Modi’s East Asia Tour Attracting Investments, Counterbalancing China

Cover Story

China’s growing influence in the Asia Pacific is a wake-up call for India. PM Modi’s scheduled visit to Mongolia and South Korea can, thus, be viewed as a move in the right direction

China still remains a difficult neighbour for India to tackle. Apart from border dispute, concerns over growing trade deficit with China and the water issue of trans-boundary rivers, particularly Brahmaputra remain a formidable challenge. To offset the huge trade imbalance, India has sought more Chinese investments. Prime Minister Narendra Modi will be on a six-day official tour of three East Asian countries – China, Mongolia and South Korea – from May 14 to garner investments for his ambitious ‘Make in India’ programme. But apart from assurances on investments, what does he expects from China. Possibly Beijing’s nod for India’s membership in Shanghai Cooperation Organisation (SCO) and Asia Pacific Economic Cooperation (APEC) without the former insisting upon its membership in the South Asian Association for Regional Cooperation (SAARC).

China’s growing influence in the Asia Pacific is a wake-up call for India. PM Modi’s scheduled visit to Mongolia and South Korea can, thus, be viewed as a move in the right direction. His Buddha diplomacy is a right thought to garner support from the Buddhist countries in the region. PM Modi had earlier visited Japan and Australia, maintained good relations with Vietnam and vouched for the centrality of ASEAN. India also supports Trans-Atlantic powers like US, Canada and European nations’ presence in the region. But can all these strategies counter-balance Beijing’s plans to extend its String of Pearls?

India-China Border Dispute

Though Prime Minister Narendra Modi claims that India-China has been peaceful after 1962 war, the intermittent Chinese incursions along the Line of Actual Control (LAC) have raised doubts about Beijing’s hidden agenda. India has inherited the borders defined by the erstwhile British colonial rulers and thus, maintains its position in its official map. The Johnson Line demarcates the borders of Jammu and Kashmir with Tibet and on the eastern sector; McMahon Line demarcates the border that extend to the edge of the Tibetan plateau. Officially, India’s northern boundary in the Ladakh region with Tibet extends beyond the Kuen-Lun (Kunlun) mountains up to Khotan and includes the Aksai Chin desert and links Demchok in the south with the 18,000 feet high Karakorum Pass in the north. This is popularly called the Johnson Line, drawn by W H Johnson of the Survey of India. It includes Shahidulla in far off Karakash valley, about 400 km from Leh.

China, however, refuses to accept the history and has been making further claims on 90,000 sq km in Arunachal Pradesh despite its illegal occupation of 38,000 sq km in Aksai Chin in the north and some areas across the McMahan Line. It is also in possession of 5,800 sq km of Gilgit-Baltistan illegally ceded by Pakistan in addition to its occupation of more than 15,000 sq km of Gilgit-Baltistan covering Shaksgam, Raskam and Aghil valleys, apart from a large chunk in Ladakh. After Chinese occupation of the Indian territory, the LAC came into existence.

However, both the countries have taken a wise decision that the contentious border issue should not come in their way of bilateral relationship. The border issue would be resolved through negotiations. However, despite 17 rounds of negotiations between special representatives of the two countries, no tangible results are in sight. It would be better to first resolve the varying perceptions about LAC and then attempt to settle the final boundary issue. There are, however, many areas where both the countries can cooperate instead of being bogged down by boundary issue India’s Growing Trade Deficit India-China bilateral trade has crossed $65 billion, but India suffers from a trade deficit of $37.8 billion. According to trade analysts, if corrective steps are not taken in time, India’s trade deficit is likely to widen to $58 billion by 2018. Apart from trade, India is also one of the largest markets for project exports from China. Currently, projects under execution are estimated at over $60 billion. As per Beijing’s figures, cumulative Chinese investments into India till September 2014 were $2.63 billion while Indian investments into China were $0.55 billion.

