After PM Modi-Xi Meet, Will New India-China Relationship Work?

As in all structured events, the Wuhan summit between Prime Minister Narendra Modi and China’s President Xi Jinping has gone off well. It has highlighted what was seen as a major lacuna in the relationship — the need for the two sides to communicate more effectively with each other.

As for the other outcomes, they are more or less predictable because they contain elements of various decisions and confidence-building measures going back 30 years.

The summit’s short-term goal was to prevent inadvertent military or diplomatic confrontations across their borders or the South Asia-Indian Ocean region. The long-term one is to set their respective growth trajectories in order to create synergy instead of crossing each other in the Indo-Pacific region.

A New Relationship Model Between India and China?

The Wuhan summit has echoes of the 2013 meeting between Xi and US President Barack Obama at Sunnylands, California. It was at this meeting that Xi – who had just been elected president at the time – pushed the idea of a “new type of great power relations”. The only way to “constructively manage” US-China differences, XI argued, was if both sides:

1. Prioritised dialogue over conflict and treated each other’s strategic intentions objectively.
2. Expressed mutual respect for each other’s core interests.
3. Abandoned the zero-sum game mentality and cooperated in advancing areas of mutual interest.

In essence, XI sought American agreement to accommodate China as a global power on terms of equality with the US, even before China had reached that position.

India and China are seeking a new model of relationship as well. Just as Xi sought to persuade the US to gamble on China’s future status as a world power, so is Modi wanting China to accept that India, too, is on the verge of becoming a power with the heft of China.

To that end, the Indian side has been calling for a policy perspective in which both sides should respect “each other’s sensitivities, concerns and aspirations.”

On its part, China, which sees itself as a rising world power, knows that it needs to reduce tensions in its periphery, especially with large nations like India which occupy a strategic location at the head of the Indian Ocean, a waterway whose importance to China cannot be understated.

Change will not occur overnight, but it is worthwhile to keep a keen eye out for the signs of a strategic shift in behaviour. These signs should be visible in our problem areas, like the border or in the relationship between China and Pakistan.

Also Read: Fight All You Want, China’s Money Will Keep Coming to India

During his visit to China in 2015, Modi pressed for the idea of clarifying the Line of Actual Control (LAC) as a means of preventing inadvertent confrontations. This would be pending the final resolution of the dispute. Such an action was actually envisaged in the 1993 Border Peace and Tranquility Agreement.

But after exchanging maps of the Central and Western Sectors, the Chinese have balked. Minus a clear understanding on where the LAC lies, it is impossible for the two militaries to implement the “strategic guidance” of the Wuhan summit to prevent a recurrence of incidents such as the one in Depsang in 2013 and Chumur in 2014.

In Wuhan, Modi and Xi have commended the work of the Special Representatives; but truth be told, there work is largely done. It is the leaders themselves who need to take the next step to achieve a final settlement of the border dispute. This settlement lies at the heart of the Sino-Indian problem.

China’s Close Relationship with Pakistan a Lost Cause for India?

The second major action point for India would be in China’s ties with Pakistan. This is a fairly straight-forward subject. India can hardly object to good relations between the two countries, but there are obvious red-lines, such as the Chinese block on the designation of Masood Azhar as a terrorist under the UN’s 1267 committee.

There is also the more complicated area of China’s support to Pakistan’s nuclear weapons programme. While India cannot object to the Sino-Pakistan relationship insofar as conventional weapons are concerned, it certainly has a right to expect that China will not encourage Pakistan’s WMD production.

Pakistan may be a lost cause for India in South Asia, but there are countries like Nepal, Bangladesh, Sri Lanka and Maldives that New Delhi views as being important for its security and well being.

Though China has been fairly circumspect so far, India’s own mishandling of the region and the growth of China’s economic power is generating insecurity in New Delhi.

China would also expect India to be circumspect in its support for the US Indo-Pacific strategy to the extent that it is directed against China. What China does in the South China Sea is not something that affects India directly but one that the ASEAN needs to take up.

Without necessarily backing China’s expansive maritime claims in the region, New Delhi does need to understand that China’s actions in the South China Sea are also driven by concerns over its security.

