic controls and initiated administrative reforms to facilitate business, and attract foreign equity participation and investment in the SEZs. The bulk of production, designed for export markets, was in consumer durables. The accent was on gaining market access in the United States and West Europe by offering extremely competitive prices. The low per unit margin of profit was more than compensated for by the staggering volume of sale, and a part of the revenue thus generated was ploughed back into capacity building for higher exports.

While China’s exports have risen dramatically, and its industrial and agricultural growth has been respectable, growth in productivity of the factors of production (namely labor, capital, technology and entrepreneurial skill) has been rather sub-optimal. In other words, China’s comparative economic competitiveness has not kept pace with its rising export figures. As a result, export forecasts for the medium term signal a tapering off of the growth trajectory.

This assessment is premised on two critical factors. One relates to the fact that the bulk of China’s exports are in lower end goods with limited product differentiation and relatively low skilled labor force. Such goods yield lower marginal product of labor (so wages cannot keep rising), are easy to produce for a host of countries (so easy foreign substitutability), low product differentiation (so low brand loyalty and others can market similar products), and high price elasticity of demand (so demand can drop off fast with slight increase in prices). Further, since such lower-end production can be labor-intensive, available evidence suggests that the Chinese government has emphasized growth in these sectors to alleviate employment pressures. But it has not siphoned off enough profits to invest in boosting civilian production of high-end goods. As a result, medium-term prospects for sustained export boom in these goods is more modest.

The second factor limiting export growth is more generic and innate to capitalism itself. When multinational companies (MNCs) seek to expand production, they first optimize costs of factors of production in their home countries. When no further optimization is possible, they move their production bases offshore, where factor costs, especially that of labor, are lower. Over time, as factor costs rise to dilute profits, the MNC moves to another, cheaper location.[11] Given the rising factor costs in China, many MNCs are likely in a few years to start searching for cheaper production base away from China. This factor also contributes to a more modest growth projection for China.

A broader point, relating to Chinese economic limitations, needs to be made. The structural, fiscal and monetary aspects of Chinese economic reforms are far from complete. Besides, the country has a nascent stock market, limited tax base, tenuous rule of law and judicial process, lack of widespread knowledge of English language, and low technical manpower base. Coupled with these, China has introduced limited economic decentralization but has still not attempted to introduce political democracy. The result is that while a sizable middle class is emerging with substantial disposable income, rising economic expectations are also increasing the demand for greater political participation. But without any prior experience of democracy, this class is susceptible to acute political mobilization.

Further, the sense of “relative deprivation” increasingly felt by the lower economic classes is building up pressure for rapid political decontrol. Given this explosive situation, the Chinese government has responded with calculated aggression to quash such demands. However, as international scrutiny and criticism of Chinese human rights record grows, further transfer of advanced technology will become contingent upon improvement in Chinese political participation, making the situation worse before it can get better. This reality also needs to be factored into any projection of sustained Chinese economic boom.

Despite the sober prognostication of future growth, it must be stressed that China’s foreign policy in the preceding decades was optimally calibrated to promote its national interests. Since capturing a greater share of the oversees market was essential to such economic strategy, low-key diplomacy and accommodation was the need of the hour. As China’s economic stakes in foreign markets grew, and vice versa, the same constrained the ability of foreign governments to break off ties with China in other spheres as well. Consequently, as China’s economic boom continued, major industrialized nations were forced to condone or downplay its human rights abuses, unacceptable working conditions for domestic labor force, and even its record in the area of proliferation of nuclear weapons and missiles. Thus, despite all its abuses, China is aggressively pursuing entry into the World Trade Organization, and has recently received another extension of the “most favored nation” (MFN) status from the United States. Its pragmatic foreign policy posture, with low-key bargaining, has greatly contributed to the success of its economic objectives, a lesson that India will do well to learn from.

