THE BLOG
09/15/2014 12:32 pm ET Updated Nov 15, 2014

India and China Have Outgrown the West

NEW DELHI -- From the heady days of "Chindia," when China and India were twinned together in the global imagination, comparisons between the two countries have taken on a more modest hue. Once united by their shared status of being giant Asian countries with booming demographies and unlimited economic potential, the two are perceived to be very different today.

India's incomplete domestic transformation, recently slowing economy and its flourishing and contentious democracy mark it as starkly different from China, which has shot ahead economically -- with a GDP of more than four times India's size -- while remaining resolutely authoritarian, under one-party Communist rule.

Despite these stark differences -- and the bitter legacy of the 1962 war between the two nations, which culminated in a decisive Chinese victory and bequeathed to both nations the world's longest unresolved border dispute -- the two nations are moving towards each other in a wary embrace.

China's new leader, President Xi Jinping, who has impressively consolidated his power in Beijing, arrives in India this week at a time when India's new prime minister, Narendra Modi, is still basking in the glow of a decisive electoral victory. The two will meet in Mr Modi's home state of Gujarat on his 64th birthday on Wednesday.

Though there have been no clashes on the frontier in decades, both countries' media tend to bristle at each other's alleged provocations. A series of irritants has continued to plague the political relationship.

Delhi is miffed by China's claim to the northeastern Indian state of Arunachal Pradesh, which Beijing calls "South Tibet", its support for Pakistan in the acrimonious geopolitics of the subcontinent, and its insistence on issuing stapled visas to Indians living in Kashmir to underscore Beijing's view that Kashmir is disputed territory. In turn, China looks askance at India having given refuge to the Dalai Lama and his followers since 1959, and his maintaining a Tibetan government in exile on Indian soil, though New Delhi fully recognizes Beijing's sovereignty over Tibet and does not allow Tibetan protestors to disrupt Chinese leaders' visits. At the same time, Mr Modi has tended to align his government with those critical of China's territorial claims in the South China and East China Seas and signaled his determination to prioritize India's relations with Japan and Australia, as well as with countries in India's immediate neighborhood.

TRADE IS TELLING

But economic relations tell a different story. Of course, China is way ahead. China started its liberalization a good decade and a half before India, shot up faster, hit double-digit growth when India was still hovering around 5 percent, and with compound growth, has put itself in a totally different league from India, continuing to grow faster from a larger base. Indian visitors to China, including then-Chief Minister Narendra Modi, emerge with acute cases of infrastructure envy, contrasting China's gleaming skyscrapers and six-lane expressways to India's own ramshackle facilities and congested roadways.

Yet bilateral trade volume has multiplied several hundredfold in the last three decades, crossing $70 billion USD by the end of 2013 from a level of only $30 million in 1992. (The trade balance is, however, skewed 2 to 1 in China's favor.) China has now overtaken the U.S. as India's largest single trading partner, and the two countries seem well on course to reach their proclaimed target of $100 billion in annual trade by 2015.

Indian information technology firms have opened offices in Shanghai and Hangzhou, and Infosys recruits Chinese staff for their headquarters in Bangalore. There are dozens of Chinese engineers working in (and learning from) Indian computer firms and engineering companies from Gurgaon to Bangalore, while Indian software engineers in Chennai and Bangalore support the Chinese telecoms equipment manufacturer Huawei.

By and large, India is good at things that China needs to improve at, notably software, where it has been unable to rival India's IT dominance; China excels at hardware and manufacturing, which India sorely lacks. So India's Mahindra and Mahindra manufactures tractors in Nanchang for export to the United States. The key operating components of Apple's iPod were invented by the Hyderabad company PortalPlayer, while the iPods themselves are manufactured in China.