What is the real cause for India’s burgeoning trade deficit with China? India competitive exports like pharmaceuticals, IT and IT-enabled services and agro commodities do not get market access in China due to non-tariff barriers. In China, Indian pharma companies face regulatory hurdles in the form of prolonged and unpredictable timelines for registering Indian drugs. Chinese drug regulator requires Indian companies to not only reveal the detailed process of manufacture, but also conduct clinical trials within the country. Indian companies, therefore, are apprehensive of IPR violations. China should better allow import of cheap and time-tested Indian drugs and healthcare facility to cater to the growing needs of the Chinese people. Similarly, Beijing should give access to Indian IT and ITES.

President Xi Jinping during his last visit to India had promised an investment of $10 billion over a span of five years. Beijing feels that this assured investment will materialise earlier and fresh agreements amounting to $10 investment will be signed on Modi’s visit. China had promised to set up two industrial parks in Chakan near Pune in Maharashtra and near Ahmadabad in Gujarat.

South Korean Tour

While Chinese investment in India is at $2.63 billion, South Korean investment has touched $3.8 billion by December 2014. South Korean investments have surged after the signing of India-South Korea Bilateral Investment Promotion and Protection Agreement in 1996. South Korean majors - Hyundai, LG, Hyosung, KC Cottrell, R-Land, Shop CJ, Mirae Asset, Samsung, LG are among over 649 others present in India covering various sectors such as automobiles, power and industrial systems, refrigerating and air control equipment, apparel, home shopping, asset management. The South Korean steel major POSCO is awaiting to get mining lease to start their operations in Odisha, The two-day PM Modi’s visit to this country which falls in the last leg of his East Asian tour is likely to see the signing of bilateral Double Taxation Avoidance Treaty as urged by the host country. Modi is also likely to seek greater cooperation of South Korean SMEs.

In fact, South Korean companies forayed into India much before the ‘Make in India’ programme was officially launched by Prime Minister Modi. From its manufacturing base in Chennai, Hyundai Motor India has exported about 2.2 million cars to 123 countries in five continents. Its success story is that with a total investment of $2.7 billion, its yearly turnover is about $5 billion and it has created about 150,000 direct and indirect employment including dealers and vendors. India has urged Hyundai to set up another manufacturing base in the country.

There are prospects for South Korean investments in defence products, IT, infrastructure, energy, LNG, ship building, smart cities. A 13-member consortium led by South Korean companies is slated to set up an industrial park at Ghilot in Neemrana in Rajasthan.

Indian companies such as Hindalco, Mahindra & Mahindra, Tata Motors, Indian Overseas Bank, State Bank of India and some IT companies are present in South Korea.

After the operationalisation of India-South Korea CEPA in January 2010, bilateral trade crossed $20.5 billion in 2011 registering a 70 percent growth over a two-year period. Thereafter, the bilateral trade registered marginal declines to $18.84 billion in 2012 and to $17.57 billion in 2012. Both the countries had set a target of $40 billion by 2015 for bilateral trade, which is unlikely to be met.

India and South Korea have already agreed to cooperate in civil nuclear energy, defence, science and technology, outer space, IT.

First Indian PM to Visit Mongolia

PM Modi will be visiting Mongolia for a day on May 17. India and Mongolia have defence agreement, and bilateral Nomadic Elephant military exercise is an annual event. India also participates in Khaan Quest along with Mongolia and US Pacific Command. India and Mongolia may upgrade their relations to a Strategic Level on Modi’s visit, which would be the first such visit by an Indian prime minister. India is likely to fulfil Mongolian request for setting up an English school. PM will also have the privilege of addressing the Mongolian Parliament.

Atal Behari Vajpayee Centre for Excellence in Information and Communication Technology Education may be upgraded. PM Modi is likely to urge Mongolia to expedite the process of finalising uranium sales to India.

PM Modi is slated to appeal to the Indian community in all the three countries he has planned to visit. He is also slated to meet the captains of the industry. Buddha diplomacy will be very much on the cards in appeal to these Buddhist dominated countries. One can hope that Modi’s visit may help in garnering investments for ‘Make in India’ programme, minimise trade deficit with China and counterbalance growing Chinese influence in the region.

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