Dealing with China: Strategic, Political & Economic Dimensions

Mr Peter Rimmele, Resident Representative to India, KAS, delivered the introductory remarks in which he brought out the grave dangers that China is posing to the rest of the world and more so, to the democratically governed nations, by flouting all rules of the game, in its march to become an economic superpower, and coercing other nations that dare to question its practices.
He pointed out that China also poses a political challenge to global good governance. He highlighted the need for liberal democracies to recognise the scale of threat posed by China and to counter it. “The best countermeasure available to our liberal and open societies is to be vigilant and to combat China’s illiberal threats by exposing them,” he said and noted that media and counterintelligence have a big role to play in debunking the CCP’s disinformation war and influence campaign.
India, he said, has a major role to play in countering China as it shares a long border with China. He was optimistic that liberal democracies have the necessary tools to deal with the China challenge. However, he felt that they have to strengthen the instruments and be conscious of the enormity of the challenge.
Need for White Papers
In his Opening Remarks, Commodore R Seshadri Vasan, Director, Chennai Centre for China Studies, drew the attention of the audience to Prime Minister Modi’s Independence Day speech about the need to counter terrorism and expansionism, the latter alluding to China’s strong-arm tactics.
India, he said, has sent strong signals to its adversaries by its active participation in QUAD, resilient supply chain initiatives, vaccine diplomacy and its Indo-Pacific approach. According to Commodore Vasan, decoupling with China is a gradual process and it cannot happen overnight. While China has come out with many white papers on its defence policies, India has been floundering in coming out with such papers on its security objectives, he regretted. He remarked that the negative impression about China among liberal democracies has increased phenomenally and China may do a course correction, which will have global implications. He observed that India enjoys a big favour from its natural geography but wondered if it was making the right use of the geographical factors, to become a dominant player.
GDP Growth Should be Our Mantra
Ambassador Gautham Bambawale stated that April 2020 was an inflection point in Indo-China relations. By using force, China gave three signals:

• To establish China as a pre-eminent power.
• To knowingly violate many Indo-China agreements aimed at ensuring peace between the two countries.
• China will determine its boundary by force and not through negotiations.

Though China has pulled its troops from some places in the Leh-Ladakh area, the Chinese threats at the border are far from being over. Asymmetry between India and China in economy, military power and technology has increased a lot, he said and ascribed this to China’s dominance.
He recommended that India needs to focus on maintaining 8% GDP growth year-on-year for the next 20 to 25 years to bridge the GDP gap. To achieve this, he suggested that India must speed up its reforms process in three major areas, namely moving away from micromanagement of economy, reducing the number of public enterprises and checking the erosion of the process of the rule of law so that all companies will have a level-playing field, irrespective of their relationship with the government of the day.
Such a reform process, Bambawale argued, will free up the Indian individuals and enable them to perform to the best of their abilities and enterprise. Through their efforts, India can easily achieve 8 to 9% GDP growth per annum, he said.
Different Groups; Different Strategies
Lt Gen SL Narasimhan, PVSM, AVSM, VSM, Member of the National Security Advisory Board, spoke about how China deals with different groups of countries using different strategies for each group.
South Asia: It initially started with Covid diplomacy to Nepal, Afghanistan, Pakistan and extended it to Bangladesh and Sri Lanka. Apart from Covid diplomacy, it relies on plurilateral meetings, visits, OBOR (One Belt, One Road) and making its presence in the internal affairs.
ASEAN: China and ASEAN have a closer relationship. It works based on a CoC (Code of Conduct for South China Sea); it also plays on differences and increased dependency of the countries on China.
C + C5 (China + Central Asian Republic). The initial meetings started with Covid diplomacy and now they are covering other aspects as well.
West Asia: When Mr Wang Yi visited Saudi on March 21, he proposed a Five Point initiative on achieving security and stability in the Middle East. The five points are advocating mutual respect, upholding equity and justice, achieving non-proliferation, jointly fostering collective security and accelerating development cooperation.
EU (European Union): China is focusing on Central and East European nations and Western Europe. Acquisition of technology companies and controlling of ports is the strategy followed.
USA: By developing bipartisan views, increasing assets in the supply chain and by trade.
Russia: China has developed closer relations with Russia. As both are termed revisionist powers, they have come together.
Spreading Wings of Influence
China increases its global influence through various ways:
By acquiring commercial interests in global ports and terminals.
By occupying positions of influence in the United Nations.
Through OBOR, digital silk road and health silk roads
By setting global standards in 5G and Internet standards.
Though there is a hue and cry for decoupling from China and there is a lot of talk about companies trying to exit China, the ground reality, in numbers, is quite contrary to this. During the first quarter of this year, China’s GDP has increased sharply, unemployment rate has come down, forex reserves and trade surplus have gone up substantially, compared to the corresponding period of the previous year. This is an eye opener and we need to take note of this.
India must actively engage with friendly countries and the countries with which China is engaging, focus on innovation and R&D, increase its risk taking approach and have a long-term view.
China’s Priorities
Mr Santhosh Pai, Partner, Link Legal, gave an overview of the driving forces of China’s Xi era, its external forces and domestic priorities–political, economic and strategic. Personalisation of power, centralization of institutions, doing away with the Politics-Economics divide and data emerging as a power differentiator have marked the Xi-era. The private industry has been cut to size in China.
Dual circulation, three-child policy and avoiding the middle income trap have become China’s top domestic priorities. The trust that nations had in China has decreased while the risks of dealing with it have increased. Due to this, the global supply chains are trying to move away from China towards intermediates. To counter the China challenge, we need not just a ‘whole-of-government’ approach but a unified ‘whole-of-country’ approach.
Qualitative Aspects of Dealing with China
Mr Rajaram Muthukrishnan, Director, Voice Snap Services Pvt Ltd., spoke about the economic challenges India currently faces in dealing with China. He dealt with three broad areas:

