China opposite India with Russia in between...
CA. Pradip Kumar Ghosh
Now I mainly work as a SEBI registered Research Analyst (Reg. No. INH000016515.) In the past, in the corporate I worked at Arcelor Mittal (Europe), ICICI and KK Birla Group. Post corporate was an MBA faculty also.
Two significant events :
Two events that have happened simultaneously cannot go unnoticed.
(a) There is a halt in the talk of India-Russia Rupee-Rouble bilateral trade arrangements, which means it is not happening in the near future, and
(b) Russia agreeing to export to Pakistan a large quantity of oil, payment of which is to be made in yuan and that will be financed by a loan from a bank in China.?
History of Pakistan's IMF Loans
From 1984, till 2022, every year Pakistan has taken loan from International Monetary Fund, sometime twice a year. But this time in 2023, IMF is putting more stringent conditions which Pakistan is not ready to sign into. Many of the IMF loans could be of "ever greening" in nature, i.e. giving loans to enable Pakistan repay earlier loans.
The details of these loans can be viewed at
History of India's IMF Loans
On the other hand, India took loan last time from IMF was in 2000. Details of loans taken by India from International Monetary Fund can be seen in the following link.
Loans from IMF are given in SDR or special drawing rights based on a basket of five currencies, the US dollar, the Euro, the Chinese yuan (renminbi), the Japanese yen, and the British pound sterling. Chinese currency is the latest entrant to this basket based on its world standing in trade.
The weightage of different currencies in SDR are as follows :
As per IMF Chinese yuan (Renminbi) is the 3rd most important currency of the world.
Use of Yuan
Whether IMF loans will be finally available to Pakistan this time, is a question of many factors, but in the mean time, China has stepped in to meet the immediate energy requirement of Pakistan. After the Ukraine war Russia has increased the weightage of Yuan in its foreign currency reserve. Reserves in Yuan is beyond the sanctions of USA and confiscation mechanism created by the West against Russia. Even before Ukraine war Russia had kept a large percentage of its foreign currency assets in Yuan, which has escaped confiscation and has allowed Russia to function smoothly.
Pakistan, China and the Kashmir issue
Pakistan is a strategic asset of China against India. China cannot allow Pakistan to be so weak that India will have it over-run.?India has already started telling if anything is to be discussed with Pakistan in a joint meeting, it is the issue of handover by Pakistan to India the Pakistan Occupied Kashmir ( the part of Kashmir which was occupied by Pakistan in 1947-48 Indo-Pak war and which it is holding till today.)
Although a cease-fire was established but rest of the UN resolution 47 on this has not been implemented. Pakistan has not withdrawn its troops behind the area it occupied in the war and consequently India also did not allow a UN monitored plebiscite which shall decide based on the vote of the population whether Kashmir will be a part of India or a part of Pakistan.
Another part of Jammu and Kashmir, called “Akshai Chin” was later occupied by China in1962 in Indo-China war. And in 1963 Pakistan ceded a part of Pak Occupied Kashmir to China, so that a better land corridor between China and Pakistan is established.
So the map of Kashmir stands like this today. The light yellow area is the only area on which India has administrative control.
The Tibet angle
Earlier, in a limited military operation China took control of Tibet in 1951 and thus came closer to the border of India in many more places. India, UK and USA were involved in the discussion on Tibet, but with no result, because none of the parties involved wanted to fight a war with China on behalf of Tibet.
Panchsheel or the Five Principles
After this, Panchsheel or the Five Principles of Peaceful Co-existence, were first formally enunciated in the Agreement on Trade between the Tibet region of China and India, which was signed on April 29, 1954. With this agreement China killed the possibility of raising of Tibet issue once and for all. The agreement stated, in its preamble, that the two Governments “have resolved to enter into the present Agreement based on the following five principles: -
i.????????????????????Mutual respect for each other’s territorial integrity and sovereignty,
ii.??????????????????ii. Mutual non-aggression,
iii.????????????????iii. Mutual non-interference,
iv.????????????????iv. Equality and mutual benefit, and
v.??????????????????v. Peaceful co-existence.
After this "Hind-Chin-Bhai-Bhai", "Indians and Chinese are one people" slogan became very popular for some years.
