09/19/2014 02:19 pm ET Updated Nov 18, 2014

India-China Relations: A New Chapter?

In the backdrop of President Xi Jinping's ongoing visit to India, presenting an exclusive free and frank dialogue on bilateral ties with Mr. Jayadeva Ranade, President, China Analysis and Strategy (India); Dr. Srikanth Kondapalli, Professor, Centre for East Asian Studies, JNU (India) and Ms. Haiyan Wang, Co-Author, "Getting China and India Right" and Managing Partner, China India Institute (U.S.).

The interview is part of Ananta Aspen Centre's "Fireside Chat" series initiative.

Modi-Jinping meeting: Expanding the bilateral canvas

Ranade: The Chinese President's visit to India is certainly important. The visit will allow Modi and Xi Jinping to assess each other and discuss outstanding issues frankly. President Jinping should clarify to Beijing, the concerns of the Modi government.
Wang: Jinping's visit holds the promise of transforming the China-India relationship from one based largely on trade to one also based heavily on investments, especially in infrastructure. I believe that the starting moves will be agreements between the two sides regarding the development of industrial clusters designed specifically for Chinese companies. These industrial clusters would include single window clearance facilities, needed infrastructure and conveniences of daily life such as Chinese schools and restaurants. I fully anticipate concrete agreements regarding at least two industrial clusters, one of which would be in Gujarat. The industrial clusters would then serve as platforms for manufacturing investments by companies such as Shanghai Electric and China CNR.
Kondapalli: In my view, territorial disputes will not change overnight. I do not think that Jinping and Modi will come out with a magic wand during the meeting and say this is the Line of Actual Control between the two countries. That is not going to happen. On trade, India's grouse is that there is a huge trade imbalance. China is not opening up its markets for Indian software and pharma. Will Jinping open up the market to Indian goods? I don't think so. If China does not open up the market by 2015-2016, it will get the market economy status anyway under the WTO rulings. China simply has to buy time now to avoid opening up its markets. There is also a regional security concern. For instance, China has concerns on India-U.S.-Japan relations. India has concerns on China-Pakistan ties, but these will come out in oblique terms and not in an explicit manner.

Scaling-up ties: Emerging opportunities

Kondapalli: The Dialogue process between the foreign ministries of the two countries is an area where cooperation can be enhanced. There is also the speculation that in Gandhinagar and Pune, China will establish special manufacturing zones, from where products will be exported everywhere. This could be another area of cooperation. India and China could also work towards setting up a joint venture export company that caters to a third market.
Wang: There are mainly three main areas, in my view: first, movement towards a resolution of the border disagreements; second, significant multi-billion dollar investments by Chinese companies into India; third, elimination of barriers to the ability of Indian IT companies to serve Chinese SOEs. The start has to be in all sectors that come under the heading of infrastructure. Once that gets going, we can expect Chinese investments in other sectors such as automotive manufacturing, real estate and textiles. By 2025, it's very likely that we'll see many Chinese companies manufacturing in India for exports back to China. By then, India could also start exporting agricultural products such as corn, wheat and beef to China.
Ranade: The key areas for cooperation are transportation infrastructure like high-speed railway, upgrading of the railway system (except for signalling and other computer based operating systems which should be procured from elsewhere), road and flyover construction, and commercial housing construction. The establishment of Special Industrial Parks for Chinese companies from re-export might be allowed will be an attractive inducement. It will need to be ensured, though, that Chinese workers are not brought for working on these projects thereby denying jobs to Indian labour and running the risk of a community of illegal Chinese migrants settling in India as they have in Africa, the CARs and Russia.

Trust deficit: A core challenge

Wang: The biggest challenge is lack of mutual understanding. Business leaders as well as citizens in both countries have a very poor understanding of the culture and economy of the other country. The second major challenge pertains to geopolitical tensions arising from unresolved border issues and India's defense cooperation with Japan, US, Australia, and countries in Southeast Asia. The third major challenge is the growing trade imbalance, which appears neither sustainable nor scalable.
Ranade: Yes, there is a huge trust deficit between the two countries. Continuing intrusions along the entire length of the border with India and nibbling away of its territory heightens distrust, as does China's collaboration with Pakistan in the areas of nuclear and missile technology and construction activities in the Gilgit-Baltistan region. China's activities in Nepal and Bhutan, especially in areas immediately across the border like Lumbini in Nepal, are other factors that cause concern.

Resolving the border dispute: Why is it so important?

Wang: The border dispute - while serious - has not been a barrier over the last 15 years. Thus, I don't see it becoming a barrier over the next 15 years either. Of course, a resolution of the border disputes would go a very long way towards making the China-India relationship truly harmonious. Such a resolution would require a compromise by both sides, with both of them to make the current line of actual control after proper demarcation the formal border between the two countries.
Ranade: India needs to look at the border issue from the perspective of the Chinese leadership. They have spelt out on various occasions that China's "core national issues" are paramount and these include issues of sovereignty and territorial claims. Unless the outstanding territorial disputes with China are sorted out, they will cast a shadow on India-China relations and, as stated by Beijing, will take priority over all other issues. A realistic workable solution is for both sides to arrive at an executive decision to accept the current Line of Actual Control (LAC) as a de facto arrangement, or temporary border, till such time as it is formally ratified. That should be promptly followed up by cessation of intrusions. The use of missiles or nuclear weapons, even tactical nuclear battlefield weapons, will alter the situation. The development of the Agni-V, expected within a year, will remedy this imbalance and level the field for negotiations.
Kondapalli: The border dispute affects the bilateral relations because there is no mutually agreed line. If you look at maps of India and China, both differ. So if border disputes are not resolved, or if the PLA or the Indian Army does something during the visit, this will lead to a huge problem. At the same time, the borders are relatively tranquil. While the governments are spending money in infrastructure projects etc., there is no major mobilisation. So, territorial disputes are a problem, but there is no clear or present danger.