Philips employs nearly 3,000 Indians at its "Innovation Campus" in Bangalore who write more than 20 percent of Philips' global software, which in turn goes to Philips' 50,000 strong workforce in China to turn into brand-name goods. China's manufacturing muscle is on display in India, with telecoms equipment maker Huawei clocking $800M in Indian sales, amounting to about 2 percent of its global revenues.

WE'VE OUTGROWN THE WESTERN WORLD ORDER

Politically too, the temperature has begun warming. India and China both see themselves as having outgrown a world order dominated by the West. They are moving beyond traditional bromides like their joint advocacy of the "Five Principles of Peaceful Coexistence," to pragmatic cooperation in the framework of the BRICS grouping. They recently came together to announce the creation of the BRICS Bank, which will be located in Shanghai and headed by an Indian.

China has supported Indian participation in the Shanghai Co-operation Organisation and India has extended China observer status is the South Asian Association for Regional Cooperation. Strikingly, in 2013, China's new Premier Li Keqiang chose India, rather than America or any European country, as the destination for his first ever official foreign visit. The Chinese Foreign Minister was also the newly-elected Modi's first official visitor, and President Xi has already had a chance to meet the new Indian Prime Minister at the BRICS summit in Brazil in July.

Neither leader will be at the U.N. climate change summit later this month, a reflection of their shared rejection of Western attempts to place the onus for global warming on developing countries rather than where it rightly belongs.

Indeed, the Chinese are sparing no effort to make the impending presidential visit a success. President Xi's gesture in turning up at Mr Modi's home town for his birthday is unusual, especially since he had already had to adjust his dates to arrive after President Pranab Mukherjee's return from a trip to Vietnam. He has also gladdened Indian hearts (never pleased to be "hyphenated" with Pakistan) by taking Islamabad off his South Asian itinerary because of the political troubles there.

A stray remark by Modi on a recent visit to Japan about some countries' expansionist inclinations, which was widely read as a criticism of China, has not been matched by China, whose Assistant Foreign Minister told reporters in Beijing that "China has never, and will not, use so-called military or other means to try and hem in India."

INVESTMENT DEALS

Against this background, significant economic gains are expected from the Xi visit. The visiting Chinese president, who is travelling with a delegation of over 100 senior business executives, including the heads of China Harbour, China Railway Construction Group and Huawei, as well as of the four biggest Chinese banks, is expected to announce some $100 billion of Chinese investment commitments over the next five years, nearly three times the $35 billion secured by Prime Minister Modi during his widely-hailed trip to Japan.

Much of this will feature investment in the new Indian industrial parks, a pet project of Mr Modi's. China will initially invest $7 billion in industrial parks in Pune (for automobile manufacturing) and Gandhinagar in Gujarat (for power equipment). There are also indications that China is also planning to set up an industrial park in Tamil Nadu for the textile sector.

Other areas of likely investment, according to Chinese diplomats in India, include the modernization of railways, with $50 billion worth of investments contemplated in improving rolling stock and running bullet and hi-speed trains in India; upgrading highways and ports; power generation, distribution and transmission; and food processing. The billions of dollars that will be needed in loans to finance Indian infrastructure projects (which will mostly take place as joint ventures with Chinese firms) will be funded by Chinese banks. Such loans, often tied to purchases from Chinese equipment manufacturers, have already relieved pressure on heavily indebted Indian companies.

There are still significant areas where progress is needed. India's complaints about the trade balance are augmented by worries about Chinese dumping and non-trade barriers to Indian investment in China. People-to-people contact is limited: though tourism, particularly of Indian pilgrims to the major Hindu holy sites in Tibet, Mount Kailash and Lake Mansarovar, can be said to be thriving -- nearly 600,000 Indians visited China for business, tourism and study in 2012, while only 140,000 Chinese returned the compliment.

Clearly, there's a long way to go before Sino-Indian relations can be described as truly close. But they're improving, and President Xi's visit is poised to be the capstone of this rising edifice.

Follow Shashi Tharoor on his website, Facebook and on Twitter @ShashiTharoor