China-India Brief #101


Published Twice a Month
September 13 – 26, 2017

Centre on Asia and Globalisation
Lee Kuan Yew School of Public Policy

Guest Column

China and SAARC: Is There Still an Opportunity?

by Lu Yang

Since the 1990s, strengthening regional cooperation with peripheral states has been an issue of increasing importance in China’s foreign policy agenda. The establishment of the Shanghai Cooperation Organisation (SCO) and the mechanisms it has developed with the Association of Southeast Asian Nations (ASEAN) are successful examples of Chinese actions in this regard. In South Asia, the most important platform for China to engage South Asian nations multilaterally is through the South Asian Association for Regional Cooperation (SAARC). In 2005, China attained observer status in SAARC. This was seen as a good opportunity for the Asian superpower to enhance its relationships with individual member states, and at the same time, gain a better understanding of the region as a whole.

Cooperation with SAARC has been economically advantageous to China. In December 2006, soon after China was accepted as an observer, it founded the China-South Asia Commercial Affairs Council in the Chinese city of Kunming, with the aim of promoting economic cooperation with South Asia. China also started the South Asian Countries Commodity Fair, which was upgraded in 2014 to an annual expo in Kunming. The expo included forums such as the China-South Asia Business Forum, China-South Asia Think Tank Forum, and the Forum on China-South Asia Technology Transfer and Innovative Collaboration. These forums fostered exchanges and helped to introduce SAARC members to the Chinese market. In all, the goal of these events was not only to promote investment, tourism, commodity and service trade, but also at the same time, encourage cultural exchanges.

Besides economic engagement, another area where China and SAARC could enhance cooperation would be in dealing with the region’s non-traditional security (NTS) threats. China is the only SAARC observer that shares borders with five of the eight member states. This close geographical proximity has given China a clear stake in the region’s stability. As such, it is in the Asian giant’s interest to assist regional states in dealing with problems like environmental issues, transnational crimes, infectious diseases, and natural disasters since these could easily spill over and affect the Chinese interior. On disaster management for instance, South Asian states could gain from China’s experience in dealing with natural disasters, particularly in conducting joint civil-military operations. China has also contributed to the region’s fight against infectious diseases. In recent years, China has been helping Sri Lanka curb the spread of chronic kidney disease through the provision of grants to establish a kidney hospital, and by helping to improve the quality of the local drinking water.

Nevertheless, there remain hurdles that prevent China from further participating in the SAARC process. Firstly, the continued India-Pakistan rivalry on the sub-continent and other contentious bilateral disputes related to borders, water, and migrants between the South Asian nations, present major obstacles for regional cooperation. A recent example of this is the cancellation of the 19th SAARC Summit, initially to be held in Islamabad in November 2016. The Summit was cancelled due to the rising tensions between India and Pakistan caused by a terrorist attack on the Indian town of Uri in September 2016. Furthermore, India now focuses greater attention towards The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) than SAARC. BIMSTEC is another sub-regional grouping that includes five members of SAARC (Nepal, Bhutan, Bangladesh, Sri Lanka, and India) and the two Southeast Asian states (Myanmar and Thailand). Given the hostility between India and Pakistan, BIMSTEC offers India a chance to lead regional cooperation without having to face its arch nemesis. This has again raised questions about the future and relevance of SAARC. Second, the role and function of observers in the SAARC has not been clearly defined. Observers are only allowed to participate in the inaugural and closing sessions of SAARC Summits as guests and lack any decision-making power. SAARC has not signed any agreements with observers in areas of cooperation. Hence, as an observer, China is unable to exert any binding institutional influence under the current SAARC framework.

There are three possible options with regards to China’s engagement with SAARC: China as an observer, China as a dialogue partner, and China as a member.  Given India’s suspicions over Chinese intentions and the fear of being dominated by a larger power, China’s chances of gaining membership status in the SAARC would be slim. Although it currently has observer status, China would not be able to play a major role within the organisation given the poorly defined function of its position. Therefore, China as a dialogue partner of SAARC is a better option.

