Narrowing the Asymmetry
© Asian Age March 24, 2007
India and China are not just nation-states but large, ancient civilizations that together represent one-third of humanity today. How their relationship evolves will have an important bearing on Asian geopolitics, international security and globalization. India-China ties thus constitute one of the most important bilateral relationships in the world.
While both are ascendant powers, enjoying high GDP growth rates, the basis of their rise is different and a pointer to their relative strengths and weaknesses.
India’s white-collar, services-led economic growth contrasts sharply with China’s blue-collar, manufacturing-driven expansion. More striking is the fact that in India the private sector continues to lead the growth while in China it is a state-driven boom. India does poorly wherever the state is involved, while the strength of the Chinese state as the prime driver of accumulating power carries significant strategic ramifications. In fact, owing to its dynamic centralized economy, China is able to practise a mix of crony capitalism and widespread, state-dispensed patronage.
Most startling is the fact that although both states have some similar competitive advantages, such as a large pool of skilled manpower and low wages, China’s ascension has been on the back of an increasing export surge while India’s imports-dependent economy relies primarily on domestic consumption for growth. Indian imports currently exceed exports by as much as 60 per cent. Such dependency on imports sets India apart from the Asian “tiger” economies, which are all export-oriented.
In contrast to India’s yawning trade deficit, China tripled its trade surplus with the rest of the world just between 2002 and 2005. Given its trade surplus of $201.6 billion with the United States alone in 2005, it is hardly a surprise that Beijing is today sitting on a foreign-exchange hoard of $1 trillion — the world’s largest. It has ploughed more than two-thirds of its foreign-currency reserves into US dollar-denominated investments.
Washington now relies on Chinese surpluses and savings to finance its huge budget and trade deficits, hold down US interest rates and prop up the value of the dollar. Beijing, by financing the US deficits through its purchase of US government bonds, not only buys political clout in Washington but also keeps its currency undervalued so that Chinese exports stay cheap and imports dear. In the face of a rising Sino-US trade imbalance, it sustains the peg it has artificially set between the US dollar and the Chinese yuan by simply recycling its surplus dollars back into the American bond market.
Beijing shields its currency manipulation through the potential threat to halt financing US deficits and unload its greenbacks. This month’s decision by the Chinese legislature, the National People’s Congress, to set up a new cabinet-led agency for active investment overseas can only help boost China’s international financial clout at a time when its foreign-currency reserves are continuing to soar.
The India-China contrast is also stark in terms of military capabilities. India’s weaponry remains subcontinental in range, while China’s is intercontinental. Not surprisingly, India has found it difficult to break out of its subcontinental straitjacket. Indeed, far from developing a military reach to underpin its world-power ambitions, India even lags behind its regional-defence needs. Nearly a decade after declaring itself a nuclear-weapons state, India still does not have the retaliatory capability to strike deep into the Chinese heartland.
Even when China was poor and backward, it consciously put the accent on building comprehensive national power. It developed its first intercontinental ballistic missile, the 12,000-kilometre DF-5, in the 1970s. New Delhi, in contrast, has yet to start developing its first ICBM, although ICBMs are potent symbols of power and coercion in international relations.
Today China’s military spending is drawing a lot of international attention for two reasons. Beijing has sustained double-digit increases in such spending for two continuous decades. In that same period, India’s defence expenditure has declined appreciably as a percentage of its GDP. Moreover, China’s military spending has risen the fastest in the world in percentage terms. Its recently unveiled budget, for example, boosted defence outlays by 17.8 per cent even as India announced a modest increase of 7.8 per cent — just above its current inflation rate — in its defence appropriations.
In absolute terms, however, US military spending has now risen to a level not seen since the Reagan-era buildup. President George W. Bush’s new $622 billion Pentagon budget slips in $40 billion in spending increases. Even without the $142-billion budget component for fighting the wars in Iraq and Afghanistan and for countering terrorism, America alone accounts for 50 per cent of the global military spending.
Even though the official Chinese military budget (which few believe because it hides more than it reveals) is double the Indian defence-spending level, it is not the size but how defence funds are utilized that makes the India-China contrast attention-grabbing.
