India & China Thread

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mods plz move the articles if there is an existing thread as this one.


What’s India’s current relationship with China?
Experts say both India and China are pursuing their foreign policy goals more assertively as each country tries to position itself as the major political and economic force in Asia. "It's the start of the realignment of the balance of power in Asia," says Anupam Srivastava, executive director of the South Asia program at the University of Georgia's Center for International Trade and Security. Others say New Delhi is not quite sure how to deal with Beijing. "The Indians don't know what they want with China," says Sumit Ganguly, the Rabindranath Tagore professor of Indian cultures and civilizations at the University of Indiana, Bloomington. "On one hand, they see China as a major strategic threat," while at the same time a growing economic relationship is bringing the two countries into increasingly closer contact, he says. That economic growth has kept the bilateral relationship, with its potential for conflict, generally positive thus far. "There's a sense right now that they're both rising, and it's not a zero-sum game yet," says Adam Segal, the Maurice R. Greenberg senior fellow for China studies at the Council on Foreign Relations. "Right now it's still win-win."


What are the major elements of the relationship between India and China?
Energy. India and China are two of the largest, fastest-growing energy consumers in the world. India imports some 75 percent of its oil needs, while China imports about 33 percent of its oil. Their combined demand has helped drive oil prices to record highs, prompting both nations to try to lock down sources of energy around the world. China's quest for energy has prompted it to strike deals with countries from Africa—it has agreements with Sudan, Nigeria, Angola, and other nations—to Myanmar, Tibet, and Russia. India is also seeking oil in Russia, Kazakhstan, and Sudan, among other nations. In January, China and India agreed to a landmark energy cooperation deal that would prevent them from bidding against each other for energy resources. "The two countries realized that by very aggressively bidding for the same resources, they were pushing prices up for both of them," Srivastava says. "It's a lot cheaper for them to divide resources and cooperate." Both countries are also exploring alternate energy sources, a factor behind the nuclear deal India is negotiating with the United States.
Trade. Bilateral trade between India and China has gone from $332 million in 1992 to $13.6 billion in 2005, according to a paper by Srivastava published in the fall 2005 issue of the Indian Journal of Economics and Business. Trade between the two nations has grown at over 30 percent per year since 1999. India accounts for nearly 80 percent of South Asian economic activity and is a critical gateway to the region's economy. The two countries are increasing their economic cooperation, particularly in areas like technology. "There's this idea that India does software and China does hardware, and the two of them together could make a new Asian market," Segal says. But some experts say India is worried it will be forced into the role of supplier of minerals and low value-added goods to China, unless it can leverage its expertise in services and higher value-added manufacturing into the bilateral trade relationship.
Borders. The two nations have a longstanding territorial dispute in the Himalayas that led to a border war in 1962. Negotiations over the 2,000-mile border are ongoing. Among the areas of contention, India says China is illegally occupying Indian territory in the disputed region of Kashmir. China has claimed the rights to land in the northeast Indian state of Arunachal Pradesh.
Security. At the time of India's 1998 nuclear test, Indian officials said they needed nuclear weapons to deter China, an assertion that raised hackles in Beijing. "There are suspicions on the military side, but both leaders have kept it in check," Segal says. India is wary of China's longstanding relationship with its rival Pakistan, including Chinese assistance for Pakistan's nuclear weapons program and China's role in a project to upgrade a Pakistani deep-sea port at Gwadar. "The nuclear threat from China and Pakistan is combined, since China has built up Pakistan's nuclear and conventional capabilities," Ganguly says. China has also expanded its security ties with other nations around India, including Myanmar and Bangladesh. But "a direct military conflict doesn't serve either country's interest," Srivastava says, so Bejiing and New Delhi are compartmentalizing their differences so they can move forward on other issues. The two countries are now planning to conduct their first-ever joint naval exercises.


http://www.cfr.org/publication/9962/i

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What’s China’s role in the India-U.S. relationship?
Some experts say India is seeking a closer relationship with the United States both to improve its regional standing and to bolster its security position against China and Pakistan. Ganguly says India suffers from "status anxiety" in relation to its northern neighbor, and is "constantly peering over the Himalayas at China, trying to catch up." China began its economic reforms nearly a decade before India did and its per capita income is now nearly three times India's, he says. Beijing also enjoys greater world standing—including UN Security Council membership and a prominent role as a political power broker in situations like the North Korean nuclear issue—which some in India covet, experts say.

