China Is Its Own Worst Enemy

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BRAHMA CHELLANEYProject Syndicate

The global backlash against China over its culpability for the international spread of the deadly coronavirus from Wuhan has gained momentum in recent weeks. And China itself has added fuel to the fire, as exemplified by its recent legal crackdown on Hong Kong. From implicitly seeking a political quid pro quo for supplying other countries with protective medical gear, to rejecting calls for an independent international inquiry into the virus’s origins until a majority of countries backed such a probe, the bullying tactics of President Xi Jinping’s government have damaged and isolated China’s communist regime.

The backlash could take the form of Western sanctions as Xi’s regime seeks to overturn Hong Kong’s “one country, two systems” framework with its proposed new national-security laws for the territory, which has been wracked by widespread pro-democracy protests for over a year. More broadly, Xi’s overreach is inviting increasing hostility among China’s neighbors and around the world.

Had Xi been wise, China would have sought to repair the pandemic-inflicted damage to its image by showing empathy and compassion, such as by granting debt relief to near-bankrupt Belt and Road Initiative partner countries and providing medical aid to poorer countries without seeking their support for its handling of the outbreak. Instead, China has acted in ways that undermine its long-term interests.

Whether through its aggressive “Wolf Warrior” diplomacy – named after two Chinese films in which special-operations forces rout US-led mercenaries – or military-backed expansionist moves in China’s neighborhood, Xi’s regime has caused international alarm. In fact, Xi, the self-styled indispensable leader, views the current global crisis as an opportunity to tighten his grip on power and advance his neo-imperialist agenda, recently telling a Chinese university audience that, “The great steps in history were all taken after major disasters.”

China has certainly sought to make the most of the pandemic. After buying up much of the world’s available supply of protective medical equipment in January, it has engaged in price-gouging and apparent profiteering. And Chinese exports of substandard or defective medical gear have only added to the international anger.

While the world grapples with COVID-19, the Chinese military has provoked border flare-ups with India and attempted to police the waters off the Japanese-controlled Senkaku Islands. China has also recently established two new administrative districts in the South China Sea, and stepped up its incursions and other activities in the area. In early April, for example, a Chinese coast guard ship rammed and sank a Vietnamese fishing boat, prompting the United States to caution China to “stop exploiting the [pandemic-related] distraction or vulnerability of other states to expand its unlawful claims in the South China Sea.”

Meanwhile, China has made good on its threat of economic reprisals against Australia for initiating the idea of an international coronavirus inquiry. Through trade actions, the Chinese government has effectively cut off imports of Australian barley and blocked more than one-third of Australia’s regular beef exports to China.

Whereas Japan readily allowed the International Atomic Energy Agency to conduct a full investigation into the 2011 Fukushima nuclear disaster – a probe that helped the country to improve safety governance – China strongly opposed any coronavirus inquiry, as if it had something to hide. In fact, some Chinese commentators denounced calls for an inquiry as racist.

But once a resolution calling for an “impartial, independent and comprehensive evaluation” of the global response to COVID-19 gained the support of more than 100 countries in the World Health Organization’s decision-making body, the World Health Assembly, Xi sought to save face by telling the assembly that “China supports the idea of a comprehensive review.” At the last minute, China co-sponsored the resolution, which was approved without objection.

The resolution, however, leaves it up to the WHO’s controversial director-general, Tedros Adhanom Ghebreyesus, to launch the review “at the earliest appropriate moment.” Tedros, who has been accused of aiding China’s initial COVID-19 cover-up, may decide to wait until the pandemic has come “under control,” as Xi has proposed.

Make no mistake: the world will not be the same after this wartime-like crisis. Future historians will regard the pandemic as a turning point that helped to reshape global politics and restructure vital production networks. Indeed, the crisis has made the world wake up to the potential threats stemming from China’s grip on many global supply chains, and moves are already afoot to loosen that control.

