Vital lessons to learn from China

The inexorable growth of China’s GDP has been the dominant event of the past three decades. Having surpassed Japan a few years ago, China is now taking aim at the United States ($17 trillion). It took China a little less than a decade to make a similar leap to overtake Japan. China’s GDP is expected to surpass that of the US well before 2020, when it will be about $24.6 trillion, compared to America’s $23.6 trillion. To replicate China’s achievement might be a tall order for a nation like India, which matches it in size and potential, but not in political structure and national will.

If India keeps growing at the current rate of around seven per cent, its GDP will surpass that of China by 2045; and if India’s population stabilises in 2050 at 1.6 billion, then in all likelihood its GDP too will surpass China’s. It is now about one-third of China’s. In recent years there has been much speculation on the emerging rivalry between India and China. A good deal of this is because India has joined China in the high GDP growth club.

But what does this imply for the world’s power structure It is undeniable that the world’s economic fulcrum will shift to Asia. Asia’s GDP already exceeds that of the US and the European Union. By 2050 it will account for over 50 per cent of global GDP, with India or China at the top. This is way into the future, and the future often has a habit of not playing out as predicted. So we must look at the present.

Geography and recent history have made the India-China relationship a difficult one, and one in which the US will find ample space and opportunity to inveigle itself to its advantage. This is a made-to-order situation for strategists and leaders in the three countries to ply their trade with plenty of worst-case scenarios. It would seem India and China are destined to live out the foreseeable future as rivals, if not adversaries.

China’s aggressive soft power diplomacy has widely been seen as arguably the most important element in shaping the Indian Ocean strategic environment, transforming the entire region’s dynamics. By giving large loans on generous repayment terms, investing in major infrastructure projects such as the building of roads, dams, ports, power plants and railways, and offering military assistance and political support in the UN Security Council with its veto power, China has got considerable goodwill and influence among the Indian Ocean region countries. The list of nations that are now within China’s strategic orbit appears to be growing.

China’s rise as the world’s greatest exporter, its largest manufacturing nation and its great economic appetite poses a new set of challenges. At a meeting of South-East Asian nations in 2010, China’s foreign minister Yang Jiechi, facing a barrage of complaints about his country’s behaviour, blurted out the sort of thing polite leaders usually prefer to leave unsaid. “China is a big country,” he said, “and other countries are small countries, and that is just a fact.”

Indeed it is, and China is big not merely in terms of territory and population, but also military might. Its Communist Party presides over the world’s largest military buildup. That is just a fact too, one that the rest of the world has to come to terms with.

China’s defence budget has almost certainly seen double-digit growth for two decades. According to SIPRI, a research institute, annual defence spending rose from over $30 billion in 2000 to almost $215 billion in 2015. SIPRI usually adds about 50 per cent to the official figure China gives for defence spending, as even basic military items are kept off the budget.

This is not a sum that India can match and the last thing we need to get caught in is a numbers game. A one-party dictatorship will always be able to outspend us, even if our GDPs get closer.

That said, the threat from China should not be exaggerated. There are three limiting factors. First, unlike the former Soviet Union, China has a vital national interest in the stability of the global economic system. Its military leaders constantly stress that the development of what is still only a middle-income country with a lot of poor people takes precedence over military ambitions.

The real test of China’s willingness to keep military spending constant will come when China’s headlong economic growth starts to slow further. Going by past form, China’s leaders will continue to worry more about internal threats than external ones. Last year, its spending on internal security outstripped military spending for the first time. With a population that is rapidly ageing, it is also a good bet that meeting the demand for better healthcare will become a higher priority than maintaining military spending.

India, on the other hand, will keep growing long after China has stopped growing. Its youthful population and present growth trends indicate the accumulation of the world’s largest middle class in India. This growth projected to start in 2015 and will continue well past 2050.

In fact, so big will this become that India in this period will increasingly power the world’s economic growth, not China. In 2050, India is projected to have a population of 1.6 billion, of which 1.3 billion is likely to belong to the middle and upper classes. The lower classes will be constant, at around 300 million, as it is at present.

India already has the world’s third-largest GDP. Many economists claim that by 2050 it will be India that will have the world’s biggest economy, not China. In per capita terms we might still be poorer, but in GDP terms it will be bigger.

There is a certain equilibrium in Sino-Indian affairs that make recourse to force extremely improbable. Both modern states are inheritors of age-old traditions and the wisdom of the ages. Both now know how much of the sword must be unsheathed to send a message. This ability will ensure that the swords remain recessed and the plowshares be out at work.

It is in this context that China’s diplomacy holds some vital lessons for India. Japan is the biggest overseas investor in China. The US is China’s biggest trading partner and contributes hugely to the China’s economy, with its gigantic annual trade deficits. Yet these two nations are highest in China’s ranking of adversaries. Prime Minister Narendra Modi seems to have drawn some lessons from this, and is seeking a closer and deeper economic and financial engagement with China, though many in India’s security establishment look at it with askance.

He is also well aware that unlike America and Japan, which are physically distant adversaries, India lives cheek by jowl with China with a disputed border. It is Indian and Chinese troops that face each other eyeball to eyeball. Conflict cannot be a standoff affair for both nations. Both have too much to lose by it. Peace and growing economic interdependence are more viable options. Not surprisingly, the leaders of both nations are investing heavily in them.

The writer, a policy analyst studying economic and security issues, held senior positions in government and industry. He also specialises in the Chinese economy.