India has had a long-standing grouse over the balance of trade between the two countries. This is something that is not difficult to handle. In comparison to China’s trade issues with the US, the Indian problem is quite minor. But because of the indifferent relations, the two sides have not been able to iron out problems relating to trade and investment. Though, both recognise that this is an area that offers huge payoffs for both of them.

China’s Lifeblood Flows Through the Indian Ocean

An important aspect of any reset would be the importance of misjudging the strategic intention of the other party. Chinese investment in Bangladesh, Nepal, Sri Lanka or Maldives is viewed with suspicion in India. There is no reason why the two countries cannot discuss this in a frank manner.

The idea of a joint project in Afghanistan is a good beginning; its experience can possibly be replicated in other countries to reduce Sino-Indian mistrust.

Like all great trading powers of the past, China is also looking to create capabilities to moderate the risks to its economic security that arise from its global trade.

China is hugely dependent on the Indian Ocean sea lanes for its economic prosperity. An estimated 80 percent of its oil imports go through the Straits of Malacca, just as 75 percent of India’s oil goes through Indian Ocean sea lanes.

A significant proportion of its cargo traffic also uses these routes.

Traditionally, the flag has followed trade, and so it is with China as the PLA Navy expands into the Indian Ocean. India cannot block it, but it can engage China and understand its motives. In fact, far from conflict, the two countries do have a common agenda of maintaining the freedom of navigation and overflight in the Indian Ocean, as much as the South China Sea.

The bottom line in assessing the Wuhan summit comes from then US Secretary of State John Kerry when discussing the New Type of relations in 2014: “a new model is not defined in words. It is defined in actions.”

That, indeed, should be the leitmotif of those looking for a reset in Sino-Indian relations after the Wuhan summit. It is actions, and not words, that will matter in the months to come.

The Quint May 1, 2018

Baggage of history: India and China need to dump this so they can both rise, without friction or fire

The two words that have driven India and China into an unusual summit in Wuhan are “fear” and “trust”. Prime Minister Narendra Modi is apprehensive that an uncontrolled event on the border could undermine a sure-shot reelection in 2019. President Xi Jinping fears that an increasingly confrontational US could disrupt his second term and undermine the Chinese economy at a critical transition point. New Delhi reached out and Beijing reciprocated and hence the summit.

Chinese and Indian leaders must ask themselves as to why they are locked into the kind of relationship they are in. History, of course, has played a big role. But if history alone were to decide foreign policy, the world would forever be a Dar-ul-Harb (House of War). More important, in the Sino-Indian context, the processes that kept peace between the two sides since the Rajiv-Deng meeting of 1988 have run out of steam.

The succession of confidence building measures on the border beginning 1993, failed to prevent the Depsang and Chumur incidents in 2013 and 2014 respectively. The high special representatives of the two sides finished the technical work of defining a mutually acceptable border. But their respective political leaderships have been unable, or unwilling, to make that final political push towards the final settlement.

Chinese activism in South Asia and the Indian Ocean Region, the 2017 Doklam crisis, India’s enthusiastic participation in the revived Quadrilateral Group, showed that the simultaneously rising Asian giants were rubbing against each other in dangerous ways. This negative drift could escalate to a larger confrontation shattering their respective dreams of national rejuvenation.

Both sides have lamented the lack of trust and the need to enhance “strategic communications”. Even so they have attributed the worst motives to the actions of the other and ridden roughshod over each other’s sensitivities. China has blocked our membership to the NSG and the designation of Masood Azhar as a terrorist in the UN, and India has feted Dalai Lama and campaigned against BRI.

They are not unaware of the opportunity costs they are paying. China is ideally suited to fulfill India’s pressing need for investment and infrastructure. Indian and Chinese companies do good business in each other’s territories, trade is booming, but the economic relationship remains well below its potential because of issues of trust.

Things began changing after the Xi-Modi meeting at the Brics summit in Xiamen last September. There has been a surge of “strategic communications” – high level meetings of top ministers and officials in New Delhi and Beijing. The most significant was the one between Ajit Doval and Yang Jiechi, the designated point men of the relationship. Their meeting was held after a gap of 20 months and they spoke of the need to resolve their differences “with due respect for each other’s sensitivities, concerns and aspirations.”