India’s Economy – Strengths and Limitations

In comparison with China, the fundamental strengths of the Indian economy lie in its long-standing financial institutions, larger revenue base, rule of law, widespread use of English language, one of the largest technical manpower base in the world, and entrenched politico-democratic traditions. Further, the initial Five-Year plans, with their emphasis on promoting heavy engineering, industrial dispersal and agricultural reforms, have laid the basis for rapid growth and restructuring. Of course, the structural reforms that were initiated in July 1991 were at least two decades late, and the land reforms have never really been completed. Nevertheless, the fundamentals of the economy remain strong. Greater political will in sustaining systematic restructuring and privatization will propel the economy on to a high growth trajectory. It is not far-fetched to visualize an agricultural growth of 5-8 percent, industrial production of over 15 percent, and overall GDP growth of about 7-10 percent, effectively doubling the size of the economy every 10 years or so. It is this potential that led the US government, especially the Department of Commerce, to identify India among the ten Big Emerging Markets (BEMs) in the mid 1990s.

In this context, it is important to stress three essential factors, two domestic and one international. India’s traditional emphasis on higher education, and considerable expertise in fundamental and applied research in scientific and technical institutions, provides it with critical options toward diversifying its export portfolio. A better synergy between educational institutions and the corporate sector, a hallmark of most developed nations, would enable India to capture “niche” markets in goods that require high-skill labor force. Since such products have high marginal product of labor, and low income and price elasticity of demand, export of such goods will yield attractive prices and assured demand, unlike the lower-end goods that dominate Chinese exports. Further, such exports not only become self-sustaining, they also attract technology-embedded foreign capital, a point that will be elaborated below.

The second factor to stress is that each government has to make a choice between growth and unemployment, and what proportion of factor resources to employ as per that choice. The basic, simplified, equation is as follows:

Labor + Capital + Technology + Managerial Skill = Production.

A government more keen on lowering unemployment can choose to employ more labor than capital per unit of production. However, after a critical limit, introduction of additional unit of labor yields less than proportional growth in production (and thereby profits). This optimal limit is true for each factor resource, and thus care needs to be taken in resource allocation such that all factors are employed at their full capacity of production. This equilibrium is sadly missing in most sectors of the Indian economy.

I do not argue that Indian economic planners ignore the ground reality where labor supply is abundant while capital and technology are scarce. I merely contend that the capacity utilization of factor resources is in serious need of improvement. Further, the government needs to identify certain high-tech goods where India enjoys obvious comparative advantage in its production. Adequate resource allocation and policy attention in promoting such exports would provide India with the much-needed diversification in the export portfolio. Besides, part of the profits generated could be ploughed back into research and development to maintain technological competitiveness, while the remainder can be utilized for other dedicated purposes.

This leads to the third factor mentioned above. Using the above equation as a guide, an MNC moves production bases oversees after it reaches the limit of optimization of factor prices at home. In this context, India has cheaper and more skilled labor force to offer than China, in addition to the other advantages outlined earlier. Besides, it is well known that foreign capital prefers to invest in high-tech sectors where profits are larger and more sustained. It is estimated that since the early 1980s, almost 40 percent of private and institutional finance from West Europe and the United States has flowed into East and Southeast Asia in search of investment. Again, India can offer a highly attractive destination for this capital provided it rationalizes its production process and reforms the overarching regulatory practices.

It is in this context that the role of foreign policy becomes particularly relevant. As mentioned above, much of foreign capital seeking investment in high-tech sectors comes with the offer of advanced technology (thus, technology-embedded capital). Since many products in high-tech sectors have dual applications, i.e. civilian or military, foreign investors require host country assurance regarding the end-user application of their technology. This is true for many areas of fundamental and applied research in India as well where it has a comparative advantage, e.g. information technology, computational mathematics, optic fibers, plasma physics, spatial iso-chemistry, and space research.

India is a target of technology controls because of its refusal to join many multilateral security regimes. While this aspect is discussed in the next section, India needs a clearer enunciation of its civilian versus defense policies, enhance transparency and accountability in at least the civilian sector, and provide firm end-user guarantee for an imported technology. It should also be prepared for greater scrutiny at the hands of the technology investor and its host government. Such scrutiny is neither India-specific nor necessarily inimical to national interests. The country needs to generate a wider strategic discourse and identify pragmatic options in this regard. The foreign policy establishment can then be tasked to promote such interests.

