What PM Modi should have discussed with Chinese President Xi

Prime Minister Narendra Modi sought this meeting with China’s President Xi Jinping, and so they did at Wuhan last Saturday. It was a meeting without an agenda and termed as informal. But heads of governments don’t meet for inane schmoozing. There has to be a purpose and we still know little about what transpired between them. One thing we know that they have agreed for both countries to jointly work on some as yet undisclosed project in Afghanistan.

Modi is now back in India and the details of what happened in Wuhan is still hazy. But before going Modi defined his strategy in his customary style, as “STRENGTH” standing for Spirituality, Tradition, Trade and Technology; Relationship; Entertainment; Nature conservation; Games; Tourism and Health and Healing. How this translates in the real world, which we inhabit, is not clear. Not that there were no issues to discuss.

The two leaders met under the shadow of Doklam. Then there was the larger shadow of the looming trade war and the rollback of globalisation, of which the US President Donald Trump has fired the first shot with sanctions targeting $100 billion of US-China trade. The collapse of the globalisation arrangements that had set off the greatest expansion of the world economy in the last three decades, threatens not just China’s economic well being but also India’s.

Globalisation has benefitted China the most, but India too has hugely benefitted by it. While China has a huge market for its manufactured goods in the USA and has a trade surplus of $245 billion, India has an IT market of $ 120 billion last year. We must not forget that the value addition of India’s IT exports vastly exceeds the value addition generated by China’s export of manufactured goods to the USA.

The high economic growth rates in both countries owe a great deal to their trade with the USA and the huge trade deficits the USA has with both countries. Thus, for the first time in decades the most immediate and important objectives of India and China coincide. Both leaders will see the need to act in concert. Clearly, this should have been at the top of the Xi-Modi agenda in Wuhan.

Next on an agenda certainly should have been the huge trade gap in favour of China that has resulted in India directly contributing about $350 billion to China since the turn of this century. Of this almost $250 billion has happened in the last five years. India has been hoping that China would mitigate this somewhat by investing in India, preferably by commercial FDI, instead of the debt trap OBOR investments. Instead China has since the first XI-Modi meeting invested just $2 billion in India.

India has rightly been skeptical about the OBOR economic play, which is little more than a grand scheme to run down Chinese reserves in US banks, relieve China’s industrial over-capacity in its infrastructure related sectors like cement, steel and power generation. In this manner the zero earning reserves are converted into interest bearing loans to hapless countries like Pakistan and Sri Lanka. Sri Lanka is already feeling the bite of the Hambantota “investments” and has to restructure the debt by giving the port and 19,000 acres on a 99-year lease to a Chinese state-owned enterprise.

By providing large loans on generous repayment terms, investing in major infrastructure projects such as the building of roads, dams, ports, power plants, and railways, and offering military assistance and political support in the UN Security Council through its veto powers, China has secured considerable goodwill and influence among countries in the region around India.

The list of countries that are coming within China’s strategic orbit appears to be growing. Sri Lanka, which has seen China replace Japan as its largest donor, is a case in point—China was no doubt instrumental in ensuring that Sri Lanka was granted dialogue partner status in the Shanghai Cooperation Organization. China has made major inroads in Nepal and has forged ideological and pecuniary relationships with many leading Nepalese politicians and opinion makers. Anti-Indianism, always a given in Nepali domestic politics is growing more legs now. Most recently China has been attempting to bring a change in India’s historical and treaty relationship with Bhutan.

On the other hand China is concerned about India joining the QUAD, a quasi alliance favored by American strategists of the USA, Japan, Australia and India. It is just a western wish. We know what is in our interests and what is not. USA, Japan and Australia are separated from China by vast oceans and enjoy a sense of security that India cannot. We have a big land border with China and it will feel the immediate consequences of any armed conflict. The US and Japan are too closely economically integrated with China to be taken as credible allies by India. If anything India knows, it knows it stands alone.

The big question is whether these were discussed? India wants to know? Instead what we have got from Prime Minister Narendra Modi is a fuzzy and woozy five-point agenda for bilateral relationship with China which he said will be dependent on shared vision, better communication, strong relationship, shared thought process and shared resolve.  We can only wonder what he has been smoking?