How will improved U.S.-India ties affect the U.S. relationship with China?
While U.S.-China relations have also shown steady improvement, there is a strong awareness from the U.S. side of China as an emerging competitor for everything from international markets to energy resources to military primacy. Some experts suspect the United States is cultivating a closer relationship with India to contain China, a factor they suspect is behind the recent nuclear deal. But some say this would be a mistake. "There's no better way to empty a drawing room of Indian strategists in New Delhi than to start talking about this idea," Blackwill said. Indian officials have "no interest whatsoever in trying to contain China because they believe this could be a self-fulfilling prophesy, and their whole policy is to seek the best possible relationship with China and to try to shape their policy to that end," he says. "Neither India nor the United States is interested in any kind of containment of China," Srivastava agrees. Still, he says, Chinese officials still harbor suspicions about U.S.-Indian intentions.

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China and Pakistan: A Deepening Bond

What is behind the relationship between China and Pakistan?
"Traditionally, the driving factor for China was a hedge against India, and for Pakistan it was gaining access to civilian and military resources," says Kenneth Lieberthal, a noted China expert and professor at the University of Michigan. Pakistan was one of the first countries to recognize the People's Republic of China, in 1950. In the 1960s, Pakistan and China grew closer as China's relationship with India worsened, leading to a border war in 1962 in which Chinese forces easily defeated the Indian army. Islamabad and Beijing have had close relations since, with Beijing providing economic, military, and technical assistance to its western neighbor.


How does the relationship serve each country’s policy toward India?
Each country helps the other to check India's power. India's dispute with Pakistan ties up its troops and attention—a boon for China, which still has an unresolved dispute over a long stretch of its border with India. Pakistan, in turn, gets access to military hardware and a powerful strategic partner. "For China, Pakistan is a low-cost secondary deterrent to India," says Husain Haqqani, a visiting scholar and South Asia expert at the Carnegie Endowment for International Peace. "For Pakistan, China is a high-value guarantor of security against India." While the relationship is not exactly balanced, it has been critically important to Pakistan, which has built its foreign policy around China. "Pakistan needs China more than China needs Pakistan," says Jing Huang, senior fellow in Asia Studies at the Brookings Institution. Subhash Kapila of the South Asia Analysis Group adds that "the cornerstone of Pakistan's strategic policies for the last forty years has been its undying military relationship with China."

For China, Pakistan provides a bridge between Beijing and the Muslim world, a geographically convenient trading partner, and a channel into security and political relations in South Asia. "China is trying to build up its global sphere of influence, and Pakistan doesn't mind China being a global power if it helps Pakistan become a regional power," says Haqqani.
What kind of assistance has China provided Pakistan?
"Pakistan is a major recipient of Chinese economic aid," Huang says, including "massive" cooperation in the defense industry. China provides Pakistan with the following defense aid:

