Moving China and India Forward – Of Monks, Generals and Developing a Trade Platform

December 17, 2010 Posted by Chris Devonshire-Ellis Reading Time: 7 minutes

Op-Ed Commentary: Chris Devonshire-Ellis

Dec. 17 – Over the last few years, our firm has been involved in China and India and we have commented many times on the relationship between them. I personally have been involved in the bilateral trade space through the mutually beneficial development of the firm into both markets since 2005. We now possess 15 offices and a team of several hundred staff between the two countries.

As the relationship starts to look at maturing to a more trade-based focus, the announcement by Chinese Premier Wen Jiabao this week of an expected increase in bilateral trade to US$100 billion in volume by 2015 has begun to concentrate minds on how these two giants of Asia are to manage their development. Indeed, the China-India issue is not just a regional matter, it is one that will affect global trade balances and security. If China and India succeed, global growth is almost assured for the remainder of the century. Hundreds of millions will be lifted out of poverty. Fail, and the fallout may spark serious conflict, possibly even nuclear. The stakes may never have been higher in ensuring that a dependable, secure and mutually beneficial relationship emerges.

In this article I try and examine the differences between the two nations, what I see as the sticking points, and provide clues as to why some of these may be about to be removed to clear the path for a more pragmatic and commercial-minded relationship between the two countries. That the relationship is highly politicized is beyond doubt; matters concerning the position of the Dalai Lama and the Tibetan government in exile, currently resident in India, provide a case in point. China regards the regime as subversive, and consequently uses this to push India towards its point of view by making claims on Indian territory and making border incursions along disputed areas on a regular basis. India’s military responds by requesting budget increases along its territory with China, delaying the construction of cross-border highways that they suspect would provide China with the opportunity to “just march in,” and both use up resources in addition to inhibiting development. For a nation requiring massive infrastructure development, such expense and deliberate regional suppression comes at a huge opportunity cost.

China’s relationship with Pakistan too, can be a thorn in India’s side – a failed state, responsible for attacks in India’s major cities, with a habit of antagonizing India’s huge Muslim population causes both a continuation of mistrust between Pakistan and India, but also deflects Indian attention, finance, military and resources towards its western border and again prevents India from economic growth that could potentially challenge China’s bid for regional supremacy. It’s hardly any wonder that the two sides view each other from polar opposites.

However, against this backdrop is the increasing need to develop bilateral trade ties. China needs a huge, export consumer market to sell too, India provides this. So does China for Indian businesses. What is happening therefore is a rebalancing of the relationship, to try and move it away from border disputes to a more settled and reliable trade platform. Depending upon the future plans of the Dalai Lama, who one suspects is well aware of the problems caused to the Indian government in hosting him, it is possible the next Dalai Lama – and by this I mean the Dharamsala appointed figure, not the possible Beijing incarnation – may be found born externally from India. Such a scenario would provide India with a get-out clause in its relations with China, and lead the Tibetan government in exile to establish its operations elsewhere. There are precedents – the fourth Dalai Lama was born in Mongolia. It is not beyond the bounds of imagination to perceive the next incarnation being found there – the Mongolian’s relationship with China is tetchy at the best of times, and Mongolia is largely interdependent from Chinese trade. That scenario mentioned, it is also possible that the current Dalai Lama could find a way to agree with Beijing to assume a reincarnation found in Tibet, or China. Such issues require dialogue, and are naturally highly sensitive. One hopes such discussions are taking place, at least informally. It would appear in Beijing’s best interests not to preside over a situation where two Dalai Lamas are announced. That would only prolong the conflict for much of the remainder of the century. Reconciliation is surely in the interests of Beijing, the Dalai Lama, the Tibetan Government in Exile and the Tibetans themselves. One hopes common sense and a longer term view of the cost of continuing this fractured arrangement will spur a mutually acceptable understanding. Hardliners need to give way to pragmatists.