That phrase captures what the Modi-Xi summit is all about – the need to do all those things listed, so as to enhance that elusive thing called “trust” which would, in turn, allow the two rising Asian states to rub against each other without the friction that could touch off a fire. But to build that trust, they need to dump the baggage of history – the border dispute and 1962 war, China’s use of Pakistan to contain India, New Delhi’s own alliances, first with Russia, now with the US.

India has to accept that China has interests in “our” region but, in turn, Beijing should know that India has a heft and will stand its ground on its key interests. Latin phrases remain irreplaceable because of their precision. That’s why the phrase that comes to mind is ‘modus vivendi’. That’s what India and China need across the Indo-Pacific. This can’t be achieved overnight, but as the Chinese saying goes: A journey of a thousand miles begins with a single step.

Times of India April 28, 2018

Pragmatic India junks past rhetoric for Xi-Modi summit

Given their relationship, as Asia’s two rising powers who share a disputed border and a relationship that has long been troubled, there are multiple reasons India and China are reaching out to each other, and the leaders of the two countries, Prime Minister Narendra Modi and President Xi Jinping, will hold an unprecedented informal summit this week in Wuhan, in central China’s Hubei province.

Given the recent sequence of events, which famously included New Delhi throwing the Dalai Lama under the bus and assuring Beijing that it will not intervene in Maldives, it would appear that the outreach has been initiated by India and reciprocated by China.

Given the many-layered relationship between the two countries, India’s reasons are also manifold. But at this juncture, it would appear that Modi is reaching out to China to remove possible risks to his re-election campaign next year. His advisers believe that a confrontation with China in the border region always has the chance of going against India. Such a development would have grave political consequences for a leader who has thrived on the image of being a tough guy.

The Doklam issue has led to the People’s Liberation Army building up its forces along the entire Line of Actual Control (LAC) that marks the Sino-Indian border. New Delhi is aware that the outcome to the Doklam standoff being favorable to India last year was in great measure because of the overwhelming military advantage its forces had over the Chinese in the locality of Doka La Pass. But such a situation may not obtain elsewhere along the 4,000-kilometer LAC. As it is, there is some unease that the Doklam crisis has shaken the elite circles in Bhutan and if Thimphu throws in the towel, India doesn’t have a legal leg to stand on.

Modi now agrees with some of his senior advisers that India was wrong to handle China the way it did through 2016 by publicly hectoring it over the Nuclear Supplier Group and Masood Azhar issues. So there is an effort now to put diplomacy in command when dealing with them,  rather than using them to score propaganda points.

Likewise, Modi and his team believe that they may have erred in going out of their way to use the so-called Tibet card. This has only served to get China’s back up and in realistic terms, there is little to be gained by encouraging the Tibetans in exile in India, since China has firm control of Tibet. The Dalai Lama has been ready to make a deal with them, but it’s only the Chinese hard line that prevents such a development.

Before he came to power, Modi was a known admirer of the Chinese economic miracle, and his visit to China in 2011 was described as “historic” by his supporters. As candidate, though, he attacked the incumbent United Progressive Alliance government for having failed to secure India’s borders with China and Pakistan.

Today, as the Indian economy continues to be troubled by niggling issues such as a declining investment rate in recent years, China looks like a good prospect for an economic partnership that could see investment in infrastructure, improving manufacturing capability and skill development. Indeed, despite the two countries’ political difficulties, Sino-Indian trade is booming, as is Chinese investment in India.

Though India has joined the Quadrilateral Security Dialogue, or Quad, and has emerged as a major element in the US Indo-Pacific strategy, the government does not see any immediate payoffs from this. Modi is also worried about the risks of tying India’s policies to the erratic administration of US President Donald Trump. On the other hand, along with China, it could be targeted by the US on trade and currency issues. Reaching out to China helps moderate some of these risks.

The Modi team realizes that as of now India cannot compete with China in Southeast Asia  and must focus its attention in the Indian Ocean region and work out ways to ensure that the two largest Asian countries are not played off against each other by the smaller nations of South Asia and the Indian Ocean Region (SA-IOR).

What are China’s aims in reciprocating India’s moves towards détente?