More fundamentally, Xi’s actions highlight how political institutions that bend to the whim of a single, omnipotent individual are prone to costly blunders. China’s diplomatic and information offensive to obscure facts and deflect criticism of its COVID-19 response may be only the latest example of its brazen use of censure and coercion to browbeat other countries. But it represents a watershed moment.

In the past, China’s reliance on persuasion secured its admission to international institutions like the World Trade Organization and helped to power its economic rise. But under Xi, spreading disinformation, exercising economic leverage, flexing military muscle, and running targeted influence operations have become China’s favorite tools for getting its way. Diplomacy serves as an adjunct of the Communist Party’s propaganda apparatus.

Xi’s approach is alienating other countries, in the process jeopardizing their appetite for Chinese-made goods, scaring away investors, and accentuating China’s image problem. Negative views of China and its leadership among Americans have reached a record high. Major economies such as Japan and the US are offering firms relocation subsidies as an incentive to shift production out of China. And India’s new rule requiring prior government approval of any investment from China is the first of its kind.

China currently faces the most daunting international environment since it began opening up in the late 1970s, and now it risks suffering lasting damage to its image and interests. A boomerang effect from Xi’s overreach seems inevitable. A pandemic that originated in China will likely end up weakening the country’s global position and hamstringing its future growth. In this sense, the hollowing out of Hong Kong’s autonomy in the shadow of COVID-19 could prove to be the proverbial straw that breaks the Chinese camel’s back.

Brahma Chellaney

Brahma Chellaney, Professor of Strategic Studies at the New Delhi-based Center for Policy Research and Fellow at the Robert Bosch Academy in Berlin, is the author of nine books, including Asian Juggernaut; Water: Asia’s New Battleground; and Water, Peace, and War: Confronting the Global Water Crisis.

© Project Syndicate, 2020.

A Made-in-China Pandemic

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The COVID-19 pandemic should be a wake-up call for a world that has accepted China’s lengthening shadow over global supply chains for far too long. Only by reducing China’s global economic influence – beginning in the pharmaceutical sector – can the world be kept safe from the country’s political pathologies.

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BRAHMA CHELLANEYProject Syndicate

The new COVID-19 coronavirus has spread to more than 100 countries – bringing social disruption, economic damage, sickness, and death – largely because authorities in China, where it emerged, initially suppressed information about it. And yet China is now acting as if its decision not to limit exports of active pharmaceutical ingredients (APIs) and medical supplies – of which it is the dominant global supplier – was a principled and generous act worthy of the world’s gratitude.

When the first clinical evidence of a deadly new virus emerged in Wuhan, Chinese authorities failed to warn the public for weeks and harassed, reprimanded, and detained those who did. This approach is no surprise: China has a long history of “killing” the messenger. Its leaders covered up severe acute respiratory syndrome (SARS), another coronavirus, for over a month after it emerged in 2002, and held the doctor who blew the whistle in military custody for 45 days. SARS ultimately affected more than 8,000 people in 26 countries.

This time around, the Communist Party of China’s proclivity for secrecy was reinforced by President Xi Jinping’s eagerness to be perceived as an in-control strongman, backed by a fortified CPC. But, as with the SARS epidemic, China’s leaders could keep it under wraps for only so long. Once Wuhan-linked COVID-19 cases were detected in Thailand and South Korea, they had little choice but to acknowledge the epidemic.

About two weeks after Xi rejected scientists’ recommendation to declare a state of emergency, the government announced heavy-handed containment measures, including putting millions on lockdown. But it was too late: many thousands of Chinese were already infected with COVID-19, and the virus was rapidly spreading internationally. US National Security Adviser Robert O’Brien has said that China’s initial cover-up “probably cost the world community two months to respond,” exacerbating the global outbreak.

Beyond the escalating global health emergency, which has already killed thousands, the pandemic has disrupted normal trade and travel, forced many school closures, roiled the international financial system, and sunk global stock markets. With oil prices plunging, a global recession appears imminent.