In Southeast Asia, China was accepted by ASEAN as a dialogue partner, and integrated into the ASEAN process, managed through annual summits and frequent high-level meetings. The establishment of the “Strategic Partnership for Peace and Prosperity” between China and ASEAN identified various areas of cooperation including economic, military, and NTS issues. China-ASEAN ties have followed the ASEAN way – a more personal and informal working relationship with an emphasis on consensus building, dialogue, and consultation. Such an approach is absent in the SAARC process. In this sense, China-ASEAN cooperation could give China-SAARC cooperation some creative impetus. China’s cooperation with SAARC could pursue an informal and meeting-driven approach, gradually pushing the process forward and turning consultations into action plans and projects. If China were to get the status of dialogue partner in SAARC, it would be in a position to contribute more towards South Asian regional cooperation.

The future of China-SAARC relations will hinge upon two important issues. The first concerns India’s attitude towards China’s role in South Asia’s regional cooperation. While China’s participation is welcomed by most South Asian states, it is unlikely that India, being the regional hegemon, would ever allow its giant neighbour to lead the regional cooperation process. The second concerns SAARC and whether it can remain the most important platform for regional cooperation in South Asia. In competition with BIMSTEC, the future of SAARC has now become uncertain. Moreover, China has also proposed the BCIM (Bangladesh, China, India and Myanmar Economic Corridor) as an alternative platform for sub-regional cooperation in the region. Its progress however, has been obstructed due to India’s inertness. Currently India still lacks adequate resources, such as funds and professional technology, to provide more public goods in South Asia for regional development, thus providing room for China to fill the gap. However, China’s influence on South Asia has been so far constrained in the economic domains, while India has kept its strategic advantage in terms of geographic, historical, and cultural ties.

Until India changes its attitude and perception towards China’s role in South Asia, the latter’s participation in regional cooperation will remain limited. China’s approach towards South Asian nations will continue to be focused on bilateral relationships as in the past. Nevertheless, new wine has been added to the old bottles through the Belt and Road Initiative proposed by the current Chinese government under Xi Jinping in 2013, which has brought new opportunities as well as geopolitical challenges to the development in the region that need to be further observed.


Dr. Lu Yang is a Post-Doctoral Fellow at the Institute of the Belt and Road Initiative, Tsinghua University.


The views expressed in the article are solely those of the author and do not necessarily reflect the position or policy of the Lee Kuan Yew School of Public Policy or the National University of Singapore.


News Reports

Bilateral relations

India, China will reshape world despite their different development paths: Rahul Gandhi 
The Economic Times, September 20
India and China will fundamentally reshape the world though the two Asian giants have chosen different paths of development, Congress vice president Rahul Gandhi today said. Gandhi, who was interacting with students at the prestigious Princeton University, said “cooperation and competition” was a part of the relations between the two most populous countries of the world.

India to Construct 108 Missile-Proof Hangars Along China Border
Sputnik News, September 22
The Indian government has cleared a proposal for constructing next-generation hardened shelters for aircraft of the Indian Air Force deployed at the eastern and north-eastern airfields that border China. The Indian Defense Ministry will initially release $150 million of the total estimated cost of $750 million for the proposed shelters, which can withstand missiles and bombs of up to 2,000 pounds. The proposed shelters would dot forward areas including Leh, Ladakh and the north-eastern states and would also cover the newly built advanced landing grounds — Tuting, Mechuka, Along, Passighat, Vijaynagar, and Ziro — along with the India-China border.

Doklam is behind us, we are working with India to take ties forward: China, September 24
China and India are working together to leave behind the Doklam episode and “take forward” their relationship, the Chinese consul general said in Kolkata, PTI reported. “India and China are working together. Prime Minister Narendra Modi and President Xi Jinping had a meeting on September 5 to discuss how to enhance the relationship,” Chinese consul general Ma Zhanwu said. His statement comes days after Chinese ambassador to India Luo Zhaohui, in a signed piece in The Hindu on Friday, wrote about how the focus of both countries must be on cooperation, and managing differences. “President Xi emphasised that we should be each other’s development opportunities rather than be threats to each other – dragon and elephant should dance together”, he wrote.