The very obvious one is that it is seeking to shore up its flanks to protect itself against a political and commercial attack from the United States. India may not be a significant economic player, but it is an important political actor and its neutrality in the event of any US-China clash would be useful.

As China’s economy slows down and India’s picks up pace, Beijing may have realized that it is at that cusp of history where its bargaining power with India is at its maximum and as the decades unfold, India’s comprehensive national power will grow and the Chinese advantage will become progressively less. This is therefore a good time to alter the trajectory of its relationship with India, which has so far been dominated by their conflicts arising out of their border issue and China’s use of Pakistan as a foil against India.

So these questions beg another one: What can India offer China and what can the latter offer India? At a broad level we know that China has its core interests – the primacy of the Communist Party, and the recognition that Taiwan, Tibet and Xinjiang as inalienable parts of China, now along with the Diayou/Senkaku islands, and the South China Sea.

As for India, it has never quite spelled out its core interests like the Chinese, but certainly national sovereignty and territorial integrity are central. This, of course, includes Jammu and Kashmir and Arunachal Pradesh, which brings it into collision with China and Pakistan.

Naturally, neither side is expected to offer up its core interests in any bilateral bargain. But better strategic communication can lead, first, to a modus vivendi on potential areas of concern, such as expanding China’s forays into South Asia and the Indian Ocean Region, or India’s interest in joining the US, Australia and Japan in the Quadrilateral grouping.

Second, better political understanding can unlock the economic complementarities of their huge economies. India is looking to prop up its declining rate of investment and build its infrastructure, and China is in a position to provide both; indeed, Chinese companies are very eager to do business in India. The Chinese are not unaware of their enormous export dependence on the US.

Third, it could open up a more sustainable path toward cooperation if China and India could settle their border dispute. The 20 rounds of border talks between the two Special Representatives have more or less completed the technical aspects of a border settlement. What remains is the political push, which can only be given by Modi and Xi. Are they up to it?

In 2014, there were expectations that there could be swift movement in this area given that both were strong leaders, capable of pushing a compromise in their respective domestic constituencies. Now that does not appear any longer to be the case.

Usually in such summits, detailing these issues and working out solutions and options are done well in advance. So have the two sides worked out a deal in advance, or are they truly going into an informal and unstructured summit? If the latter is the case, there could be hazards for India, considering the existing asymmetry of economic and military power between the two countries.

Asia Times April 25, 2018

When Modi meets China’s Xi in Wuhan, India starts from a position of weakness

So, India threw the Dalai Lama under the bus. Not my words, but those of a retired senior government official with years of experience of India’s China policy. He was commenting on a news report that appeared this week, which said that just before the Centre sent out a note to all government officials in February asking them not to participate in events commemorating the Tibetan spiritual leader’s 60 years of exile, India had already informed Beijing of its intended move.

Now we know why that happened. Prime Minister Narendra Modi wants to talk peace with Beijing. Why? The answer is obvious. In the run-up to general elections in 2019, the only thing that seems to matter to him is to make sure there are no unpleasant shocks for his government.

Among external actors, the one country that can spring an unpleasant surprise on India is China. After the Indians tom-tommed their great victory in Doklam – where Indian and Chinese troops faced off for around 70 days last year – the Chinese have been seething. And they have 4,056 km of the disputed Sino-Indian border across which they could spring that surprise.

So, Foreign Secretary Vijay Gokhale was sent to Beijing on February 23 to inform the Chinese that a) India would abjure from using the Tibet card as it had been doing for the past four years, and b) that it had no intention of intervening militarily in the Maldives, where China has interests.

Wuhan meeting

The reward, as it were, is the Wuhan summit between Modi and China’s President Xi Jinping that is to take place on April 27-April 28. We can only speculate about its outcome, but we do know that it is India that is going into it from a position of weakness. Hopefully, the two sides have already negotiated an outcome, because a truly unstructured event could blow up in our face.

There is a facile comparison being made that the Modi-Xi summit in Wuhan would be a repeat of the Rajiv Gandhi-Deng Xiaoping meeting of December 1988. Actually, the time that has passed since has ensured that it cannot be similar.