None of this would have happened had China responded quickly to evidence of the deadly new virus by warning the public and implementing containment measures. Indeed, Taiwan and Vietnam have shown the difference a proactive response can make.

Taiwan, learning from its experience with SARS, instituted preventive measures, including flight inspections, before China’s leaders had even acknowledged the outbreak. Likewise, Vietnam quickly halted flights from China and closed all schools. Both responses recognized the need for transparency, including updates on the number and location of infections and public advisories on how to guard against COVID-19.

Thanks to their governments’ policies, both Taiwan and Vietnam – which normally receive huge numbers of travelers from China daily – have kept total cases under 50. Neighbors that were slower to implement similar measures, such as Japan and South Korea, have been hit much harder.

If any other country had triggered such a far-reaching, deadly, and above all preventable crisis, it would now be a global pariah. But China, with its tremendous economic clout, has largely escaped censure. Nonetheless, it will take considerable effort for Xi’s regime to restore its standing at home and abroad.

Perhaps that is why China’s leaders are publicly congratulating themselves for not limiting exports of medical supplies and APIs used to make medicines, vitamins, and vaccines. If China decided to ban such exports to the United States, the state-run news agency Xinhua recently noted, the US would be “plunged into a mighty sea of coronavirus.” China, the article implies, would be justified in taking such a step. It would simply be retaliating against “unkind” US measures taken after COVID-19’s emergence, such as restricting entry to the US by Chinese and foreigners who had visited China. Isn’t the world lucky that China is not that petty?

Maybe so. But that is no reason to trust that China will not be petty in the future. After all, China’s leaders have a record of  other strategic exports (such as rare-earth minerals) to punish countries that defied them.

Moreover, this is not the first time China has considered weaponizing its dominance in global medical supplies and APIs. Last year, Li Daokui, a prominent Chinese economist, suggested curtailing Chinese API exports to the US as a countermeasure in the trade war. “Once the export is reduced,” Li noted, “the medical systems of some developed countries will not work.”

That is no exaggeration. A US Department of Commerce study found that 97% of all antibiotics sold in the US come from China. “If you’re the Chinese and you want to really just destroy us,” Gary Cohn, former chief economic adviser to US President Donald Trump, observed last year, “just stop sending us antibiotics.”

If the specter of China exploiting its pharmaceutical clout for strategic ends were not enough to make the world rethink its cost-cutting outsourcing decisions, the unintended disruption of global supply chains by COVID-19 should be. In fact, China has had no choice but to fall behind in producing and exporting APIs since the outbreak – a development that has constrained global supply and driven up the prices of vital medicines.

That has already forced India, the world’s leading supplier of generic drugs, to restrict its own exports of some commonly used medicines. Almost 70% of the APIs for medicines made in India come from China. If China’s pharmaceutical plants do not return to full capacity soon, severe global medicine shortages will become likely.

The COVID-19 pandemic has highlighted the costs of Xi’s increasing authoritarianism. It should be a wake-up call for political and business leaders who have accepted China’s lengthening shadow over global supply chains for far too long. Only by loosening China’s grip on global supply networks – beginning with the pharmaceutical sector – can the world be kept safe from the country’s political pathologies.

Brahma ChellaneyBrahma Chellaney, Professor of Strategic Studies at the New Delhi-based Center for Policy Research and Fellow at the Robert Bosch Academy in Berlin, is the author of nine books, including Asian Juggernaut; Water: Asia’s New Battleground; and Water, Peace, and War: Confronting the Global Water Crisis.

© Project Syndicate, 2020.

The China Factor Behind India’s Pullout from RCEP

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The Regional Comprehensive Economic Partnership was set to become the world’s largest free trade agreement. But India’s withdrawal from it has thrown the negotiated trade bloc into imbalance and has underscored India’s qualms with China’s trade practices.