China's Territorial Claims
But within a few years things started changing. China claimed the Aksai Chin area in Ladakh, Kashmir and the Tawang area in Arunachal Pradesh as its own, It claimed that Aksai Chin is part of Xingjiang?and Tawang is a part of Tibet.
In 1960, the Chinese premier Zhou Enlai suggested that if India gave up its claim over Aksai Chin, China would drop its claim in Arunachal Pradesh (then called the North Eastern Frontier Agency). But Indian Prime Minister Nehru rejected this outright saying China had no legitimate claims over both the areas.
The Indo-China war
This ultimately lead to Indo-China war in high altitude areas, in 1962 where India was beaten hands down by China and this resulted in the start of a drive to modernize Indian defense.
Who is responsible for this war? There are many opinions. One opinion?was that India started following a ‘Forward Policy’ where it began to send troops and patrols to disputed border areas. Some of these troops even went beyond the Indian borders. This move deteriorated relations between both nations. Perhaps, even otherwise, the war would have happened, may be at a later date.
In 1962 war, China declared a ceasefire on 21 November since it reached its claim lines, and also stated that from December 1, 1962, the Chinese frontier guards would retreat 20 km behind the Line of Actual Control.
After the war, India increased its support for Tibetan refugees and revolutionaries. This was being just used as a lever against China and a face saving exercise after defeat.
The Indo-China war was fought without using naval and air force. In the mean time both India and China have become formidable in self-defense. India, China and Pakistan are nuclear powers also.
But China’s national Income is many times more than that of India and accordingly it is much stronger than India. Another big difference China has much more self-reliance than India. India is dependent more than China on imported arsenal from Israel, USA, Russia and EU countries. Of these the dependence on Russia is most formidable.
To cut the long story short, today there are 35000 square KM of area which India claims as its own, but is administered by China, and there are 65000 square KM of area in Arunachal Pradesh of India, which is administered by India but are claimed by China. If China had a free hand it would have appropriated (35000 + 65000 ) = 100000 square KM area from India by now. To give a sense this is 2 times the area of the state of Punjab of India and 67 times of the area of Union Territory of Delhi.
Over and above about 13000 square KM are occupied by Pakistan in Kashmir.
Salami slicing strategy
And the situation vis-a-vis China is ever changing. What China follows is salami slicing strategy, take the pieces of land bit by bit. The latest border skirmishes between China and India is a good example. A police officer from Leh in Ladakh recently disclosed that India has lost access to 26 out of 65 access points ?from the Karakoram Pass to Chumar along the Line of Actual Control (LAC) in Ladakh.
In her research paper submitted at the 57th annual conference of India’s top police officials in New Delhi on January 20-22, 2023 Leh’s Senior Superintendent of Police P.D. Nithya said that “due to restrictive or no patrolling” by Indian forces at several patrolling points, India had lost access to patrolling points 5-17, 24-32, 37, 51, 52 and 62.
The absence of Indian troops at these patrolling points opened up space for Chinese soldiers to move in, the paper notes, forcing India to accept that these areas now have a Chinese presence. This has led to a shift in the LAC “towards the Indian side.” It means that India has ceded territory under its control to the Chinese. ( Source the Hindu )
The economic front
In the economic front India is a big market for China.US is India’s biggest trade partner with a total trade value of $131 billion followed by China with a total trade value of $118 billion. These two nations alone accounted for more than a fifth of India’s international trade. But there is a fundamental difference. India runs a huge trade deficit with China ($ 87 billion, negative) but a moderate trade surplus with USA ($ 30 billion, positive) – 2022 data. In 2022, China’s export to the world was $ 3.59 trillion. Its export to India was only 0.32%?of China’s total export. China can easily afford to lose this market if it wants to for some reason. The major import of India from China includes machinery, electronics and electrical items as well as chemicals. India is very much dependent on China for APIs for drugs. Because of the price points at which China supplies its industrial products, not only EU or USA, but also India will find it very difficult to dissociate with China in trade and commerce.
Restrictions on Chinese foreign direct investment (FDI) in India
New Delhi acted in 2020, prior to current border skirmishes, making security clearance mandatory for foreign direct investment (FDI) coming from countries that share a land border with India. This, impacted Pakistan, Bangladesh, China etc, but most impact was on Chinese investors, because others are insignificant. Till 2022, out of 382 proposals of Chinese investments in India, only 80 got approved, so the rejection rate was very high.
