China’s increasing trade and investment relations with South Asian countries should be a point of irritation for India as, in a globalised world, economic relations play a major role in deciding political relations and multilateral collaborations

The concept of Asia has ever been fluid and elusive, for outsiders as much as within the region. The Romans invented the name to refer to the lands beyond the Mediterranean, explored, by Alexander. Asia Minor, Rome’s ‘near abroad’ is current day Anatolia in Turkey.

In the medieval era, it would have been more appropriate to talk in terms of Muslims, Chinese and Indian sphere of influence rather than a common Asian consciousness. However, as pointed by Nayan Chanda (in his book Bound Together), a fragile cultural unity had earlier been established through the tireless efforts of Buddhist itinerant monks.

As the world increasingly acknowledges India’s rising power status, India is adapting its foreign policy to meet the international challenges of the 21st century and to increase its global influence and status. India has focused special attention on cultivating ties to the United States since 2000, the overall thrust of its foreign policy has been to seek geopolitical partnerships in multiple directions to serve its national interest. It has pursed special relationship with U.S. Russia, China and key European countries.

Broadening Indian engagement across the globe, especially in Asia, is in the U.S. interest and should be further encouraged. Washington’s and New Delhi’s strategic perceptions are increasing converging and there is tremendous opportunity to cooperate and coordinate in this dynamic region. Because India is a fellow democracy without hegemonic interests and with a propensity to seek peaceful resolution of conflicts, its increased economic and political involvement in Asia will help to further overall U.S. goals in the region. India’s involvement in Asia will help both to ensure that one country does not dominate the area and to encourage stability in a region that will be take centre stage in the 21st century.

The convergence of interests between Washington and New Delhi on issues such as fostering democracy and countering terrorism and increasing levels of trust on nuclear issues opens many avenues of cooperation to further both countries national interests in Asia. It is in the US interest for India to become more actively involved in shaping the political and security environment in Asia. However, U.S. officials will likely be disappeared if they expect New Delhi to see eye-to-eye with Washington on all Asian security issues.

The context of rising China and emerging India have become the critical driving force for Asia’s resurgence that have made China – India relations become the focal point of studies and discussions around the world. The question therefore is no longer about the “rise” but “peaceful rise” of China and India.
The new found Chinese activism in the growing China – India – Russia Strategic Triangle and the recent China – Russia naval exercises – first of its kind and 10,000 troops have attracted unusual attention worldwide. The economic, military and strategic profile of China remains a matter of concern around the world.

Both India and China so far, have avoided any confrontation. In fact, having developed mutual confidence on bilateral issues, the two have moved to regional and global initiatives. This success has been particularly noticeably in case of their competitive engagement with Southeast Asia.

China has been taking an increasingly active interest in South Asian countries over the past few years, seeking to rally friendship and support in order to surpass India’s dominance in the region. When the South Asia Association for Regional Cooperation (SAARC) was formed in 1985, they expected leadership from India, but India has yet to assume this role. Now China, India’s main political rival, is entering its neighbouring markets more aggressively through both trade and investment.

China has been the fastest growing economy in the region for the last decade and has surpassed India in terms of growth world trade share, price competitiveness in product manufacturing and wining oil deals. SAARC’s demand for China’s ‘observer’ status reveals China’s increasing clout in the region, as well as the growing economic and political relations intended to dilute India’s dominance in South Asia.

China has been improving its trade and investment relations with South Asian countries through treaties and bilateral cooperation. China and Pakistan signed a Free Trade Agreement (FTA) in 2006, as well as numerous other agreements and Memorandums of Understanding (MoUs), including Bilateral Investment Treaties (BIT) to increase mutual trade and investment. Pakistan provides China with cheap raw materials and the use of Pakistani ports in return for access to Chinese markets through preferential treatment under the FTA Pakistan could very well become a hub in the region, which may lead to considerable future transit revenues and help Beijing build the “trade and energy corridor through Pakistan.”

Although China does not have an FTA with Bangladesh, the two countries granted each O the Most Favoured Nation (MFN) treatment in 1984.

China has also been increasing its ties with Sri Lanka. China and Sri Lanka signed a joint communiqué in 2005 to further bilateral ties and provide each other MFN treatment. The case is similar with Nepal, where China is investing in infrastructure at the China – Nepal border.

China has exercised caution in developing these friendly ties with the coastal countries of South Asia. China’s increasing need of energy sources and access the international markets makes the Indian Ocean and its ports very attractive. The increasingly strong relationship between China and these countries is not surprising given this allure, as well as the ongoing rivalry between India and China.

India was once seen as the guardian who would lead South Asia towards growth and development. But SAARC members today are feeling India’s hegemony more than its role as mentor. Pakistan and Bangladesh in particular have many unresolved issues with India that hamper multilateral trade and economic relations. Some of these are geographical, such as land border sharing or sharing of water and some are political. One major reason for the failure of SAARC has been the India – Pakistan impasse.

Traditionally, India has been the major trading partner with its neighbours, but China’s trade with South Asian countries has been growing rapidly. Exports from China have increased significantly over the last two decades, surpassing Indian exports to the region since 2000, except for 2003, although exports from China and India grew at about the same rate between 1992 and 2000. India’s export to other South Asian countries showed a higher growth rate from 2000 to 2003, but Chinese exports have increased year on year faster than Indian’s since 2004, resulting in more Chinese exports for the last three years. This gap is increasing in China’s favour.

China’s increasing trade and investment relations with South Asian countries should be a point of irritation for India as, in a globalised world, economic relations play a major role in deciding political relations and multilateral collaborations. A healthy relationship between India and its neighbour remains crucial to India’s security, as well as the stable and peaceful development of the South Asian region.

The recent pace of China – India rapprochement indicates a cooperative rather than a confrontationist attitude shared by both countries. The challenge for China – India relations perhaps lies in becoming acceptable players for their immediate neighbours as also other regional and international players while strengthening their bilateral confidence and stakes. Flourishing China – India ties will have its reverberations across Asia and the rise of China and India, whether in economic growth or in military build up, will inevitably have certain regional implications.
By
Mrs Ayesha Hassaan

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