A final point relating to Sino-Indian economic cooperation needs to be made. While both countries produce many lower-end goods, the two are not competing for foreign investment in the same sectors, except in the areas of infrastructure and industrial capacity building. India should continue to nurture certain high-tech industries and court foreign investment for further advancement. At the same time, it should identify a core list of goods in which it can trade with China based on a realistic assessment of their comparative advantages in production of those goods. In this context, the role of the Joint Group on Economic Relations and Trade (JEG) should be stressed. Overall, however, while the economic component of their relationship is not likely to become very significant, greater interaction on that front can only enhance their desire for accommodation of each other within the Asian strategic landscape.

The National Security Context

India’s security relationship with China, tense but generally stable following the 1962 border war, has undergone a qualitative change in the 1990s. The cornerstone of the institutionalized bilateral interaction remains the Peace and Tranquility Agreement (PTA) of 1993. Under the auspices of the PTA, the two sides have held eight rounds of talks covering a range of issues. These have included clearer demarcation of the Line of Actual Control (LAC), no new troop deployment along the LAC, and a range of military-technical confidence building measures (CBMs) detailed at the command levels.

One of the most significant aspects of Sino-Indian border dispute is that the two have agreed to maintain the LAC as the de facto boundary pending its juridical settlement. In the meantime, the two have engaged in wider dialogue through the joint working groups, a model that would be well worth emulating in the Indo-Pakistani context. However, despite the calm on the LAC front, several serious issues of dispute, some recent and some older ones, continue to dog their bilateral relations.

Concerns regarding one old dispute resurfaced during the recent crisis in Kashmir. In mid-June, as the Indian forces under “Operation Vijay” were driving the intruders past the LOC in Dras, Batalik, Doda and Kargil sectors, Pakistan attempted to capture the area immediately south of the Siachen glacier, to the north of Point NJ 9842. Since India primarily relies on aerial supplies to maintain its forward outposts on the glacier and has only tenuous control over the inhospitable terrain north of NJ 9842, severing that link would make it virtually impossible for India to retain control over Siachen. Further, in 1963 Pakistan handed over to China parts of the territory through which the Karakoram Highway passes, an area that it wrested from India in the 1947-48 war. So if Pakistan had been successful in capturing the territory north of NJ 9842, and permit China access to it, that would bring vital additional territory of India under immediate threat from China (and Pakistan). Fortunately, that attempt was foiled, but it does not rule out the threat of renewed attempts in the future.

However, the most important of the older Sino-Indian disputes is the fact that China lays claim over nearly 90,000 square kilometers of Indian territory including parts of Arunachal Pradesh. Low key insurrectionary activities across the porous boundary have occasionally flared up into skirmishes and exchange of small arms fire. This disputed land has acquired added strategic significance in the wake of Indian decision to conduct nuclear tests in May 1998 and announce the decision to establish a “credible minimum deterrent” (CMD).

While the Indian security planners are engaged in establishing and clarifying the strategic, doctrinal, and operational aspects of the proposed CMD, a few points need special attention. The first point refers to the doctrine. The government of India (GOI) has clarified that the CMD envisages “no first use” of nuclear weapons, only to establish a “survivable second strike capability.”[12] The means of delivery will include aircraft as well as a range of missiles deployed in rail and road mobile modes. Once India is able to launch missiles from the surface of the sea (aboard ships) or from below the surface (i.e. from submarines), it will enhance the delivery options and yield significant tactical advantages.