Rajnath Singh to visit India-China border areas in Uttarakhand
The Times of India, September 24
Home Minister Rajnath Singh will this week visit China-India border area in Uttarakhand which has witnessed transgression by China’s People’s Liberation Army in the recent past, officials said. During the tour to Barahoti, the home minister will interact with the personnel of the Indo-Tibetan Border Police which guards the border outpost located at an altitude of 14,311 feet. This is the first visit by a senior minister in the Narendra Modi government to China border after the resolution of the standoff in Doklam.


News Reports

China and India in the Regions

Terror, Doklam, OBOR: India-Japan meet focused on counter China strategy
India Today, September 15
India and Japan on Thursday in the annual summit meet laid down the strategy on how to enhance cooperation to counter the growing aggression of China in the region. Prime Minister Narendra Modi and his Japanese counterpart Shinzo Abe agreed to strengthen cooperation in the Indo-Pacific region where China is increasing its assertiveness.

FTAs with South Asian nations will boost trade, offer new avenues for cooperation
Global Times, September 17
On Saturday [September 16], China and the Maldives signed a memorandum of understanding on an FTA after five rounds of talks and one ministerial consultation, according to an announcement on the website of China’s Ministry of Commerce. Under the agreement, more than 95 percent of bilateral merchandise trade will be exempt from tariffs, and both governments will strive to open their markets in such areas as finance, medicine and tourism and strengthen pragmatic cooperation in key areas.

Highway in Tibet opens South Asia to China
Global Times, September 18
A new highway in Tibet will link the region to Nepal and can be used for both civil and military purposes. The 40.4-km highway will shorten the journey between the dual-use civil and military airport and Tibet’s second-largest city from an hour to 30 minutes. According to Zhao Gancheng, director of the Center for Asia-Pacific Studies at the Shanghai Institute for International Studies, it could also be linked with the future cross-border Sino-Nepali railway.  Such a move however, would probably “irritate” India, Zhao said. India is always disgusted when neighboring countries attempt to get closer to China, he explained.

Japan, U.S., India vow to work together on strategic port development as China flexes clout
The Japan Times, September 19
The foreign ministers of Japan, the United States and India agreed Monday [September 18] in New York to work together to develop strategically important ports and other infrastructure in the Indo-Pacific region, apparently seeking to balance China’s bid to strengthen its regional influence. The ministers affirmed that they will strengthen connectivity in the region through investment in infrastructure and work together to assist strategically important coastal nations in the region with maritime capacity-building, centering on key ports.

China snubs Pakistan over Kashmir issue
The Times of India, September 23
China on Friday [September 22] refused to join Pakistan’s efforts to internationalise the Kashmir issue as a means to defame India. The Chinese foreign ministry said the Kashmir issue was a matter to be resolved by India and Pakistan alone. The remark is seen as a major snub from its “all-weather ally” after Pakistan managed to raise the issue at a recent meeting of the Organisation of Islamic Cooperation. “China’s position on the Kashmir issue is clear-cut,” foreign ministry spokesperson Lu Kang. “The Kashmir issue is an issue left over from history. China hopes India and Pakistan can increase dialogue and communication, and properly handle relevant issues and jointly safeguard peace and stability,” he said.

Fighter jets, drones on table as Mattis visits key ally India
The Straits Times, September 24
Fighter jets, drone deals and shared concerns over Afghanistan’s security challenges look set to dominate the agenda when US Defence Secretary James Mattis visits India this week. Mattis is scheduled to arrive in Delhi late Monday [Sept 25] and is set to meet Indian Prime Minister Narendra Modi and his new defence minister in the first visit by a top US official since Donald Trump became US president in January. “The United States views India as a valued and influential partner, with broad mutual interests extending well beyond South Asia,” a Pentagon statement said.


News Reports

Trade and Economy

Opposed to foreign investments in disputed areas in India’s North East: China
The Economic Times, September 15
China today said it is opposed to any foreign investments including that from Japan in the ‘disputed areas’ in India’s North East region and is against any third party’s involvement in resolving its border disputes with India. Reacting to Japan’s plans to step up investments in the north-eastern states during Japanese Prime Minister Shinzo Abe’s visit to India, Chinese Foreign Ministry spokesperson Hua Chunying told the media that China is opposed to any foreign investment in the ‘disputed areas’.

