The Chinese financial system also leaves much to be desired. Where India has been running sophisticated stock markets since the early nineteenth century—and Indians are so skilled at doing so that they got the Bombay Stock Exchange up and running within 24 hours of the terrorist bomb blasts that nearly destroyed the building in 1992—China is new at the game, and not particularly adept at it. The financial information provided by China’s companies, especially those in the large governmental sector, is notoriously unreliable, and standards of corporate governance are low. There are no world-class Chinese companies with sophisticated managers to match Tata or Wipro or Infosys. China’s capital markets are weak and its banks inefficient: the Chinese banking system carried an estimated $911 billion in unrecoverable loans as of 2006, mainly to government firms.
In his book Capitalism with Chinese Characteristics, Professor Yasheng Huang of the Massachusetts Institute of Technology (MIT) argues that the Indian private sector is more efficient and entrepreneurial than the Chinese private sector. State-owned enterprises still account for half of China’s economic assets. China has yet to master the art of channelling domestic savings into productive investments, which is why it has relied so extensively on FDI. India, on the other hand, is exporting FDI to member countries of the Organisation for Economic Co-operation and Development (OECD); in other words, India’s entrepreneurial capital and management skills are better able than China’s to control and manage assets in the sophisticated financial markets of the developed West.
And the world has yet to develop any confidence in China’s legal system (where a contract still means whatever the government says it means). In other words, it still lags behind India on the ‘software’ of development—not just technical brainpower or engineering know-how, but the systems it needs to operate a twenty-first-century economy in an open and globalizing world. The Chinese state is undoubtedly stronger and more efficient than the Indian, but the Indian private sector is not only miles ahead, it is compensating for the inadequacies of the state, whereas in China the state sector can still stifle the private, and both sides know it.
And then there’s politics. Whatever you might say about India’s sclerotic bureaucracy versus China’s efficient one, India’s tangles of red tape versus China’s unfurled red carpet to foreign investors, India’s contentious and fractious political parties versus China’s smoothly functioning top-down communist hierarchy, there’s one thing you’ve got to grant: India has become an outstanding example of the management of diversity through pluralist democracy. Every Indian has been allowed to feel he or she has as much of a stake in the country, and as much of a chance to run it, as anyone else: after all, our last-but-one elections, in 2004, were won by a woman political leader of Roman Catholic heritage who made way for a Sikh to be sworn in as prime minister by a Muslim president, in a nation 81 per cent Hindu. And our largest state was ruled till very recently by a Dalit woman, from a community once considered ‘untouchable’, whose caste and gender would have made her power unthinkable for 3000 years before democracy made it possible. She wasn’t promoted by the Brahmin elite in New Delhi; she rode to the top on the ballots of her political base, building her own rainbow coalition along the way.
Contrast this with Beijing, where political freedom is unknown, leaders at all levels are handpicked from the top for their posts and political heresy is met with swift punishment, house arrest or worse. During the 2008 Olympics, under international pressure, China designated a few areas where protesters could, in theory, peacefully gather; but you had to apply for permission to protest, which was never granted, and most of those who applied were arrested and detained, which meant that the authorization of protest became an excellent method for the security police to identify potential troublemakers without having to actually look for them. India’s politics means its shock absorbers are built into the system; it has endured major road bumps without the vehicle ever breaking down. In China’s case, it is far from clear what would happen if the limousine of state actually encountered a serious pothole. The present system wasn’t designed to cope with fundamental challenges to it except through repression. But every autocratic state in history has come to a point where repression was no longer enough. If that point is reached in China, all bets are off. The dragon could stumble where the elephant can always trundle on.
But let us not be complacent. India’s problems are enormous and there is still a great deal we need to do internally. Our teeming cities overflow while two out of three Indians still scratch a living from the soil. We have been recognized, for all practical purposes, as a leading nuclear power, but 600 million Indians still have no access to electricity and there are daily power cuts even in the nation’s capital. Ours is a culture which elevated non-violence to an effective moral principle, but whose freedom was born in blood and whose independence still soaks in it. We are the world’s leading manufacturers of generic medication for illnesses such as AIDS, but we have 3 million of our own citizens without access to AIDS medication, another 2 million with TB, and tens of millions with no health centre or clinic within 10 kilometres of their places of residence. India holds the world record for the number of cellphones sold, but also for the number of farmer suicides (an estimated 17,000 in 2010, because when crops fail, farmers faced with a crippling mountain of debt see no other way out for their families than to take their own lives). We still have a great deal to do before we can meaningfully speak of ourselves in competition with China.
But if we can’t compete, can we cooperate?