From the Chinese side, the doctrinal position is as follows: “no first use,” and “non-use against non-nuclear powers.” After the second round of nuclear tests last year (Shakti –II), India is no longer a non-nuclear power. Further, according to some Indian assessments, China’s “no first use” declaration does not prevent its use on its own territory, or in the Sino-Indian context, the disputed territory with India.[13] Thus it is possible for China to launch preemptive nuclear (first) strike using tactical nuclear weapons against Indian counter force targets in the disputed region. This is, of course, in addition to the unlikely scenario when China would launch a massive nuclear first strike against strategic targets in India. China can activate both of these options, either as a first response, or in the event of serious escalation of conflict involving conventional forces. [14]

At any rate, the Indian CMD aims to establish a second strike capability that would survive a Chinese first strike and retaliate by inflicting unacceptable damage upon the adversary. In the strategic domain, this envisages retaliatory capacity to target cities and major counter value targets in the Chinese heartland. In the tactical domain, it envisages retaliatory capacity to launch strikes against area-wide or select counter force targets. Besides, India might be in a position to deploy the naval version of Prithvi by 2005, and the Sagarika submarine launched ballistic missile (SLBM) by about 2010. Both of these missiles, capable of sea skimming and radar-evading flight trajectories, would complement its land based deterrent options against China.

However, as GOI elaborates on the specifics of weaponization, and its associated dimensions including command, control communications, and intelligence (C³I) structures, it is important to stress that the contours of the “minimum deterrence” be defined prudently, in both qualitative as well as quantitative terms. Prior to the nuclear tests last year, the median figure relating to the size of the arsenal was 232 weapons.[15] Later reports contended that if India were to include reactor-grade fuel to fabricate nuclear weapons, the total stockpile could be between 390 and 470 weapons, as compared to China’s 450 weapons.[16] It was also reported that one of the Indian sub-kiloton tests had involved “dirty” (i.e. reactor-grade) plutonium. [17]

Regardless of the debate in the unclassified domain, GOI needs to tightly define its CMD and clarify its mission objectives. More importantly, it needs to define in unambiguous terms the strategic arc of deterrence that the CMD is intended to accomplish. Given India’s special status as a self-declared nuclear weapon state (NWS) outside of the P-5/NPT framework, it might invoke a hostile reaction from the international security community if it were to outline its strategic arc of deterrence in very extended terms. For instance, the extended arc might include West Asia, Central Asia and the Caucasus, Pakistan, China, and East and Southeast Asia. A CMD geared to defending Indian territorial and maritime interests along such an extended arc might make it virtually impossible to “reconcile” the Indian NWS status within the existing non-proliferation framework. Moreover, establishing such an extended arc of deterrence would not only be prohibitively resource-intensive in both technical and policy terms, defending against such varied threats can often lead to a self-reinforcing logic. Thus, following an upward revision of threat assessment, similar upward revision of qualitative and quantitative definitions of security might result, from type and number of weapons, to mode of delivery, ruggedization of warhead design, simulation and flight testing, and targeting. This scenario was all too familiar in the Cold War context of US-Soviet rivalry, and should be avoided at all costs in the Indian strategic debate.

In any event, India’s traditional security posture against China has not been a search for parity but qualitative sufficiency. This has worked reasonably well on the conventional axis, and should operate equally well on the axis of WMDs (weapons of mass destruction). This is true despite provocative Chinese missile deployments in Tibet and upgrading of surveillance capability in the Coco Islands, some 25 miles off the Andaman and Nicobar Islands. While the defense planner is tasked to formulate a defense strategy on the basis of present as well as emergent threats, the role of the political leadership is to mate it with other considerations. In the case of threats from China, it makes little strategic sense for China to engage in a full-blown conflict with India. Both states have far more pressing priorities and direct conflict with each other ranks very low on their strategic calculus.