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Brahma Chellaney, China-US Focus 

The 16-nation Regional Comprehensive Economic Partnership (RCEP) was supposed to establish the world’s largest trading bloc, covering half of the global population. But India’s abrupt withdrawal from the RCEP has undercut that goal. The decision came soon after the latest “informal” summit between Chinese President Xi Jinping and Indian Prime Minister Narendra Modi, during which Xi acknowledged India’s China-related concerns over the RCEP and pledged to address them.

New Delhi’s entry into the RCEP would effectively create a China-India free trade agreement (FTA) via the backdoor, at a time when Chinese exports are already swamping the Indian market and questions are being raised domestically on Modi’s management of the economy.

The China factor was central to India’s pullout from the RCEP. India already has FTAs with 12 of the other 15 participating RCEP countries and is negotiating an FTA with Australia. Therefore, the main beneficiary of India’s entry into the RCEP would have been China.

Xi’s two “informal” summits with Modi since April 2018 have yielded little progress in the trade, border, and political issues dividing the world’s two most-populous countries. Indeed, at the second summit, held in the Indian coastal town of Mamallapuram in October, Xi sought to rope India into the RCEP in an effort to shield his country’s burgeoning trade surplus with New Delhi.

When the summit concluded, Indian Foreign Secretary Vijay Gokhale said, “President Xi has assured us that India’s concerns over the RCEP will be duly discussed. Although both Modi and Xi emphasized on the importance of having a rules-based global trading system, the Indian prime minister clarified to China that a deal should be balanced and equitable. China said it has heard India’s concerns and has agreed that there are still issues that need addressing.”

At the summit, Modi agreed to starting bilateral talks between the Chinese vice premier and the Indian finance minister over India’s uneven trade relationship with China, which is weighted heavily in Beijing’s favor. China’s trade surplus with India has jumped from less than $2.5 billion a month in 2014 when Modi took office to more than $5 billion a month.

The Indian commitment to bilateral trade talks represented a diplomatic win for Beijing, allowing it to initiate what it is good at: endless negotiations, as its 38-year-long border talks with India illustrate. Ever since the talks to settle the border disputes began in 1981, China has taken India round and round the mulberry bush.

However, only three weeks after the Xi-Modi summit, India pulled out of the RCEP. And the bilateral trade talks that were agreed upon at the summit have yet to begin.

In November, the other 15 participating RCEP countries concluded text-based negotiations and sent the agreement to the legal team for cleanup. A joint statement following the conclusion of the negotiations in Bangkok said, “India has significant outstanding issues, which remain unresolved. All RCEP participating countries will work together to resolve these outstanding issues in a mutually satisfactory way. India’s final decision will depend on satisfactory resolution of these issues.”

It will not be easy to resolve India’s concerns. At a time of slowing Indian growth, India’s entry into the RCEP could exacerbate the country’s economic problems by opening the floodgates to the entry of cheap Chinese goods.

China, while exploiting India’s rule of law to engage in large-scale dumping and other unfair practices, keeps whole sectors of its economy off-limits to Indian businesses, including India’s $181-billion information technology industry. Beijing has also dragged its feet on dismantling regulatory barriers to the import of Indian agricultural and pharmaceutical products.

Modi, in the hope of spurring greater foreign direct investment (FDI) from China, removed it from the official list as a “country of concern” for India. However, instead of greater FDI, the step invited greater Chinese dumping.

China’s cumulative FDI in India remains a fraction of its yearly trade surplus with the country. In fact, in the list of countries with which China has the highest trade surpluses, India now ranks second behind America.

China’s surplus with the U.S., of course, is massive. But as a percentage of total bilateral trade or as a percentage of national gross domestic product (GDP), India’s trade deficit with China is greater than America’s. India’s trade deficit with China in 2018 accounted for 2.2% of its GDP.

China’s unfair trade practices are systematically undermining Indian manufacturing and competitiveness, with the result that Modi’s vaunted “Make in India” initiative has yet to seriously take off. Indeed, China’s annual trade surplus with India is significantly larger than India’s total defense spending, underscoring the extent to which India is underwriting Chinese hostility.