Helming India-China ties: Modi's role

Kondapalli: Overall, there is continuity in foreign policy in India, regardless of the leadership at the top. Modi is a sharp person. He has had four visits to China. He is obsessed with development. So, he will try to restructure foreign policy towards economic development. The difference between Modi and Dr. Manmohan Singh could be in terms of speed and scale, but there will be continuity.
Ranade: Prime Minister Modi has a strong popular and political mandate and is, therefore, in a position to take bold initiatives. Similarly, President Jinping has today emerged as one of the strongest leaders China has seen since Mao Zedong and has also demonstrated a capacity for taking bold measures. Jinping has identified the economy as an area he can tap to expand China's international influence. Modi will hence have to shape a policy whereby India takes advantage of Beijing's desire to invest vast amounts of funds in a market capable of absorbing these funds and providing returns--which today is only India. By attracting Chinese investments, Modi can give a huge boost to India's economy and address the issue of job creation, but he has to be careful that in the process he does not allow Chinese funds to overwhelm the Indian economy, cripple India's strategic industry, or permit creation of a pro-China lobby in India's business and industry circles which will, in turn, pressure politicians to compromise Indian national interests.
Wang: First, Modi understands China well from his four visits there. He also succeeded in attracting bulk of Chinese FDI into India to Gujarat, the state where he was chief minister. Second, he is almost certain to start redressing India's infrastructure weaknesses. This will open up significant investment opportunities for Chinese companies. Third, Modi is a shrewd negotiator. Thus, he will play China, Japan and the US against each other to get the best deals from all of them.

India-Japan-U.S. tango: Walking the tightrope with China

Wang: Modi has an excellent relationship with China, Japan, Australia as well as every country in Southeast Asia. I believe that he will also have a very successful visit to the US later this month. As a shrewd negotiator, he will leverage this multitude of suitors to get the best deal from everybody. This is not a zero-sum game.
Kondapalli: Modi is looking at China primarily for the manufacturing sector, infrastructure projects, and multilateral cooperation such as in the BRICS. Overall, Modi is concerned with economic aspects. Hence, he is allocating spaces to China and Japan in those slots. Moreover, as a nationalistic leader, he is concerned with sovereignty and territorial integrity. With Japan, there is no historical baggage, but with China, there are issues.
Ranade: India must seek to improve and enhance ties with the US and Japan. Both these countries are sources of vital capital, technology and global influence for India. India should additionally accelerate and step up economic relations with Taiwan (with which China has extensive economic and people-to-people ties), South Korea, Vietnam, Singapore and Australia. India's 'Look East' policy is designed to promote beneficial economic relationships along with implicit security guarantees. That will be the case till there is a substantive, verified improvement in India-China relations.

New Delhi's tryst with Beijing: The China-Pakistan factor

Ranade: China's relations with Pakistan, described by Beijing as "all-weather" and enduring, have been nurtured by both sides for over four decades. There is a strong anti-India component to the Sino-Pak relationship as evidenced by, for example, China's sales of missiles and missile technology to Pakistan; brokering of the 'missile-for-nuclear technology' deal between Pakistan and North Korea; explicit stance on the Indo-US Civil Nuclear Agreement and refusal to accept India as a Permanent Member of the UNSC with full rights. However, the deteriorating security situation in Pakistan is now of evident serious concern to Beijing. There will be an effort by Beijing to assist Pakistan, especially the Army, from preventing further deterioration in the situation and here its interests will converge with those of the US.
Wang: China has already demonstrated, over the last 10-15 years, that it regards the relationship with India as strategically more important than that with Pakistan. Interestingly, this stance helps to keep the relationship between India and Pakistan from deteriorating further.
Kondapalli: The bottomline is Chinese investments in Pakistan, and China's nuclear cooperation with Pakistan. New Delhi will be concerned if there is any improvement between China and Pakistan in these two aspects.

Climate Change cooperation: An opportunity?

Kondapalli: At Copenhagen, Durban and Doha, we have seen India-China coordinating actively in this realm. Environment Ministers of both nations have exchanged thoughts about climate change cooperation very frequently in the past. Both realise that developed countries have been imposing unrealistic targets of emission cuts, which are affecting basic industrialisation issues in developing countries. However, India is noticing that China is developing a tie-up with developed countries on climate change issues. While China announced a 20% cut on emissions, which New Delhi also accepted as part of Copenhagen pact, I think China is making more concessions to the West on this to be a part of TPP and other trade liberalisation institutions.
Wang: Chinese and Indian citizens are the ones who suffer the most if their governments and companies turn a blind eye to environmental degradation. It's time for China and India to stop seeing themselves as on the opposite side of the table from the developed economies on this issue. They need to make environmental protection as one of the most important domestic priorities. The same applies to pushing as hard as possible on frontiers such as renewable energy and more efficient utilisation of energy.
Ranade: Personally, I don't feel there is potential for cooperation as India is nowhere near as large a polluter as China. The cooperation between the two a few years ago was a one-time effort where too Beijing came away with benefits. India will do better to go it alone in international negotiations and secure the best advantages for itself. Where India and China can cooperate in this sector, however, is from the procurement from China of low-cost equipment of international quality indigenously developed by it.

(Samarth Pathak is a Program Officer at the Ananta Aspen Centre, a New Delhi-based institution working on international relations, domestic policy and values-based leadership. A former journalist, his experience encompasses news reporting and policy research on issues pertaining to politics, foreign policy and human rights. Follow him on Facebook. Views expressed are personal.)