As far back as 1947, even before India and several nations in Asia were yet to throw off the colonial yoke, when China was still in the throes of an uncertain civil war and when Asia got no more than a footnote in any chapter on global politics and economics, the fledgling Indian Council of World Affairs, under the inspiration of Jawaharlal Nehru, organized a visionary ‘Asian Relations Conference’. Many of the tenets of that endeavour are closer to being a reality today, since they prefigured the process of Asia’s economic integration and increasing interdependence. A hallmark of Nehru’s vision was his admiration for the ‘other great Asian civilization’, and his conviction that, together with India, China would lead the region in a new post-imperial Asian resurgence.
India and China are the most populous nations on the earth, with the arduous task of uplifting millions of our citizens and realizing social harmony and inclusive growth. Given the scale of our economies and the scale of the ‘catching-up’ required, this is likely to be a long-drawn-out process, in which China is clearly well ahead. Both of us, though, require sustained international cooperation and a peaceful security environment around us in order to fulfil this task. Currently, in a world faced with a rare economic and financial crisis and tenacious new threats and challenges, our job has become all the more difficult. Therefore, as responsible nations with a stake in peace, stability and prosperity of the world, both India and China must strive to tackle the new challenges together while helping the global economy out of a recession that had nothing to do with us. The continued growth of our two economies has proved vital to the health of the world economy, and that in itself is a most eloquent proof of the prospects for the world and Asia of an emerging China and, increasingly, an emerging India.
The Government of India does not view China or China’s development as a threat. Indian leaders have always unembarrassedly spoken of the need to develop a friendly and cooperative relationship with China, as a country with which we cannot afford to have a relationship of antagonism. Long before the India–China growth story attracted global attention, we drew upon our joint civilizational wisdom to enunciate the principles of Panchsheel that demonstrated our interest in building peace and friendship. Our relationship has since evolved to a point where we now have a Strategic and Cooperative Partnership for Peace and Prosperity and an agreed ‘Shared Vision for the 21st Century’ with China. Indeed, our relationships have become so multifaceted, strategic and intricate that the nat
ure of stakeholders in our relations has changed and broadened to include the wider civil society in both nations.
To repeat a point I have made earlier: the basic task for countries like China and India in international affairs is to wield a foreign policy that enables and facilitates their own domestic transformation. By this, as an Indian, I mean that my country’s engagement with the world must make possible the transformation of India’s economy and society, while promoting our own national values (of pluralism, democracy, social justice and secularism). What I expect from my national leaders is that they work for a global environment that is supportive of these internal priorities, and therefore of a relationship with China that would permit us to concentrate on our domestic tasks. China and India are both engaged in the great adventure of bringing progress and prosperity to a billion people each, through a major economic transformation. At the broadest level, India’s foreign policy must seek to protect that process of transformation—to ensure security and bring in global support for our efforts to build and change our country for the better.
India and China have inevitably been directly affected by the global trends of the post–Cold War era. On the one hand, we are both far more globalized economies than most, and more so than we ever were in the days when we raised the protectionist barriers to shield us while we developed our autonomous national capabilities. We are today more connected through trade and travel—much more than ever before—with the international system, and trade and foreign investment accounts for a steadily increasing share of our GDP, China’s much more than India’s. Today we can admit that our links with the world are one reason for the highest-ever growth rates that our countries enjoyed.
Our two civilizations had centuries of contact in ancient times; thanks mainly to the export of Buddhism from India to China, Chinese travellers came to Indian universities, visited Indian courts, and wrote memorable accounts of their voyages. Nalanda University, which flourished in northern India for seven centuries from 427 CE and attracted students from across Asia, received hundreds of Chinese students in its time, and a few Indians went the other way. My wife and I had the great pleasure of visiting the famous Lingyin Si temple in Hangzhou, established by a Buddhist monk from India in 326 CE. As mentioned earlier, the great admiral Zheng He visited India less than a century later; on his way, in 410 CE, he erected a tablet in Sri Lanka, written in Chinese, Persian and Tamil, calling on the Hindu deities to bless a world of free trade! Kerala’s coastline is dotted with Chinese fishing nets, and the favourite cooking-pot of the Malayali housewife is the wok, locally called cheena-chatti (‘Chinese vessel’). It’s been a while, though, since Indians and Chinese had much to do with each other. The heady days of ‘Hindi-Chini bhai-bhai’ (‘Indians and Chinese are brothers’), the slogan coined by Nehruvian India to welcome Chou En-Lai in 1955, gave way, as we all know, to a more difficult period in our relationship, with the humiliation of the 1962 border war, after which it was ‘Hindi-Chini bye-bye’ for decades. The bitter border dispute between the two countries remains unresolved, with periodic reports of incursions by Chinese troops on to Indian soil and new irritants over the anti-Chinese protests of Tibetan exiles who have been given asylum in India. To speak of a ‘trust deficit’ between the two countries is arguably an understatement.
