China may be rebalancing its India policy

On the surface, it may appear that there is nothing new in the Chinese counseling to Pakistan; indeed it has consistently refused to participate in Pakistan's wars against India in 1965 and 1971 and in the Kargil conflict

China may be rebalancing its India policy

Official Chinese news agency Xinhua has made no mention of Kashmir or the military tension heightening between India and Pakistan in the aftermath of the Uri attack while reporting on a meeting between Pakistani Prime Minister Nawaz Sharif and his Chinese counterpart Li Keqiang in New York recently. Xinhua merely reported that Li reiterated 'unbreakable' friendship of China with Pakistan and its commitment to the economic growth of the Islamic Republic. There were other reports that indicated that the Chinese PM advised his Pakistani counterpart to improve ties with India through a comprehensive economic dialogue.

On the surface, it may appear that there is nothing new in the Chinese counseling to Pakistan; indeed it has consistently refused to participate in Pakistan's wars against India in 1965 and 1971 and in the Kargil conflict. Throughout centuries, China has fought only its own wars and not of someone else's. At present, it has more the reasons not to get involved in any conflict zone, having overstretched itself in the South China Sea.

There is another bigger danger looming over the People's Republic. US blue-collared workers are sick and tired of their jobs migrating to China all the time. And they want their Presidential candidates, both Donald Trump and Hillary Clinton, to put an end to this trend. Trump, known for his blunt speaking, has threatened to wipe out a record half-trillion dollars of China's exports to the US in 2015 by imposing domestic trade barriers against Chinese goods. Clinton may do the same thing but quietly and in most devious ways. Because of low US exports to China of merely $116.2 billion in 2015, the U.S. trade deficit with China surged to $365.7 billion in 2015 - a new record, up slightly from the 2014 record of $343 billion.

All of this might have forced China to rebalance its approach to India and Pakistan. In the case of a conflict between the two subcontinental neighbors, China is aware that its investment in Pakistan would come to a naught. Beijing is already expressing nervousness over investing in its proposed $ 46 billion China-Pakistan Economic Corridor because of the insurgency in Balochistan. Beijing's mandarins and political leaders might have originally designed CPEC and one belt one road (OBOR) to bypass India. But that plan has apparently come a cropper with India interested more in Act East Policy that has given a new window of opportunity to ASEAN and East Asian nations who are nervous in the face of Chinese assertiveness in the SCS.

China depends on exports to maintain jobs and social cohesiveness. In the face of threatened US trade sanctions, China must find ways to maintain its economic growth; if at all US sanctions come, they may knock off 2-3 percentage points from the current Chinese GDP growth rate of 6.5 to 7 percent. It's a grim scenario for PRC.
To overcome this, State Councillor of PRC Yang Jiechi, who is supposed to be in the inner circle of Premier Li, is believed to have written a letter to CPC supremo Xi Jinping calling for a rebalancing of China's India policy. The letter states "China’s natural trajectory will increase competition with the US. Though China is the pre-eminent power in Asia and the world is less unipolar, US military presence at our doorstep is a reality. Managing this challenge and retooling the economy for slower growth requires a radical rethink on our ties with India and its concerns over terrorism, the border dispute and its bid for Nuclear Suppliers Group membership.

"An important element of US policy towards India is a desire to balance China and the current regime in Delhi is pursuing strategic initiatives with Japan and Vietnam too. Cooperation with the US gives India military technology, nuclear and space know-how, entry to missile control regimes and benefits in environment, health and agriculture. India’s aggregate defence acquisition from the US crossed $13 billion last year. The US and India share a global strategic partnership.

There is a new realism in India’s decision to privatise and upgrade defence production. In 2014 FDI into India increased by 22% and it reached $40 billion in 2015-16. China’s economy, of course, dwarfs all comparison with its outbound FDI of $120 billion outdoing inflows in 2014. But with US support and internal reforms India is expected to retain 6% plus growth till 2020 and then grow faster than China assisted by a younger population."

It points out that "China’s containment of India hinges on its all-weather friendship with Pakistan. Our $46 billion investment in the China-Pakistan Economic Corridor will closely enmesh interests and economies. But India’s politics and economic prospects rule out the possibility of its becoming a client state. It will not even be as accommodating as Asean countries. If the chill in political ties spreads to trade, measures like a ban on China made mobiles will hurt our economy.

"After its NSG campaign, India has adopted a more pragmatic approach as was evident when PM Modi met your excellency in Hangzhou recently. This does not mean India will abandon its quest but opens the doors to some sensible negotiation on other aspects of the relationship. The One Belt One Road (OBOR) project, critical to realising our China dream, will benefit with Indian participation if we can steer ties away from more contentious issues.
Our intelligence has often revealed the role of extremist institutions in Pakistan in motivating Uyghur terrorists. While Pakistan serves Chinese interests in bodies such as NAM and OIC, there is a pressing need to take a longer view. Not opposing India’s request to sanction Jaish-e-Muhammed leader Azhar Masood under the UN 1267 resolution will remove an irritant. Several individuals in Pakistan are in any case subject to international sanctions.
The resolution of differences over India’s NSG membership is more complex. But your predecessor did accept a waiver for India and it will be wise not to adopt a rigid posture that isolates China. It might be useful to even claim credit for an eventuality that cannot be delayed indefinitely. Similarly, the border dispute calls for more imaginative handling. Trading our expertise in SEZs to loosen India’s embrace of the US and leverage border talks will be a display of smart power.

"India is an unpredictable and inefficient democracy and economic policies can change if future elections deliver weaker regimes. It is also prone to vastly overestimating its capacity to rival China, even dabbling in the South China Sea. But India is inching towards middle-income status and its economy can reach $47 trillion PPP by 2050.
Your far-sighted OBOR programme will be a lasting legacy of your leadership. The decision to encourage high-end manufacturing and promote services is showing results. There are, however, areas of concern. We need a better understanding of mature markets and to expand in others. Cooperation with India can help sustain economic growth that is crucial to achieving the political objective of social stability.

"The ongoing strategic economic dialogue with India offers a chance to move ahead. Our industry is keen to manufacture in India. At your meeting at Tashkent in June PM Modi said ties can soar if we helped India join the NSG. We should play this to our advantage. It is time to think creatively".