Room for Growth

Premier Zhu Rongji’s trip through India has produced the statements of cooperation and mutual development that every trip by any Chinese politician to any foreign country routinely elicits. More often than not, these statements do result in increased cooperation in tourism and trade. The difference with India is that the fractious democracy is the other Asian giant and one of the few Asian countries with which China has minimal economic ties.

India’s software expertise and China’s cheap quality hardware could make for a beautiful and extremely lucrative partnership with political consequences that might prove disheartening to the likes of Tibet, Nepal and Pakistan. And perhaps also the US.

Currently, India and China have roughly $4 billion in trade between them – the equivalent of the trade that flows between mighty Vietnam and China. Russia and China exchange $20 billion annually. The room for growth between the two giants is enormous.

Both countries have a vast population of barefoot peasants left completely out of the glitter of Bombay, Shanghai and Canton. In Bombay, beggars and yogis crowd and amaze foreign travelers with pleas for help, body-bending acrobatics and mystical pronunciations – all for a rupee or ten. In Canton and Shanghai, the beggars are less visible and less aggressive, but they exist; ten to a tiny room, packing fish or hauling boxes.

If India were to set up a few factories and shipping depots, they could take advantage of China’s super-cheap manufactured goods and pass them on to the poor and destitute of interior India. China’s East Coast glitter outshines India’s only star (Bombay), but new trade cooperation could turn cities like Jaipur, New Delhi and Hyderabad into manufacturing hubs, relieving Bombay of the crush of the masses.

China, for its part, needs the IT revolution to hit even harder than it already has in order to prepare for the influx of foreign-owned telecommunications and Internet service that is part of WTO membership. India’s advantage in terms of microchip development and design, programming and e-commerce, provides China with a source and India with a new Asian market.

It is interesting to note that China, while courting India’s software business, is currently involved in a pivotal situation concerning foreign investment and trade in the telecommunications sector. Goldman Sachs and News Corp – among others – invested $325 million in Netcom, a private Chinese telecom company. China then decided to incorporate state-run China Telecom’s northern provinces into Netcom, creating China Netcom. Investors now worry about the shares – will they be returned or will they stay within the now Beijing-controlled China Netcom?

Beijing also recently announced a host of new regulations pertaining to such business deals, including the need for all foreign software, telecom and Internet providers to provide a guarantee that their products are “no threat to China’s national security and stability.” At the same time, Beijing encouraged Chinese telecommunications companies to “buy local.” Beijing also released a list of new rules for Internet providers requiring information of users’ addresses, trends, phone numbers – to cut down on “subversive material.”

At the same time, hundreds of Chinese computer-heads from the Silicon Valley are returning to the mainland to work for more money in a more dynamic, risky (i.e. profitable) market. So as Zhu tramps around India trumping up software/hardware trade, the authorities back home are clamping down on foreign investment and Internet bars, while bringing Chinese IT talent back

Indian economists admit they have much to learn from China’s WTO campaign and dealings with foreign firms – dealings that seem to promote trade while in effect bringing in foreign expertise to augment and protect domestic enterprises.


For 50 years the two countries have had virtually no contact – not even flights. A direct flight between Beijing and New Delhi will begin in March; previously it cost 9200 RMB to fly from China to India over Singapore. Conversely, it costs 5500 RMB to fly from Beijing to Minneapolis.

These are but baby steps, but the political consequences for the region and the world of this new partnership are important. First, the Tibetans in northern India, who represent the Tibetan culture more closely than their brethren in the Tibetan Autonomous region, may find the Indian government less accommodating if millions (billions) of dollars in trade are held up because of Beijing’s displeasure at their continued presence in India. A promising note on this subject is India’s “we are a democracy” retort to Beijing’s demand for a written guarantee of a no-protest zone during Zhu’s visit.

Nepal, a tiny poverty-stricken, rebellion-wracked nation wedged between the two may also feel the brunt of a new alliance. The Maoists are in the midst of an ideological ecstasy which is sustaining their numbers and fervor for violence. India, accused by some Nepalis of having a hand in last year’s royal slaughter, has no love for the Maoists that are moving into northwest India and gaining support amongst the peasants there. In this new climate of anti-terrorism, “achieving stability” in Nepal could be a bonding crusade for China and India.

Pakistan is watching these developments between the two former enemies very closely. China and Pakistan have enjoyed a good relationship built on military transfers and direct investment by China. Pakistani generals were in Beijing yesterday as part of a regular visit and met with President Jiang Zemin. Jiang reiterated China’s neutral stance concerning the conflict between Pakistan and India and claimed that both countries are friends and partners. China looks to continue economic and military ties with Pakistan, but not at the expense of renewed tensions with India.

The three nations seem to understand that their relationship and the Kashmir problem should have nothing to do with each other – and so it stands …

One of the major catalysts for China and India renewing ties is the arrival of the US in the region. Pakistan and the US have grown closer since Sept. 11. Sanctions were lifted and promises were made by both nations. China sees encirclement, India sees hypocrisy and betrayal (Pakistan – no democracy – does sponsor terrorism, according to the Indians).

If China forges strong ties with India as well as Pakistan, the economic and political profits to be gained may help to counter US dominance to the west in what is left of Afghanistan. If the two can find economic common ground, they could be a far more powerful engine for Asia in the future than Japan was in the past and economics is the source of might which has replaced force today.

Another interesting question is the effect of one political system on the other. China’s authoritarian system has kept domestic tension down and separatists and dissidents in jail, while opening up the door to foreign investment inch by inch. India’s democratic system has allowed for riots, protests and the election of a hard-line Hindu government while the disparity between rich and poor eclipses that of China.

What effect can a comment like “we are a democracy” have for Zhu’s delegation? What can the Indians learn from China’s grip on economic and political growth?

The current relationship between India and China is far too tenuous and young to provide answers to any of these questions, but like any new relationship, the room for growth is limitless.

Read more by Sascha Matuszak