• A qualitative look into the China-India bilateral trade trend.
• The strategic intent in the Chinese investment strategies in India and its neighbourhood.
• The economic options available to India.

Though the Indo-China bilateral trade has steadily increased over the past five to six years, there has been a massive trade deficit in favour of China.
“There is scope for both India and China to focus on areas of trade that will be really beneficial to both the countries,” he said. For instance, China imports agricultural products heavily. India has vast export potential in this category. However, India has been unable to crack the Chinese market.
According to Mr Rajaram, China is concentrating on the east and south parts of India where innovation is happening and the startup ecosystem is thriving. While India does not have big money to back our unicorns, China rushes to fund them, he observed and gave the examples of Paytm, Zomato and Swiggy where the Chinese have investments.
He suggested that India must focus on manufacturing, modernising agriculture using AI, improving the startup ecosystem and investing massively in infrastructure. He opined that these will reduce the economic gap between India and China. He also welcomed Prime Minister Modi’s announcement in the Independence Day speech that the government will invest about 15Bn USD in infrastructure projects.
Mr Pankaj Madan, Deputy-Head, India Office & Head-Programmes, KAS, in his concluding remarks, summed up the views shared by all the panellists.
He was of the opinion that the Afghan crisis will have a major impact on India. He said that the world has at last woken up to China’s designs of placing its people in key positions in multilateral platforms to subvert the systems and institutions to its advantage.
He quoted Chinese philosopher Hu Shih who said that India conquered China culturally for twenty centuries without sending a soldier across the border. Mr Pankaj appealed that India must follow the ‘whole-of-country’ approach as advocated in the panel discussions, and leverage its culture to take on the China challenge and spread its influence.