Against this background, India’s concerns are unlikely to be addressed in time for it to join the other participating countries at the RCEP signing ceremony in Hanoi next year.

Let’s be clear: unlike most other participating countries in the RCEP, India is not an export-driven economy. Rather, like the U.S., it is an import-dependent economy whose growth is largely driven by domestic consumption.

The U.S. and India have big trade deficits in goods with the rest of the world. Through bilateral or trilateral trade deals, they can leverage outsiders’ access to their huge markets to help shape trade norms and practices. This is already the approach of U.S. President Donald Trump’s administration.

Make no mistake – India needs to become more competitive in its own right because no barrier can be high enough to protect it from China’s trade prowess. But it also true that India cannot become more competitive without curbing China’s dumping and other rapacious trade practices.

An RCEP without India could create an imbalance within that trading bloc, just as Japan, Australia, and the ASEAN states have feared. It now seems likely that China will dominate the world’s largest free trade arrangement.

The national security threat from within

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Brahma Chellaney, The Hindustan Times

Amid the raging media war between Prime Minister Narendra Modi’s supporters and critics, recent developments are helping to disprove one charge — that India is getting isolated internationally. From frustrating China’s latest UN Security Council (UNSC) move on Jammu and Kashmir (J&K) to forcing Malaysia to start addressing its growing trade surplus with India, including by importing more Indian sugar, Indian diplomacy has rarely been more robust. It was China that was isolated in the UNSC discussion on J&K.

US President Donald Trump’s forthcoming visit promises to raise India’s international salience. Building closer cooperation with the US, while shielding India’s longstanding partnership with Russia, has been Modi’s signature foreign-policy initiative. The US and India have never been closer than they are today, despite their differences over the Pakistan, Afghanistan and Iran challenges.

The showmanship, zeal and penchant for surprises that Modi’s diplomacy displayed in his first years in office have gradually given way to a more down-to-earth approach and greater pragmatism, including seeking to more resourcefully advance the country’s core interests. Under Modi, Indian diplomacy has been shedding its conventional methods and shibboleths to help build innovative dynamism. This remains a work in progress.

India is now more willing to act proactively. Consider the imperative to reverse eroding regional clout at a time when China is spreading its influence deep into India’s backyard. In Sri Lanka, no sooner had Gotabaya Rajapaksa won the presidential election than Modi sent his foreign minister to personally invite him to New Delhi. And then, to follow up on the discussions during Gotabaya’s visit, Modi’s national security adviser was in Colombo recently.

Another recent example is India’s pullout from the Regional Comprehensive Economic Partnership (RCEP) to forestall an India-China free trade agreement emerging via the backdoor. The decision not to join RCEP came barely three weeks after Chinese President Xi Jinping, at the Mamallapuram summit, pleaded with Modi for India’s entry and offered to discuss Indian concerns bilaterally.

The trade deficit with China has more than doubled on Modi’s watch and now accounts for 2.2% of India’s GDP, which is higher than its total defence spending. At a time of slowing Indian economic growth, India’s RCEP entry would seriously exacerbate the country’s problems by opening the floodgates to the entry of cheap goods from China, which keeps whole sectors of its economy off-limits to Indian businesses.

While Trump has got his phase-one deal to reduce the US trade deficit with China, India’s trade deficit with China continues to climb. In these circumstances, India’s RCEP entry would not only aid Beijing’s India policy of containment with engagement, including aggressively advancing commercial interests. In essence, China’s policy seeks to ensure it wins doubly — reap soaring profits on India trade while simultaneously working to box India in.

Through greater realism, India has progressively evolved a nondoctrinaire foreign-policy vision since it went overtly nuclear. It seeks to revitalize its economic and military security without having to overtly choose one power over another as a dominant partner. Given its nuclear-armed status, its quixotic founding philosophy centred on non-violence has assumed a largely rhetorical meaning.