One cannot say whether the Chinese actions in the border of India are in response to India’s stone walling on Chinese investments. If India would have allowed Chinese investment in yuan in India in a larger scale, the same yuan could be used for repaying our import bills in yuan to the Chinese firms. In other words, we could have a deficit in current account with China followed by capital account surplus with China.
What China wants
China wants India’s recognition and support of Chinese yuan as a medium of international payment. Probably as a corollary to that Russian oil companies are asking payment for oil from India in Yuan, not in Indian rupee. The weakness of Indian exports vis a vis Russia is also note- worthy. Business Standard has reported that India had the maximum trade deficit with China at $71.58 billion, followed by with Russia?$34.79 billion, from April through January 2022-23 (FY23). This is why Russia is justified in assessing Rupee-Rouble Trade as highly risky.
In SCO(Shanghai Cooperation Organization) and BRICS (Brazil, Russia, India, China, South Africa) forum both India and China are members. China would logically try to get yuan acceptable as a medium of international trade in all the members countries, but because of historical rivalry and political positioning India does not want that seriously.
I think India is fighting a losing game here, because
(a) many more countries are going to be admitted into BRICS, 12 applications are pending, and India can be pushed to the fringe,
(b) China is a much bigger economy than India,
(c) China is a highly export surplus country,
(d) India is a highly export deficient country, and
(e) Chinese investment in any country is not loaded with political conditions like US or IMF loans.
India’s worry is uncontrolled Chinese Investment and Loan to India may create economic insolvency as was seen in Sri Lanka etc. But recent UN reports put the blame on internal economic management of Sri Lanka and its level of corruptions, and not on Chinese loans. Besides Sri Lanka is just a foot note compared to a large economy like India, literally. The other worry is ultimately many large businesses in India could be taken over by China.
Based on the above discussion we can say the bargain points between the two countries are :
From Chinese side:
(a)???remove special investment restrictions placed by India on China ( i.e. treat China at par with other countries like Japan, South Korea, EU and USA etc. for investing money in India)
(b)??Give yuan the priorities it deserves in Indo-China Trade and Indo-Russian trade (because Russia is now locked in an "unrestricted friendship" with China).
(c)???Give yuan the priorities it deserves in forums like SCO and BRICS.
(d)??Live with the border dispute and border skirmishes, as usual and that is not a big deal, as neither India, nor China can give up their respective positions.
From Indian Side
(a)???First, stop tension in the border and do not build up big military presence in the other side of the line of actual control so that India has to commit lot of resources in those areas and cut on development expenses
(b)??We cannot both fight and co-operate at the same time.
(c)???Do not help Pakistan to design disturbances India and create “terrorist” attacks in Jammu and Kashmir and other places in India.
Fighting and Co-operation simultaneously
In the current world scenario “fighting and co-operation” is occurring simultaneously even in Ukraine-Russia war. Till today, Ukraine allows the pipeline laid through Ukraine to transport energy to Europe from Russia, although for a service charge, which is gradually increasing.?
In effect India and China are fighting and trading at the same time as the numbers show. Only difference is, here the fighting is in high altitude, on a much smaller scale. Almost like a fist fight.
The glorious past of India and China
As per an article in the Live Mint,?according to Maddison’s calculations, China and India together in 1000 AD contributed to 50.5% of world GDP (GDP being computed in 1990 dollars and in purchasing power parity (PPP) terms). By 1600, that share had gone up to 51.4%, with China accounting for 29% and India 22.4% of world GDP.
The historical opportunity
Again today by another turn of history?India has GDP of 13 trillion dollars in PPP terms and China 33 trillion dollars, again in PPP terms. Compared to that USD GDP in PPP terms is 29 trillion dollars. Manpower wise China and India are the two largest countries in the world.
In case, India and China can sort out their issues in right earnest, a new era will dawn in for both the countries and trade and investment will grow manifolds. Russia probably can interject with a big role as an intermediary.
Founder & CEO, Group 8 Security Solutions Inc. DBA Machine Learning Intelligence
10 个月I appreciate your post!