Besides, the post-Cold War Asian strategic landscape has changed in many ways, indicating a new domain of strategic convergence emerging between India and China. Both states require foreign capital and technology to pursue their developmental imperatives, but are loath to see the growing US strategic influence in Asia. On another front Russia, unable to impede the eastward expansion of NATO and reassert its preeminence in the “post-Soviet space,” has concentrated on establishing a strategic partnership with both China and India. All three are in favor of greater multipolarity in the international system. Thus, while they each court the West to pursue their individual priorities, they also see the advantages of a collective effort to diminish US preeminence in the region. On yet another front, neither of these sides wishes to see a dramatic upgradation of US-Japan military ties, and none of them wish to see the United States deploy the proposed Theater Missile Defense (TMD) system in Japan, South Korea, or Taiwan.[18]

Although examination of the strategic alignment of forces in the emerging Asian balance of power is clearly beyond the purview of this study, such factors do impinge on the bilateral security calculus of China and India. China clearly recognizes that it can no longer prevent India from either becoming the dominant player in the Indian subcontinent, or carving a larger role for itself on the Asian stage. Its own priorities lie to its east and southeast, from Japan, South Korea and other ASEAN states, to its claims on the Spratly Islands and fortifying its military naval presence in the South China Sea and beyond. Keeping a hostile and simmering front with India would detract from pursuing these objectives.

Finally, while China has made significant contributions to Pakistan’s nuclear and missile programs, increased ISI support to the Uighur Muslims in exploiting the ethnic and religious tension in the Xinjiang province, has China deeply concerned.[19] It fears that Pakistan might become a vortex of religious irredentism in Central Asia and the Caucasus as well, an oil-rich region of significant commercial and strategic interest to China (and India). It is these altered equations that have prompted China to reassess its security relations with India in the near to medium term. A new mood for engagement has been visible during the last two meetings of India’s Foreign Minister Jaswant Singh with his Chinese counterpart, Mr. Tang Jiaxuan, and the proposed mechanism for a “security dialogue” discussed during Jaswant Singh’s visit to Beijing on July 14^th this year. [20]

Given the strategic realignment of forces in Asia, India should reconfigure and recast its relationship with China. Rather than paint it as a clear and present danger, or a newfound ally, India needs to toe the median path in its interaction with China. This new policy should be grounded in pragmatism, not fear or overreaction. It should be derived from Indian, not Western, assessments of China’s priorities and propensities, and India’s position in that calculation. Once India’s national interests are accordingly defined vis-à-vis China, the task for the foreign policy establishment becomes clear. It can contribute to both formulating the Indian response, as well as implementing the resultant strategy. It must be stressed that just as India wishes to be liberated from ignominious comparisons with Pakistan to emerge as the preeminent power in the Subcontinent, it needs to better calibrate its relations with China to be able to play a larger role in Asian affairs.

Conclusions

This study has attempted a systematic review of the central attributes and conduct of Chinese and Indian foreign policies, both within their respective national contexts and in the bilateral context, primarily on the economic and national security axes. Some central elements of the above review are recapitulated below.

On the economic axis, the systematic structural reforms that India initiated in 1991 under its liberalization program has imbued the domestic discourse with a new sense of pragmatism. Not unexpectedly, the pace, magnitude and trajectory of reforms have generated a multitude of voices. But as the reforms have produced desired results, even as they inevitably cause some sectoral dislocations in the process, the need for sustaining the reforms has gained incremental acceptance. If the national leadership demonstrates sufficient political will to sustain this process, and deepen and widen the structural, fiscal and monetary reforms, within a decade the Indian economy would become a significant player on the global stage.

It will also yield a substantial side-benefit. For a multi-religious, multi-ethnic, and multi-lingual society like India, a minimum “cushion” of economic growth is necessary to keep the underlying crosscutting societal cleavages from becoming a divisive force. In a sense, if the Indian economic ship tries to enter the harbor of prosperity on a low tide, it will start hitting the rocks at the bottom of the harbor that it might otherwise have smoothly sailed over during high tide. Now that the economy has successfully crested the “Hindu rate” of GDP growth of about 2-3 percent, sustaining this higher growth trajectory is vital to realize the Indian dream of becoming a respectable player in international affairs. Building a prosperous secular India is the best rebuff to the Two-Nation Theory, and the derogatory Western categorization of India as a democracy too poor to feed its teeming millions. Besides, maintaining a competitive advanced conventional armory and establishing a robust WMD defense is prohibitively expensive. No amount of jingoistic rhetoric and patriotic fervor can replace the need for cold hard cash.