As one US official, Alice Wells, has acknowledged, India’s “broadening strategic horizons” have led to a “shift away from a passive foreign policy”. India, however, remains intrinsically diffident, with a tendency to confound tactics with strategy and unable at times to recognize the difference between being cautious and being meek. Caution helps avert problems, while meekness compounds challenges.

Making matters worse, India today is weighed down not just by a troubled neighbourhood but also by its increasingly murky politics. A dynamic diplomacy needs strong bipartisan support, especially for ambitious or risky undertakings. But given India’s fractious and obstreperous politics, such bipartisanship has been hard to come by. Consider the political nitpicking over the Indian Air Force’s daring strike inside Pakistan at Balakot.

The bitter partisanship at home, by sharpening national divisions, makes it more challenging to meaningfully reinvigorate foreign policy. Indeed, the most pressing threat to India’s standing in the world comes not from China’s expansionism or the roguish activity of a scofflaw Pakistan but from polarized Indian politics. Given the threat from within, can India effectively deal with complex regional-security challenges, including the growing strategic axis between China and Pakistan — a dangerous combination of a powerful Leninist autocracy and an Islamist neighbour?

Modi may have become a lightning rod in India’s political churn. But make no mistake: Modi is a symptom of a longer-term trend of rancorous polarization in Indian politics that predates his arrival on the national scene and is likely to persist after he leaves office.

The world’s largest democracy has been in crisis for long. Its systemic problems have an important bearing on national security. Coping with mounting regional-security challenges while managing internal divisions will prove onerous unless India finds ways to control its growing divide.

Brahma Chellaney is a geostrategist.

© The Hindustan Times, 2020.

Why India-Japan ties matter more than ever

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Brahma Chellaney, The Hindustan Times

Whereas India-China and Japan-China ties are unlikely to become non-adversarial in the near future, the forthcoming summit between prime ministers Shinzo Abe and Narendra Modi will cement the Japan-India relationship as Asia’s fastest growing relationship, and open the path to a military logistics pact to allow access to each other’s bases. Indeed, the deepening relationship between Asia’s richest democracy and the world’s largest democracy serves the goal of forestalling the emergence of a Sino-centric Asia.

Recently, the Indian and Japanese foreign and defence ministers held their first joint meeting in a so-called “two plus two” format. India has set up such a “two plus two” dialogue with all the other Quad members. The Quad offers a promising platform for strategic maritime cooperation and coordination. But there is no guarantee that it will fulfil that promise.

The India-Japan entente is a central pillar of the U.S.-led strategy for a “free and open Indo-Pacific” — a concept authored by Abe. Today, Japan and India serve as the linchpins for establishing a rules-based Indo-Pacific order. However, US President Donald Trump’s “free and open Indo-Pacific” strategy, like his predecessor’s pivot to Asia, hasn’t been translated into a clear policy approach with any real strategic heft. It is thus important for Japan and India to contribute their bit.

The evolving paradigm shift in Washington’s China policy, however, has put pressure on Chinese President Xi Jinping to improve his country’s relations with India and Japan. Xi is expected to visit Japan in the spring. Xi’s informal summit with Modi in October yielded few tangible results. But India’s commitment at Mamallapuram to enter into bilateral talks over its lopsided trade relationship with China represented a diplomatic win for Beijing. It allows China to initiate what it is good at — endless negotiations, as its 38-year-long border talks with India illustrate.

In fact, Xi, seeking to shield his country’s burgeoning trade surplus with India, sought at Mamallapuram to rope India into the Regional Comprehensive Economic Partnership (RCEP). India already has free trade agreements (FTAs) with 12 of the other 15 RCEP member-states, and is negotiating an FTA with Australia. In this light, India’s entry into the RCEP would have effectively established a China-India FTA via the backdoor.