China-India trade developments for the time being then are very much interwoven with the future of the Dalai Lama. If his government leaves India, Indian relations with China will massively improve. Both sides understand each other on this point, and both are mature enough to determine – border dispute reminders not withstanding – that time will tell.

Beyond this also lies a strong desire to reconnect old trade routes and border regions. Bangladesh and Myanmar lie between China and India and it is in the interests of both to see these nations become better equipped, more able to participate in global trade, and open up their lands to the exploiting of valuable resources. That will take a regime change in Myanmar, however China is also becoming frustrated with the lack of progress made in the country. It too wants access to resources and an increase in trade. Continuing to support the generals indefinitely while the potential for the Burmese market in buying Chinese goods remains in poverty is not a scenario particularly appealing to Beijing. The same can be said for Delhi.

Bangladesh meanwhile offers a port on the Bay of Bengal for China, and access to Indian markets as well as towards the Middle East. Chittagong is already being redeveloped with billions of dollars of Chinese investment. Better relations with India and Bangladesh also can reconnect the Jute industry, and potentially revitalize Calcutta. The city is already home to the largest overseas diaspora of Tibetans, and links back to Lhasa, if re-established, could once again remake Lhasa into a regional Himalayan trading hub, and re-establish Calcutta as the globally important trading port it should be. The purists may scoff, but Lhasa traditionally had such a role. Reclaiming trade routes from Calcutta and Dhaka to Lhasa would also revitalize the Himalayan region. If China and India are unencumbered in political issues over the Himalayas, better cooperation concerning water resources and management may also result. It is pertinent to note that while the Dalai Lama calls for more focus on climate change in Tibet, it’s his own removal that is more likely to provide a platform for increased regional cooperation of a resource that needs to be properly managed, tensions dispersed, and developed along multilateral considerations.

Pakistan remains awkward, but again, Chinese patience is wearing thin. The export of terrorism to West China alarms Beijing, as does another potential market for Chinese goods remaining in poverty. Peace is required, not just for the redemption of Pakistan but to also assist with the redevelopment of Central Asia. What was once a cozy relationship built in part to frustrate India is now looking increasingly difficult to maintain in its current form. China wants markets in Pakistan, and Pakistan needs infrastructure. The same is true of Central Asia, and the huge markets to the west in Iran. Securing such a vast territory to allow Chinese businesses to operate in them is becoming more of a pressing concern than using Pakistan as a needle to prickle Indian sensitivities and keep its military occupied along its Western front. I predict longer-term changes in China’s expectations from Pakistan, although this will undoubtedly take time in what remains a fragile country.

While the current status between China and India remains built upon political differences, there are moves to reconstruct this towards trade based foundations. Sino-India trade during 2010 reached US$60 billion, the same level it was at before the global financial crisis. US$60 billion is, incidentally, the same trade volume that China currently has with Russia. Premier Wen, in Delhi this week, stated it should increase to US$100 billion by 2015. Clearly, trade is developing and becoming more important. Chinese businesses are starting to move to India, and Indian businesses are increasingly moving to China. We know, as our firm Dezan Shira & Associates is positioned right in the middle of that trade and we handle FDI into both countries from either side.

My belief is that although the old disputes and mistrust in relations is undoubtedly there, both nations see a need to move beyond this stalemate and recalibrate their understandings. It is curious that an elderly monk and a government of generals provide two of the keys that will enable the rusty lock of bilateral trade development to be broken open. As and when it is, that US$100 billion will begin to look like small change. The opportunities between the two are enormous.

Chris Devonshire-Ellis is the founding partner of Dezan Shira & Associates who specialize in foreign direct investment, legal, and tax advice in China and India. The firm maintains 10 China offices (Beijing, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Guangzhou, Zhongshan, Shenzhen and Hong Kong) and five in India (Delhi, Calcutta, Mumbai, Bangalore and Chennai). The practice may be reached at chinaindia@dezshira.com. Chris also contributes to our business web sites India Briefing and the China-India platform 2point6billion.com. The firm’s brochure may be downloaded here.

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