China’s priority for decades has been twofold: boosting its indigenous capabilities, especially its conventional and nuclear deterrence, and working to shift the balance of power in Asia in its favour. Today its increasingly sophisticated missile force is at the heart of its military modernization. And even as it imports high-tech conventional weaponry from Russia, it has emerged as one of the biggest arms exporters in the world, with its three biggest arms clients being India’s immediate neighbours — Pakistan, Burma and Bangladesh, in that order. Pakistan’s series of missile tests in recent weeks, including the March 22 test of an extended-range cruise missile, shows that China continues to covertly assist Islamabad in breach of its non-proliferation commitments.
India, pitiably, relies on arms imports for meeting its basic defence needs. Such is its addiction to the import of major weapons and even small arms that it has kept its domestic armament-production base weak and underdeveloped. While China apportions 28 per cent of its military budget for defence-related research and development, India’s share is less than 6 per cent.
Prevention is always preferable (and cheaper) than cure. India’s defence planning, however, is still geared toward fighting the next conventional war when the country’s interests would be better served through a concerted focus on deterring aggression.
Preventing war demands major investments in and political commitment to systems of deterrence, which have to be developed indigenously. India, however, remains more committed to the soft and spendthrift option — buying weapons off-the-shelf overseas to fight the next conventional war, although such a full-fledged war remains remote 35 years after the last one. The threats India confronts are increasingly unconventional in nature, whether it is trans-border terrorism from Pakistan or China’s new anti-satellite (ASAT) prowess. Yet Indian defence planners remain frozen in a conventional mindset.
India’s addiction to foreign arms — many of questionable value — has become so acute that it has emerged as the world’s largest weapon importer since 2004. Defence Minister A. K. Antony’s comment last month about $8 billion to 10 billion in potential offsets from arms imports during the 11th Five-Year Plan (which begins April 1) indicates that India intends to buy foreign weapons worth between $27 billion and $33 billion in this period. Such arms imports will not make the nation strong but only eat up its meagre defence resources.
The key difference between India and China is that the latter uses its defence funds wisely and intelligently. Had the situation been the converse, with China spending on the military only what India does today but India’s defence expenditure matching the current Chinese level, it would still have been a matter of concern in the regional context for this very reason — the prudent use of funds by Beijing. A China-level Indian defence budget would have been a delectable bonanza for the major military-industrial complexes overseas.
India, lamentably, has yet to grasp the simple truth that the capacity to defend oneself with one’s own resources is the first test a nation has to pass on the way to becoming a great power. Indeed no state can aspire to be a great power if it allows asymmetry with a regional rival to widen to a point where not only its battlefield vulnerability is exposed but also its strategic space and room for manoeuvre come under growing pressure.
What India needs to do is to declare a moratorium on all arms imports for three years or so. That would help save billions of dollars without compromising its defence. Such action is necessary for it not only to kick its addiction but also to clean up the Augean stables.
More broadly, given China’s deep-rooted authoritarianism, vibrant state-driven economy, accumulating military might and unconcealed aim to dominate Asia, India needs to narrow the power disparity with Beijing through a steadfast focus on developing and exploiting hard power — economic and military.
It is true that India tends to do well in areas where the state is little involved and that China’s development of hard power, in contrast, is a planned, state-driven exercise. But can India emerge as a great power without the state playing its due role in building comprehensive national power? The Indian state continues to be characterized by ad hoc policymaking. Furthermore, without its emergence as a major international manufacturing hub, India will continue to import more goods than it exports while being unable to alleviate unemployment and income disparities. India also should make increasing use of soft power to underpin its diplomacy and image.
India and China, admittedly, have built a mutual stake in maintaining the peaceful diplomatic environment on which their continued economic modernization and security depend. Both also seek to emphasize cooperation, for different reasons. Yet given their size, ambitions and proximity, competition is inevitable. This is more so because unlike Europe, where the most-powerful state, Germany, is content with being one among equals, Asia has yet to banish the threat of hegemony by a state within.