India’s recent withdrawal from the RCEP, like the earlier US pullout from the Trans-Pacific Partnership (TPP), has created a dilemma for Japan. While Japan took the lead to establish the TPP without the US, Tokyo does not want the RCEP negotiations to conclude without India, because it would build a China-led trading bloc. This suggests Japan may not join the RCEP without India reversing its withdrawal.

Taking advantage of its considerable assets — the world’s third-largest economy, substantial high-tech skills, and a military freed of some legal and constitutional constraints — Japan is boosting its geopolitical clout. Japan’s world-class navy has already begun operating far beyond the country’s waters in order to establish its position in the region. Abe has explained why Japan and India are natural allies, “A strong India benefits Japan, and a strong Japan benefits India.”

Against this background, the Modi-Abe summit will witness the Indian and Japanese militaries clinching a logistics sharing agreement, formally known as the Acquisition and Cross Servicing Agreement (ACSA). A logistics sharing accord has become imperative for the two militaries, given the number of joint manoeuvres they hold, including three-way exercises involving the US navy in the Indian Ocean and the Pacific.

The plain fact is that Japan and India, in the absence of any historical baggage or major strategic disagreement, share largely complementary strategic interests. In fact, Japan has the distinction of being the only foreign power that has been allowed to undertake infrastructure and other projects in India’s sensitive northeast (bordering Myanmar, Tibet, Bhutan and Bangladesh), as well as in the Andaman and Nicobar islands.

If Japan and India continue to add concrete security content to their relationship, their strategic partnership could potentially be a game changer in Asia. The emphasis on boosting trade and investment must be balanced with greater strategic collaboration. Their first joint fighter aircraft exercise will be held in the new year in Japan.

The Abe-Modi summit offers an opportunity to discuss how the Tokyo-New Delhi duet can contribute to the larger effort to build strategic equilibrium, power stability and maritime security in the Indo-Pacific. Besides deepening defence and maritime security cooperation, Japan and India must collaborate on infrastructure and other projects in third countries, including Myanmar, Bangladesh and Sri Lanka, and in Africa, to help enhance strategic connectivity in the Indo-Pacific.

India and Japan have forged a special relationship, which is set to strengthen and deepen in the coming years. At a time of global geopolitical flux, the two are among the important countries that have taken up the baton to champion freedom, international norms and rules, inclusivity, and free and fair trade.

Brahma Chellaney is a geostrategist and author.

China’s dam-building programme must take neighbours into account

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  • Since China began damming the Mekong, droughts have become more frequent and intense in downriver countries
  • By diverting river water to its mega-dams, China has emerged as Asia’s upstream water controller, giving it great leverage

Japan’s RCEP Dilemma

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Brahma Chellaney, The Japan Times 

India’s pullout from the Regional Comprehensive Economic Partnership (RCEP), like the earlier U.S. withdrawal from the Trans-Pacific Partnership (TPP), has created a dilemma for Japan. But whereas Japan took the lead to establish the TPP without the United States, Tokyo does not desire a RCEP without India because it would create a China-led trading bloc.

The 16-nation RCEP was supposed to establish the world’s largest trading bloc covering half of the global population. But India’s withdrawal from the RCEP has undercut that objective. It now seems likely that China would dominate the RCEP, which is set to be opened for signature next year.

The other 15 participating countries in November concluded text-based negotiations and sent the agreement to the legal scrubbing team for cleanup. A joint statement following the conclusion of the negotiations in Bangkok said, “India has significant outstanding issues, which remain unresolved. All RCEP participating countries will work together to resolve these outstanding issues in a mutually satisfactory way. India’s final decision will depend on satisfactory resolution of these issues.”

Japanese Trade Minister Hiroshi Kajiyama told his Indian counterpart, Piyush Goyal, last week in New Delhi that Japan was ready to take the lead to help resolve the “outstanding issues” so that India can rejoin the RCEP.

The main factor behind India’s pullout from the RCEP was China, which Harvard’s Graham Allison has called “the most protectionist, mercantilist and predatory major economy in the world.” At a time of slowing Indian economic growth, India’s entry into the RCEP could exacerbate the country’s problems by opening the floodgates to the entry of cheap Chinese goods.