Young India set to replace China as Asia’s superpower
Money Control, September 18
In the coming decade, India will come to supply over ‘half of the increase in Asia’s potential workforce’, according to a report by Deloitte LLP. Thanks largely to its young population, who won’t be getting older any time soon, India is set to become an economic superpower. Currently, about one-third of India’s working age population are between 15-64. And this gives India a chance, better than China and Japan, to reap the benefits of its still young population.

India replaces China as top retail destination in 2017: Study
The Economic Times, September 20
“India has replaced China this year as the top retail destination as part of the study on global retail development index,” AT Kearney partner Subhendu Roy said on the concluding day of the two-day India Retail Forum 2017.  The change in ranking was an outcome of four factors including increased consumer spending, beyond essentials, rising mobile and internet penetration, favourable foreign investment climate and bold action on cashless transaction and GST, Roy explained.

OECD report says India’s GDP growth will overtake China’s in 2018
Money Control, September 21
India’s GDP growth rate will overtake China’s in the next financial year as per the Interim Economic Outlook report released by Organisation for Economic Co-operation and Development (OECD). Its economy is expected to regain its momentum and achieve a growth of 7.2 percent in 2018, overtaking China that will see a growth rate of 6.6 percent during the same period. Though India’s economy may suffer a temporary setback due to the introduction of new reforms like Goods and Services Tax and demonetisation, the data predicts it will aid the growth in the long term.


News Reports

Energy and Environment

China and India water ‘dispute’ after border stand-off
BBC, September 18
Delhi says it has not received any hydrological – the scientific study of the movement, distribution and quality of water – data for the Brahmaputra river from upstream China this monsoon season, despite an agreement. Beijing has said its hydrological stations are being upgraded which means it cannot share data. But the BBC has found that China continues to share data for the same river with Bangladesh, the lowest downstream country in the Brahmaputra basin. The river data issue between China and India comes after the two countries ended a tense stand-off over a disputed Himalayan border area that lasted more than two months.

China Quickens Work on Pakistan Utility in Area Claimed by India
Bloomberg, September 19
China is racing to finish one of the biggest hydro-power projects in Pakistan ahead of schedule, yet its location in the long-contested region of Kashmir will draw ire from India. Construction on the 720 megawatt Karot power station being built on Jhelum river began in December 2016 and looks set to finish nine months ahead of its December 2021 completion date, a first for a Pakistan hydro-project said Qin Guobin, chief executive officer of the state-owned China Three Gorges Corp. South Asia Investment Ltd. The company has put in place an aggressive strategy to cut the project’s financing costs. “For us, Pakistan is a strategic market,” Qin said at the site. “If we managed to complete it earlier we can save financing costs and make it more competitive.” 

India beats China at climate change protection measures
Money Control, September 21
India is performing way better than China on climate change protection measures deployed, a Climate Change Performance Index (CCPI) report by Germanwatch states. With a performance score 59.08 India ranks 20th while China is placed way lower down at 48 with at score of 47.49, according to the CCPI. The 2017 report compares 58 of the top carbon dioxide (CO2) emitting countries. The performance was analysed on parameters such as emissions levels, development of emissions, renewable energies, efficiency and climate policy.



Modi-Abe Connect: A New, Ambitious, Nationalistic Asian Landscape
Bloomberg Quint, September 13
The excitement surrounding the Japanese Prime Minister Shinzo Abe’s visit to India for a routine annual summit underscores the growing dynamism of India-Japan bilateral relations. Delhi and Tokyo have been coming closer for quite some time now, but it cannot be denied that under Abe and Narendra Modi, the relationship has acquired a trajectory that bodes well for its future.

China’s belligerence has cemented India-Japan relationship
DNA India, September 15
Regional security situation has been worsening in recent years in the Indo-Pacific. China’s rapid rise has been causing anxieties in regional capital. Japan has been sparring with China in the East China Sea while India was recently engaged in a long stand-off with China on the Doklam Plateau. China’s aggressive foreign policy is making it imperative for regional powers to collaborate and cooperate.

