China or Japan?

China or Japan?

Japan would be a better business partner for India because it can move up the value chain unlike with China.

The first few months of the new government at the Centre have seen much activity, particularly on the international trade front. Prime minister Narendra Modi went to Brazil for the BRICS summit a few days ago and came up with what was hailed as a significant achievement. The leaders approved the establishment of the BRICS bank – a mini IMF, some said -- that may help these high growth nations. India gets the coveted post of the first president of the bank, though the bank itself will be set up at Shanghai.

Next month Modi is planning to visit Japan. But, international trade is more and more intertwined with international politics these days. When the Indian prime minister was meeting president Xi Jinping of China in Fortaleza, Brazil, ahead of the BRICS summit, the Chinese PLA personnel entered the Ladakh area on their vehicles proclaiming it to be Chinese territory. There were two such incursions during a short period of time. The ink on the BRICS bank agreement was not yet dry when the Chinese government thought it prudent to distribute 15 million copies of updated maps to its troops – maps that showed Arunachal Pradesh as a part of China. So much for the start of the BRICS bank. Obviously, none of this is accidental. It is intentional, done with a purpose to show who has the upper hand.

In our relations with China we Indians always seem to be bending over backwards in order to accommodate it. Almost a situation where we accept and allow its doings as an international ‘bully’. Of course, when dealing with a bully there is not much active resistance that one can put up. But, one need not wish we do more and more business transactions with such a nation. True, it is almost a superpower – both economic and military. We cannot not do business with it. However, we need not hanker for increased business with such a nation. In the not so long a term, it could be harmful to our own economic and strategic interests. 

India’s trade with China has always been lop-sided. In 2013, the total India-China trade was US $65 billion. But, India’s trade deficit with China stood at a staggering US $32 billion in that year. This has been the case all along in the past. The bilateral (?) trade has increased; but, who has benefited? By the end of the year 2015, the trade is expected to touch $100 billion. Will India benefit? Or, will its trade gap increase instead? 

It is not that if we did increasing business with China, its hard claims on Arunachal Pradesh -- which it calls as Southern Tibet -- are going to soften. Pragmatism should tell us that China is unlikely to resolve the border dispute anytime soon. India may not be much of a match for China whether in economic power or in military power. However, India is a rival to China in the region. This geopolitical rivalry is only going to deepen in the years to come. Our actions in the Northeastern border are certainly not endearing to China. 

Advantageous partnership

Japan would be a better business partner for India. Bilateral trade with Japan may only be US $ 25 billion (2014 figure); but, India can move up the value chain unlike with China. It is possible to supply more advanced goods and services to Japan. The latter being far more advanced in technology, research and development, manufacturing technology and management, it is possible to learn a few lessons in technology and management while building a trade partnership with it.
 Japan has already granted $2 billion in aid for infrastructural projects in India. Metro rail system, industrial corridors and power generation sector are likely to get Japan’s financial and technical support. Japan is interested in investing in India’s telecom sector too. Delhi-Mumbai Industrial Corridor and Western Dedicated Freight Corridor are some industrially vital projects envisaged by the Indian government. Japan is expected to invest in these. Traditionally, Japan has been an investor in India’s economy. Japan’s FDI and portfolio investment in India today is at US $ 16 billion and, by all indications, the Shinzo Abe government is interested in investing a lot more. 

There is a political reason for Japan’s interest in India. Since a substantial period of time, the feeling amongst Japanese government circles has been that a strong India is in the best interests of Japan. Its dispute with China over Senkaku or Diaoyu islands may make it seek friends like India who also have territorial quarrel with China. Japan is afraid of China’s military expansionism and may like to check it with moral support from friends. 

 Just as India’s border dispute with China is not going to vanish anytime soon, Sino-Japanese territorial dispute is also not likely to vane soon. Japan fears for its very existence. India fears China’s establishment of ‘bases’ in the Indian Ocean – an encirclement in the ocean. Japan is even more concerned about strategic deterrence of China in the South China and East China seas. Since Japan and India share similar fears, long term ones at that, it would form a strong glue for their trade relations and economic exchanges. With USA and India getting closer strategically and even in defence matters, Japan has all the more reason to befriend India in economic matters.

This is not to suggest that India should not increase its trade with China. It can and should. However, it has to be aware that its strategic interests may not permit an expansion of this activity beyond a certain level. Disagreements with China do not end with just the borders. There are several rivers that China and India share and this sharing could be a crucial matter particularly for India as it is downstream. Points of conflict are potentially several. With Japan, India has no geographical or political conflicts. Prime minister Narendra Modi’s visit to Japan in August should explore the myriad opportunities.

(The writer is a former professor at IIM, Bangalore)

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