Both events came in the wake of face-offs that went well for India. In 1986-’87, under Operation Falcon, the Indian Army for the first time looked at the People’s Liberation Army eye-to-eye and forced it to recognise the fact that the balance of power on the border was no longer the one that had prevailed in the 1960s.

In 2017, the Indian Army intervened in Doklam to block a Chinese road-building project in territory claimed by both China and Bhutan. In the end, given their adverse position, the Chinese backed off.

The result of Rajiv Gandhi’s China visit in 1988 was that India agreed to set aside its demand that China settle the border dispute before there could be normalisation of ties. Talks took place that resulted in two far-reaching agreements in 1993 and 1996, which created an elaborate structure of confidence-building that has ensured that, despite occasional face-offs, the two sides have managed to maintain peace and tranquility along the border.

Since then, of course, relations between India and China have developed much greater complexity if only because they have developed much larger economies and corresponding interests in their respective regions. Indeed, the big problem is that their interests are now rubbing against each other in the South Asia-Indian Ocean region.

What can the 2018 visit yield ?

The Wuhan summit, although billed as informal, is a carefully prepared event. The story began in Xiamen, where Xi and Modi met on the sidelines of the BRICS (Brazil, Russia, India, China and South Africa) summit in September. It was at this summit that China signaled that it was not entirely deaf to India’s concerns about terrorism emanating from Pakistan.

It was also at this summit that the two leaders, aware of the dangerous confrontation in Doklam, gave their officials instructions to enhance “strategic communications” between the two sides – essentially, to step up high-level communications to resolve problems before they turned into confrontations.

The first step in this direction was the decision to hold the 20th round of talks between the special representatives in Delhi after a gap of 20 months. At this meeting in December, India’s National Security Adviser Ajit Doval met his counterpart, State Councillor and Politburo member Yang Jichei.

As usual, little was revealed about the content of the meeting, but the Indian press release did note that the two officials spoke of the need to emphasise their convergences and to find “mutually acceptable resolutions of their differences with due respect to each other’s sensitivities, concerns and aspirations”.

Subsequently, Gokhale – who was the Indian ambassador to China till October – made an official visit to Beijing on February 23. It was on the eve of this visit that he sent a letter to his colleague, the cabinet secretary, asking him to advise leaders and government functionaries to stay away from events marking 60 years of the Dalai Lama’s arrival in India.

On March 20, Modi spoke directly with Xi to congratulate him on his re-election as president and it was during this conversation that the Wuhan visit was finalised. Since then, we have seen Doval visit China, where he once again met Yang Jichei – now secretary of the Central Foreign Affairs Commission, the body that determines Chinese foreign policy – and the new Chinese special representative Wang Yi. Then earlier this week, External Affairs Minister Sushma Swaraj and Defence Minister Nirmala Sitharaman visited Beijing. These visits were in the context of the summit of the Shanghai Cooperation Organisation in Qingdao in June. But you can be sure the high-level discussions took into account the shifting Indian position on China.

Odds are against India

At first glance, the deck is stacked against India. It is the one that has publicly drawn back on Tibet and Maldives, moves that have not been reciprocated by China in any way. In that sense, they reflect the deeply asymmetrical nature of the Sino-Indian situation. China is also a far bigger economic and military power than India.

But at this juncture, Beijing also needs to secure itself from a putative American assault. Even though many see the trade war between the two countries as shadow-boxing, China knows it is in President Donald Trump’s crosshairs and is seeking to ensure that countries like India remain neutral.

Also, China is looking at India through a long-term perspective, in which it sees the Indian economy growing at a faster pace than its own in the coming decades. This huge economy can provide opportunities for investment and markets for Chinese products in an era where Beijing’s over-dependence on the United States is becoming manifest.

New Delhi’s handling of Beijing has been somewhat immature in the last four years. Instead of give-and-take diplomacy, it has hectored China, demanding that it support its membership to the Nuclear Suppliers Group and its efforts to get Jaish-e-Mohammed chief Masood Azhar declared a United Nations-designated terrorist. It has sought to take a position in the western Pacific, to counter China’s forays in the Indian Ocean. Its attempts to match up to Beijing reached ridiculous heights when it created a Forum for India-Pacific Islands Cooperation, even though it has no discernible interests in the South Pacific.

