China-India Relations in 2012: Bilateral Ties Set to Expand

Wednesday, 25 January 2012

Background

After holding talks for the 15^th round of boundary negotiations in New Delhi on 16-17 January, China’s State Councillor, Dai Bingguo, and India’s National Security Advisor, Shivshankar Menon, signed the ‘India-China Agreement on the Establishment of a Working Mechanism for Consultation and Co-ordination on India-China Border Affairs,’ which will be headed by high-level diplomatic and military officials from each country.

Comment

Building on the spirit of previous border agreements signed in 1993, 1996 and 2005, the 2012 accord is an important practical and symbolic step towards normalising bilateral ties, as both countries pledge to build what has been officially termed the ‘India-China Strategic and Co-operative Partnership for Peace and Prosperity.’

From a broader strategic perspective, the new working mechanism is a clear indication that China and India see increasing benefit from peaceful relations, although they remain strategic rivals competing for regional influence and engage in contradictory and counterproductive acts.

Yet, rapidly growing economic ties are fast taking precedence in strategic calculations between both countries. For consecutive years, China has maintained its position as India’s largest trading partner with two-way trade reaching a historic milestone of US$67 billion at the conclusion of 2011. Both countries have vowed to reach US$100 billion by 2015. Although the balance of trade has been in favour of China, both countries recognise the importance of fostering improved trade relations.

For instance, in September 2011 China and India held their first annual strategic economic dialogue attended by senior government officials, designed to provide enhanced opportunities for bilateral investment and trade. The event was touted as a major success. More recently, on 9 January this year, in a speech at a Chinese Embassy Function in New Delhi, India’s National Security Advisor, Shivshankar Menon, affirmed: ‘... investment flows between us have not kept pace with trade. Indian investment in China, worth a total of US$433 million, is spread over 676 projects, while Chinese investment in India is worth nearly US$300 million.’ He continued: ‘India is already one of China’s most important markets for project exports, with a cumulative value of contracted projects at US$53.5 billion and turnover realised at US$24.6 billion.’

There is reason to believe that the incentive behind China’s and India’s moves to improve relations can, in part, be explained by the global repercussions of the US economy’s slow recovery, coupled with the ongoing Eurozone crisis. In addition, China’s and India’s economies have also started to show signs of slowing, which, in India’s case, has been a sharp decline. This makes broadening economic co-operation increasingly attractive politically and economically to both countries. While strategic rivalry between the two powers will continue to exist and possibly escalate in some areas, these initiatives are positive first steps in improving understanding and ushering in the prospect of long-term stability between them.

Sergei DeSilva-Ranasinghe

Manager

South and West Asia Research Programme

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