China, while exploiting India’s rule of law to engage in large-scale dumping and other unfair practices, keeps whole sectors of its economy off-limits to Indian businesses, including India’s $181-billion information technology industry. Beijing has also dragged its feet on dismantling regulatory barriers to the import of Indian agricultural and pharmaceutical products.

Since Indian Prime Minister Narendra Modi took office in 2014, China’s trade surplus with India has more than doubled to over $60 billion annually. Modi’s 2015 removal of China as a “country of concern,” instead of encouraging major foreign direct investment (FDI) from that country, has only spurred greater dumping.

In the list of countries with which China has the highest trade surpluses, India now ranks second behind America. China’s surplus with the U.S., of course, is massive. But as a percentage of total bilateral trade or as a percentage of national gross domestic product (GDP), India’s trade deficit with China is greater than America’s. India’s trade deficit with China in 2018 accounted for 2.2% of its GDP.

China’s unfair trade practices are systematically undermining Indian manufacturing and competitiveness, with the result that Modi’s vaunted “Make in India” initiative has yet to seriously take off. In fact, China’s annual trade surplus with India is significantly larger than India’s total defense spending, underscoring the extent to which India is underwriting Chinese hostility.

India already has free trade agreements (FTAs) with 12 of the other 15 RCEP participating countries, and is negotiating an FTA with Australia. The main beneficiary of India’s entry into the RCEP would be Beijing, because it would effectively establish a China-India FTA via the backdoor.

The two “informal” summits Chinese President Xi Jinping has held with Modi since April 2018 have yielded little progress on the trade, border and political issues that divide the world’s two most-populous countries. Indeed, at the second summit, held in the Indian coastal town of Mamallapuram about two months ago, Xi sought to rope India into the RCEP in an effort to shield his country’s burgeoning trade surplus with New Delhi.

When the Mamallapuram summit concluded, Indian Foreign Secretary Vijay Gokhale said, “President Xi has assured us that India’s concerns over the RCEP will be duly discussed. Although both Modi and Xi emphasized on the importance of having a rules-based global trading system, the Indian prime minister clarified to China that a deal should be balanced and equitable. China said it has heard India’s concerns and has agreed that there are still issues that need addressing.”

At the summit, Modi agreed to the holding of talks between the Chinese vice premier and the Indian finance minister over India’s lopsided trade relationship with China. The Indian commitment represented a diplomatic win for Beijing, allowing it to initiate what it is good at — endless negotiations, as its 38-year-long border talks with India illustrate. Ever since the talks to settle the border disputes began in 1981, China has taken India round and round the mulberry bush.

However, barely three weeks after the summit, India pulled out of the RCEP. And the bilateral trade talks that were agreed upon at the summit have yet to begin.

Let’s be clear: Unlike most other participating countries in the RCEP, India is not an export-driven economy. Rather, like the U.S., it is an import-dependent economy whose growth is largely driven by domestic consumption.

The U.S. and India have big trade deficits in goods with the rest of the world. Through bilateral or trilateral trade deals, they can leverage outsiders’ access to their huge markets to help shape trade norms and practices. This is already the approach of U.S. President Donald Trump’s administration.

Make no mistake: India needs to become more competitive in its own right, because no barrier can be high enough to protect it from China’s trade prowess. But it also true that India cannot become more competitive without curbing China’s dumping and other rapacious trade practices.

Against this background, Japan has a challenging task to get India back into the world’s largest free-trade arrangement. Whenever Prime Minister Shinzo Abe undertakes his postponed visit to India, he will seek to impress on Modi that India’s — and Japan’s — interests in the Indo-Pacific region would be better served with New Delhi being part of the RCEP.

Longtime Japan Times contributor Brahma Chellaney is a geostrategist and the author of nine books, including the award-winning “Water: Asia’s New Battleground.”

© The Japan Times, 2019.