But there also seems to be a realisation in New Delhi that the sum total of these positions, which emphasise confrontation, are unsustainable. What worries Modi now is that Beijing could lower the boom in an election year, with all its unpredictable consequences.

Scroll April 25, 2018

On reforms in China

While the 19th Congress of the Communist Party of China (CPC)  that was held last October and the annual National People’s Congress  held last month garnered a great deal of international attention, little attention is being paid to the sweeping government restructuring going on in China.

Under this plan the CPC has enhanced its authority across the board, even while the government has been dramatically restructured. The end result is that  President Xi now has  more direct control over the levers of money and power and will push ahead with a series of reforms which will, first and foremost, moderate the risk that the  unreformed Chinese economy confronts, and then, if things work according to plan, take China to new heights of achievement. 

Actually in some areas China is mainly playing catch up, creating  new ministries and governing institutions to address the unmet needs of its huge economy. Many areas of regulation have been found wanting, people have taken advantage of regulatory loopholes and corruption has been rampant in many areas. Uncoordinated governance has also resulted in huge waste, while ineffectively supervised state owned companies piled on debt.

On March 21, the CPC released the Plan to Deepen Reform of Party and State Institutions. This forms the basis of the most drastic restructuring of the government and some Party organization in decades. The idea was to improve the control of the CPC, enhance, policy coordination, governance and efficiency. China has a parallel system where the Communist Party has its institutions which dominate those of the country, viz the People’s Republic of China (PRC). Famously, for example, the Chinese military is the armed wing of the CPC and not the PRC.

Earlier China worked on the assumption that over time, the Party will recede into the background and strong State institutions will be the norm just as they are in the rest of the developed world. But Xi clearly believes that this has encouraged unprecedented corruption and inefficiency and threatened the dominance of the CPC. So he has sought to clean up the CPC and make it central to the Chinese system again.

The thrust of the reorganization is two-fold. First, it seeks to moderate the risk the Chinese economy is facing because of its massive debt and deficits. And second, it seeks to equip China with instruments and institution s to manage its continuing rise.

As part of this, the new reforms Central Banking will become more central. The People’s Bank of China (PBOC ), their equivalent of our RBI,  now has gotten powers to write rules for much of the financial sector and its powers will pivot on the new Central Banking and Insurance Regulatory Commission.

Another key area that the new reforms will look at is that of the environment. The environment ministry is being  expanded, creating a new ministry of ecology and environment. By now it should be clear that the Chinese are serious about cleaning up their environment and this is evident from the huge  strides they have taken in Beijing.

The expansion of Chinese economic power globally will now be aided by a new foreign aid agency, the State International Development and Cooperation Agency (SIDCA), like the USAID or the Japanese JICA,  which will essentially formulate and execute China’s global outreach, including the Belt and Road Initiative. It will be headed byWang Xiaotao

 A new State Market Regulatory Administration  will be a powerful new regulator for companies operating in China. It will take over the work of the State Administration for Industry and Commerce, the China Food and Drug Administration and the General Administration of Quality Supervision. This is the first agency which will focus on anti-monopoly issues and also oversee the new State Intellectual Property Office. The SIPO will strengthen the creation, protection and application of IPR and give a push to Xi’s policy of promoting an innovation-based economy, and also provide a response to critics who charge China with large-scale Intellectual property theft.

As far as the Party is concerned, the reform has targeted Central Leading Groups which are high-powered groups of ministers, officials and Party members and who are the real decision-makers in China. Under the new plan, the CPC  abolished several Central Leading Groups and created new ones and promoted several from leading groups to central or commissions.

The central leading groups for deepening overall reform, cyberspace affairs, financial and economic affairs and foreign affairs are being given the rank of central commissions. It is no surprise since  Xi Jinping himself chairs these Central Leading Groups.

Among the new commissions coming up, the most significant is the National Supervisory Commission which will look into discipline and corruption cases. Unlike the Central Commission on Discipline and Inspection (CCDI) whose work is confined to the Party, the NSC will function at every level and in every part of life in China—universities, multi-national companies, banks, and so on.