Is Japan misleading India against China?
Global Times, September 17
Abe has been the brain behind transforming India-Japan ties such as clinching the landmark civil nuclear deal in November 2016, which came into force in July. The Japanese prime minister deliberately chose to gloss over India’s record as a non-signatory to the binding Nuclear Non-Proliferation Treaty and went ahead with the civil nuclear pact. Abe’s “globe-trotting diplomacy” to besiege China can only be construed as a bargaining chip with Beijing because Tokyo doesn’t really want to confront the latter. India should be wary of being misled by Japan in confronting China, while Tokyo benefits from New Delhi’s face-off with Beijing. The US and Japan’s participation in the Belt and Road Forum for International Cooperation in May amid India’s boycott is an example.

Reading the tea leaves
The Hindu, September 18
Since 1988, India has followed a consistent China policy based on putting aside the boundary dispute and developing other aspects of the relationship in the expectation that this would create mutual trust and enable a boundary settlement. However, the gap between India and China has grown, both in economic and military terms, and with it has emerged a more assertive China. The shared vision of an Asian century with a rising India and rising China is long past. Mr. Modi’s personal diplomacy with Mr. Xi has had little influence on changing Chinese attitudes or behaviour. After Doklam, there is finally a consensus that the old China policy does not serve our national interests and a review is long overdue.

India, Not China, Is Now Central To The Future Of The BRICS
Forbes, September 20
BRICS has always been fundamentally driven by the development trajectories of its two Asian supergiants; China and India. In recent years China has driven the global economy with its rapid investment and export focussed growth. As a result, it now has huge amounts of infrastructure and an economy that must now service enormous amounts of debt. India on the other hand, while growing more slowly, registered a growth rate higher than China last year, and has a government with an appetite for structural reform as a key driver for future growth, rather than debt-fuelled investment and exports.

How China and India can keep the peace in Ukraine
South China Morning Post, September 21
Russian President Vladimir Putin recently announced at the BRICS summit that Russia was in principle open to a peacekeeping force in the Donbass. Such a peacekeeping force could not be made up of soldiers from Nato countries, as this would be opposed categorically by Russia. It cannot, equally, be made up of soldiers from the countries of the former Soviet space (today’s Collective Security Treaty Organisation), as this would be opposed by Ukraine. This leaves Asia as the lone continent able to supply peacekeeping troops that would be respected by, and acceptable to, both the Russians and the Ukrainians.

Turn the page to a new chapter
The Hindu, September 22
China and India should work towards the same direction and jointly implement the Xiamen consensus reached by our leaders. They should work towards a sound and healthy bilateral relationship by focussing on cooperation, narrowing and resolving differences. Just like Chinese Foreign Minister Wang Yi said, both sides should make sure that China-India relations do not derail, confront, or go out of control, and make the Himalayan region a new highland for Asia’s development.


Books and Journals

I Do What I Do: On Reform, Rhetoric & Resolve
Harper Collins India, September 2017
Raghuram G. Rajan is a professor of finance at the University of Chicago. He was the Governor of the Reserve Bank of India between 2013 and 2016 and also served as Vice-Chairman of the Board of the Bank for International Settlements. Dr Rajan was the Chief Economist and Director of Research at the International Monetary Fund from 2003 to 2006.

When Raghuram G. Rajan took charge as Governor of the Reserve Bank of India in September 2013, the rupee was in free fall, inflation was high, India had a large current account deficit and India’s exchange reserves were falling. As measure after measure failed to stabilize markets, speculators sensed a full-blown crisis and labelled India one of the Fragile Five economies. Rajan’s response was to go all out, not just to tackle the crisis of confidence, but also to send a strong message about the strength of India’s institutions and the country’s ongoing programme of reform. He outlined a vision that went beyond the immediate crisis to focus on long-term growth and stability, thus restoring investor confidence. Boldness and farsightedness would be characteristic of the decisions he took in the ensuing three years. Rajan’s commentary and speeches in I Do What I Do convey what it was like to be at the helm of the central bank in those turbulent but exciting times. The book offers a front-row view into the thinking of one of the world’s most respected economists, one whose commitment to India’s progress shines through in the essays and speeches here.


Compiled and sent to you by Centre on Asia and Globalisation and
the Lee Kuan Yew School of Public Policy, National University of Singapore