And yet, there has been some good news. Trade has increased twelve-fold in the last decade, to an estimated $73 billion in 2011, a figure that is more than 200 times the total trade between the countries in 1990, just twenty-two years ago. China has now overtaken the United States as India’s largest single trading partner. The two governments expect trade to keep growing and, in a joint statement of December 2010, have announced a trade target of $100 billion by 2015; if present trends continue, trade with China is poised to reach double the level of US trade with India before the decade is over. Each country’s top twenty-five exports are essentially mutually exclusive, making trade relations an easy example of compatibility. There are some 9000 Indian students in China. Tourism, particularly of Indian pilgrims to the major Hindu holy sites in Tibet, Mount Kailash and Lake Manasarovar, is thriving. (However, this is a relative term: after all, the two nations with a combined population of over two and a half billion people exchanged only 570,000 visitors, over half a million of those being Indians with wanderlust while only some 60,000 Chinese tourists travelled to India.) Indian information technology firms have opened offices in Shanghai and Hangzhou; there are many companies and ventures active in the two countries. One can find dozens of Chinese engineers working in (and learning from) Indian computer firms and engineering companies from Gurgaon to Bangalore; Infosys regularly hires mainland Chinese for its Bangalore campus, while Indian software engineers in those and other cities offer research and development support to the Chinese telecom equipment manufacturer Huawei (in turn sending the signal that eavesdropping devices are not integrated into Chinese telecom products). India has become a major market for Chinese engineering and construction project exports, and a vital source of raw materials, from iron ore to chemicals. New Delhi could do more to press China to reduce its non-tariff barriers, however, and promote Indian services exports to its giant neighbour.
By and large, India is good at things that China needs to improve at, notably software; China excels at hardware and manufacturing, which India sorely lacks. So India’s Mahindra & 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 3000 Indians at its ‘Innovation Campus’ in Bangalore who write more than 20 per cent of Philips’ global software, which in turn goes to Philips’ 50,000-strong workforce in China to turn into brand-name goods.
In other words, the elephant is already dancing with the dragon. The potential for additional cooperation is immense and need not just be in each other’s countries. Inevitably, our search for markets, technology and resources to fuel our growth will be key drivers of our international relations. This is why we are both looking far afield, to Africa and Latin America, for opportunities.
There is an instructive comparison to be made between the FDI patterns of both countries. Indian capitalism drives our country’s outward investments in a commercial logic of supply and demand, whereas Chinese FDI is largely fuelled by its government and state-owned enterprises. India’s FDI is spent mainly in the developed world and is invested mostly in the manufacturing and services sectors, notably information technology and IT-enabled services, whereas Chinese FDI concentrates almost obsessively on the extraction of natural resources from developing countries, through oil and gas exploration and mining, where India has similar needs but a far more modest overseas presence. India’s strength—its comparative advantage, if you will—is anchored in its world-class managers, its track record in corporate governance and its exposure to the best global corporate practices, whereas China’s comparative advantage lies in the top-down strategic competence of its government and its single-minded economic drive abroad, which often subordinates conventional diplomacy to the pursuit of economic benefit. Whatever one thinks of the two sets of attributes, there is no denying that they are complementary, rather than a recipe for confrontation.
The opportunities for multilateral cooperation between India and China are great. There is, first of all, the regional plane. China and India have notably strengthened their cooperation in regional affairs. China has acquiesced in India’s participation in the East Asia Summit and invited India to join the Shanghai Cooperation Organization as an observer, just as India has supported China’s becoming an observer at SAARC. While Asia is devoid of meaningful security institutions, their interlocking economic and trade relationships with each other and with other Asian countries will knit China and India closer together.
But multilateral cooperation need not be confined to the Asian region. China and India have broadly similar interests and approache
s on a wide range of broader international questions, from most issues of international peace and security to the principles of world trade and the ways and means of coping with globalization. They have already begun working together in multinational forums on such issues as climate change, trade, labour laws, arms control and environment protection, and have no real differences on matters like encouraging biodiversity, promoting dialogue among civilizations, promoting population control, combating transnational crime, controlling the spread of pandemic disease and dealing with challenges from non-traditional threats to security. (Sadly, the two countries have even sometimes made common cause on human rights, with China and India agreeing on countering Western draft resolutions in UN bodies—China because it is usually guilty of the very practices being condemned in others, India because of its allergy to ‘country-specific’ human rights prescriptions.)
All of these areas provide a realistic basis for further long-term cooperation. One exception, alas, is the issue of combating international terrorism, where China’s indulgence of Pakistani terrorist groups at the UN is arguably not in its own long-term interests. But that can change, and China–India cooperation can also improve on the issues of piracy, oil spills and other international environmental issues, nuclear disarmament and arms races in outer space, human trafficking and natural disasters—all of which are issues on which the two countries could play mutually supportive roles, take joint responsibility and contribute to the establishment of new rules in the global system. New areas of cooperation could also emerge—wildlife conservation, for instance, where both countries could cooperate on issues like the smuggling of tiger parts to Chinese customers, or disaster management, where Asia’s two giants have much to learn from each other but have made little effort to do so.