One of the big losers is the National Development and Reforms Commission (NDRC) the Chinese equivalent of our Planning Commission.  It was known as the “little Cabinet” and wielded power in a range of areas from high-speed rail projects to electricity rates. It will remain as one of the 26 bodies of the State Council as the PRC government is known, but it will shed many of its functions to other agencies.

This could trigger a dramatic shift in the Chinese economy towards allowing the market play a decisive role in allocating resources, something that the Party wants, but which has been blocked by various vested interests. However, at the end of the day, the real proof of the pudding will be in its eating.

Greater Kashmir April 23, 2018

How Xi Jinping is playing the 'Trump' card in China

Whether US President Donald Trump is winning or North Korea's Supreme Leader, Kim Jong-un, is a matter of debate because the final deal has yet to be clinched. But one thing is sure, Donald’s way of doing things has got him much more of a payoff than his predecessors have managed.

So, the obvious follow-up question is: Are the Trump tactics working successfully on China as well? Has his strategy of hitting China with a massive dose of tariffs succeeded in bringing Beijing to heel?

Beijing now faces tariffs on $150 billion worth of products, though it has announced counter-duties, there are limits to what it can do for the simple reason that it imports far less from the US than it exports. US exports to China are just $130 billion while the US imports $506 billion worth of goods.

China needs US?

The answer there is more complicated. Many wonder whether China is playing the Americans, as it has done for the past four decades. But there are compelling reasons for China to meet the American demands of opening up its economy and these are actually overwhelmingly domestic.

China’s financial sector is in a bad shape. Earlier this year in January, the head of the China Banking Regulatory Commission Guo Shuqing pointed out that banking assets comprised 80 per cent of China’s total financial assets and so there was need to lower their risk.

In the past year, the regulators had focused on interbank business, wealth management products and off-balance sheet activity. To stave off the risks, the government has been taking stringent measures to regulate banking, securities and insurance industries, levying heavy fines on those charged with wrong-doing.

Guo, who is now the head of a combined Banking and Insurance Regulatory Commission, as well as the Secretary of the Communist Party within the People’s Bank of China, warned of the dangers, both obvious and hidden, in the coming period.

One of the big priorities of President Xi Jinping's government is the need to clean up the financial sector and ensure that it will not implode, taking the Chinese economy along with it.

But financial risks are just one aspect of the situation, China’s economy is also slowing down over the years, resulting in rising fiscal deficits and lower employment in the manufacturing industries. In 2017, China’s fiscal deficit — the difference between government revenue and expenditure — reached some $478 billion.

Jobs on a decline

Further, there has been a withdrawal of foreign investments, fed up with the manner in which the playing field is tilted against them in the country. Employment has been generally declining in the manufacturing sector, but the decline has been most marked in foreign investment industries.

In the recent period, China’s exports have been declining and it is actually becoming more dependent on exporting to the US. The bulk of its foreign trade surplus comes from the US and in the past decade, the US accounted for over 50 per cent of its exports.

Xi promised action

So, speaking at the Boao Forum earlier this month, Xi declared that China will not only ensure that its door will not close “but will only open wider.” He has promised action this year itself to open the financial sector, something that was hinted at last October around the time of Trump’s visit to China.

He has promised reform in the automotive sector which is the cause of considerable heartburn among foreign auto-makers. China will also boost its imports all around this year itself.

Following the Boao Forum, China announced that the entire island of Hainan, roughly the size of Kerala, would become a free trade zone and welcomed foreign multinationals to establish their regional and global headquarters there.

Aware of that some of these economic challenges could emerge as dangerous risks, Xi has been pushing for economic reforms. In 2013, the 3rd Plenum of the Communist Party had called for markets playing the decisive role in the country’s economy. Plans were made to set up free trade zones and provide greater market access to trade partners.

However, Xi faced headwinds that prevented the reforms from being followed through, corrupt officials and vested interests blocked change.

This was a major reason that he pushed through measures that provided him the option of having a third term as the president of the country last year. Four years down the line, it's clear now that Xi has consolidated his authority and China is now set to move on his reform agenda.

Ironically, in this, the American pressure actually comes to his aid as he can now rally the country to take measures to deal with the so-called American threats.

Mail Today April 23, 2018