Q&A

How should India react to China’s grand strategy?
Gautam Bambawale: Analysts of China suggest that India should be doing what China is doing. I don’t agree with this view because India is a very different country with a different polity, different economy and different society. The key to our success is to make it easy to do business in India. To counter China’s grand strategy, we need to look inwards and get our GDP moving at 8 to 10% per annum over an extended period of time.
How has India fared in chairing the UN Security Council during its turn on rotation basis?
Gautam Bambawale: I was extremely impressed by the UN Security Council meeting chaired by India in August 2021 on the issue of maritime security. India has done extremely well and if it utilises the opportunities in future also when we will be chairing the UN Security Council, we can stamp our place amongst the comity of nations.
Sri Lanka has given access to China to develop its port. What makes China a great negotiator? Are we losing the plot?
Gautam Bambawale: A number of countries have pointed to Sri Lanka about the pitfalls of the deal with China but we can only take the horse to the water. We cannot force it to drink. If Sri Lanka wants to take more debts from China, there is very little others can do about it. India is working closely with Japan in doing projects in Sri Lanka and other third world countries. In a similar manner, we should also work with Germany and other countries across the world.
How does the leadership of the EU counter the challenges posed by China to western nations?
Peter Rimmele: The EU tries to combine their strength and come out with a common view of things but the foreign policy is decided by each nation and it is not outsourced to the EU. It is difficult to arrive at a common point of view among member states. Of course, all of them, to a more or lesser degree, will fear the influence of China, especially those who are part of China’s OBOR initiative. The EU considers China as a very important trading partner and at the same time, a systemic rival too.
Will the Afghan developments be exploited by China? What should India do to counter this?
Lt Gen SL Narasimhan: We need to wait and watch as to how the situation develops. It is still evolving and we do not know who will come to power. China will prefer a neutral, if not a favourable, government. They also have a proxy in Pakistan through which it can influence the Taliban. A year and half-ago, China asked Afghanistan to join the China-Pakistan economic corridor. Chinese are wise people and they may not put their boots on the ground.
India adopted a two-pronged approach–to develop the infrastructure by participating in projects and to develop the capability and capacity of the Afghan forces and the nation. Though there is a temporary setback, I don’t think that the Indians have lost the goodwill of the Afghans.
How significant is PM Modi’s Presidential address at the UN Security Council meeting on maritime security and what message has this conveyed to China?
Lt Gen SL Narasimhan: We have been insisting on the rule of law, freedom of navigation and freedom of over-flight through the sea. To that extent, the Prime Minister’s message has gone across very well. QUAD countries also can help in exerting pressure on China.
Should we engage with China at all, given their games of deceits?
Lt Gen SL Narasimhan: We cannot wish away our neighbours. They are there because of geography. In the Asian region, both India and China are vying for strategic space. We can engage with our neighbours provided the prerequisite of peace along LAC exists.
In a climate of distrust, how can we bring China back to the table and restore diplomatic relations?
Lt Gen SL Narasimhan: We have to go back to 1986 when a military standoff took place between India and China in the Sumdorong Chu valley. It took us seven years to resolve that issue and get back to normalcy. We need to persevere in what we want to do. We have given a clear message that on territorial sovereignty and integrity, there will not be any compromise.
Is democracy a weakness for India since China has shown what it can achieve with autocracy?
Lt Gen SL Narasimhan: This discourse has gained currency in recent years as China is spreading the message that they can handle things better (for example, Covid management) with the system they have. On the other hand, countries like the US and UK have progressed very well with democracy. So this is a dichotomy. Democracy is not at all a weakness as citizens enjoy freedom.
Has India failed to capitalise economically on the anti-China backlash?
Santhosh Pai: China has built its economy over a period of 30 years. Also, it follows a multitude of strategies for different countries to attract FDI. India has to have its own strategy and we cannot replicate China’s. We are still in the early stages of this journey and I see a lot of positives.
Between Indian and Chinese companies, which are more compliant?
Santhosh Pai: Compliance is a function of enforcement. It depends on the nations rather than the companies. Indian enforcement is extremely lax. In China, enforcement comes with a huge force and, therefore, compliance becomes a ‘must.’
Will Germany be a major player in global security?
Peter Rimmele: Germany participates in international missions as this is allowed under the constitution. But on its own, it will not put its boots on the ground. Frankly, they do not have the capacity to do so. After World War II, investment in the defence forces was not a priority for Germany. However, Germany will exert its influence by staying relevant in various international fora. Germany sent a ship to the Indo-Pacific to send a message that it will do something to defend a global, rules-based order.
What stops India from manufacturing cheaper products to take on China?
Rajaram Muthukrishnan: China’s approach towards manufacturing is to work on skill, scale and speed. We do not have the ability to build to scale in view of our systemic problems. We can get economies of scale which leads to cheaper costs.
China also adopts a predatory pricing policy to clean up competition and to dominate later. The speed at which China launches its products in the market is also very high. Our judicial, environmental and other ecosystems hold us back, unlike China. We need to have more skilled manpower, produce at scale and operate with speed. If we do that, we can replace our Chinese imports gradually. We are already working in this direction and over the next 5 years, we may replace many Chinese imports.
What will happen to the future of Hong Kong and how will the rest of the world be affected by the developments there? Has the one nation, two systems concept failed there?
Rajaram Muthukrishnan: Politically, the concept of one country, two systems has ended in Hong Kong. Its political future is under the control of China. Hong Kong’s economic value for China is increasing and it will continue to be so. There is a systemic change in its economic power houses. Chinese MNCs have replaced multinational and European companies. China will route some of their investments through Hong Kong’s open borders. Over a 30 year period, the economic value addition of Hong Kong to China and to the world will come down. But at the moment, Hong Kong will continue to be relevant.

Mr Peter Rimmele, Resident Representative to India, Konrad-Adenauer-Stiftung

Ambassador Gautham Bambawale, Former Indian Ambassador to China

Lt Gen SL Narasimhan, PVSM, AVSM, VSM, Member of the National Security Advisory Board, India

Mr Santhosh Pai, Partner, Link Legal

Mr Rajaram Muthukrishnan, Director, Voice Snap Services Pvt. Ltd

Commodore R Seshadri Vasan, Director, Chennai Centre for China Studies

Mr Pankaj Madan, Deputy Head – India Office & Head-Programmes, KAS