Sustained economic growth and decentralization has important politico-security implications as well. The separatist movements in different parts of India are as much a reflection of dissatisfaction with the meager economic performance as the arrogant attitude of New Delhi toward these regions. Consequently, internal security drains more resources than manning the external frontiers, and provides separatist elements in the border provinces with the perfect excuse to court foreign support for stepping up their demands. China’s ability to play this role in Assam, Arunachal Pradesh and the larger northeast, is as much a consequence as a cause of New Delhi’s callous disregard for pragmatism in the politico-economic and military management of these regions.

Therefore, India should steer its economic trajectory on a prudent course of incremental integration into the global economic matrix. Fears of foreign competition wiping out domestic producers (the classic “nascent industry” argument) have successfully blocked this integration process for fifty years, and created an unholy alliance of entrenched economic interests with the political and bureaucratic leadership. It is important to remember that in a protected economy, the inefficiencies of the production process are passed on to the domestic consumers, while the inordinate profits emanating from such monopolistic practices are captured by the entrenched economic interests. This argument does not suggest that India should willy nilly open doors to foreign producers and “fickle capital.” It should keep adequate governmental regulatory controls and proactively monitor and guide this process. Further, while it should enhance specialization in select high-tech industries for capturing “niche” markets abroad, it should not relinquish its traditional export earners, whether jems and jewelry, or textiles and chemical industries.

Beyond these caveats, however, the trajectory of economic reforms should be sustained. Since much of this strategy requires greater transparency and negotiating with foreign actors, the foreign policy establishment should be geared to promoting such domestic interests. Finally in the Sino-Indian context, the JEG should aggressively pursue options for increasing economic cooperation. Given the complementarity in their export profiles, there is little reason why the two-way volume of trade should not grow to about $10 billion by the end of the next decade.

On the security axis, India should make a pragmatic assessment of threats in its strategic neighborhood, and devise a differentiated response to them. If any adversary, say China, were to make threatening troop deployments near the Indian borders, making reckless statements in domestic and international fora only raises the stakes and hardens mutual stances for subsequent negotiation and diplomatic resolution. The answer to such provocation is to accrue sufficient military wherewithal to deter aggression, not jingoistic statements. The old adage, “speak softly, but carry a big stick,” is a policy that China has put to good use, and India should incorporate that into its larger security and foreign policy paradigm.

A final point regarding Sino-Indian relations needs to be underlined. The post-Cold War alignment in Asia has created a new domain for Sino-Indian strategic engagement. India should accordingly re-calibrate its response to China, and gear its foreign policy to pursue these opportunities. This pragmatism would fuse well with the larger strategic dimension as well. The United States is engaging China in the hope of making it an increasing stockholder in the stability of the international system, but remains fearful of a downturn in its relations with China.[21] To an extent, improved relations with India can serve to “contain” the adverse fallout of Chinese unilateral policy activism in the region. But this Indian role is tightly circumscribed. For instance, China has a $56 billion trade surplus with the United States, second only to Japan ($65 b), while India’s two-way trade with the United States is a meager $11.5 billion.[22] Such asymmetry itself puts Indo-US relationship in a different category from the Sino-US one. India should factor such ground realities into its decisional calculus while formulating its larger strategy vis-à-vis China or the United States.

In sum, India’s economic and security policies over the last decade, and the underlying domestic discourse, has been imbued with a refreshing blend of pragmatism and a sense of purpose. This progressive trend needs to be carefully nurtured and strengthened. Consequently, it creates a new role and significance for India’s foreign policy. It is precisely in this context that the foreign policy needs to be re-calibrated to promote domestic interests and priorities. A revamped foreign policy will have as much significance in optimizing India’s relations with China as indeed with the rest of the wold. Achieving this target would be one of the central and most promising challenges for the country at the dawn of the next millenium.