Nuclear program. China supplies Pakistan with nuclear technology and assistance, including what many experts suspect was the blueprint for Pakistan's nuclear bomb. (Pakistan is suspected of having enough fissile material to build at least fifty-five nuclear weapons.) Some news reports suggest Chinese security agencies knew about Pakistani transfers of nuclear technology to Iran, North Korea, and Libya. China also had longstanding ties with Abdul Qadeer Khan, known as the father of the Pakistani nuclear program, and head of an international black market nuclear network. "The Pakistani nuclear program is largely the result of Sino-Pakistani relations," Huang says.
Ballistic missiles. Pakistan's army has both short- and medium-range ballistic missiles that experts say came from China and, indirectly, North Korea.
Aircraft. Pakistan is producing JF-17 Thunder aircraft jointly with China, which India worries could be used to deliver nuclear weapons. Pakistan also has a longstanding order—yet to be filled—for dozens of F-16 jet fighters from the United States for its air force.
Small arms. China has sold arms and even complete weapons systems to Pakistan, as well as setting up arms factories in Pakistan, according to a Congressional Research Service country report on Pakistan.

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How does the relationship with China affect Pakistan’s association with the United States?
Islamabad does not see positive relations with both Beijing and Washington as contradictory. "Pakistan thinks that both China and the U.S. are crucial for it," Haqqani says. "If push comes to shove, it would probably choose China

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India, China End Border Talks With No Agreement
By REUTERS, NEW DELHI


India and China ended three days of talks on their long-standing border dispute without a breakthrough March 13 but the Indian foreign ministry said both sides would meet again for further dialogue.

In a statement, the foreign ministry said the next round of talks on resolving differences over the 3,500 km (2,200 mile) border would be held in China but dates were yet to be decided.

The Asian giants fought a brief border war in 1962 but last year they agreed on a roadmap to settle the row politically.

New Delhi disputes Bejing’s rule over a vast area of uninhabited land on the Tibetan plateau which China seized during the war.
China claims 90,000 square km (35,000 sq miles) of territory mostly in the remote northeastern Indian state of Arunachal Pradesh which borders Tibet.

The latest round of talks were held in New Delhi and in the southern Indian state of Kerala and were led by National Security Adviser M.K. Narayanan from the Indian side and by Deputy Foreign Minister Dai Bingguo from the Chinese side.

The last round was held in Beijing in September

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CHINA: CRITICAL COMMENTS OF SCHOLARS ON INDIA’S MILITARY STRATEGY

Guest Column by D. S. Rajan

Appearance of several articles in the state-controlled Chinese language media on the military developments in India since the end of 2004 in the People’s Republic of China (PRC), suggest that the subject has become important, if not of immediate concern, for Beijing from a strategic point of view. Such assessments, which appear to be coming at irregular intervals from scholars of prominent think tanks in the country, do not however conceal China’s underlying fears over the likely long term security implications for the region including the PRC, arising from the evolving defence policy formulations in India.

Setting the stage for a reevaluation of India’s military strategy, an authoritative periodical (‘Contemporary International Relations’, in Chinese language, believed to be close to the PRC’s Ministry of State Security, October 2004) observed that India has shifted to an ‘active defence policy’.

A subsequent comment in the ‘Reference News’ (Can Kao Xiao Xi, Chinese language, restricted circulation, February 17, 2005) while highlighting the increases in India’s defence budget, remarked that this may lead to India’s going all out to import weapons from abroad. Injecting the ‘China factor’ into the matter, a viewpoint noticed later (Reference News, March 2, 2005) described India’s objective was to overtake the PRC in military expansion.

The next prominent coverage which came after a gap, citing New Delhi’s big military procurement contracts with Moscow, concluded (China Comments News Agency, January 24, 2006) that the world attention is now focused on how India is developing its arms and equipment and consolidating its military position in the South Asian Sub-Continent and the Indian Ocean.

A very recent signed article contributed by Professor Zhang Weiwei (PRC Foreign ministry-affiliated ‘China Institute of International Studies’, February 6, 2006) has spelled out China’s perceptions of India’s ‘current military strategy’. Identifying the three main components of India’s current strategy as strengthening military structure, realizing military modernization and becoming a global military power, the article pointed out that India’s present objectives are to become a military power on par with China, France and the UK. ‘Political and Military leaders, however, consider that from a long term point of view, India wants to achieve a military balance with China, the USA and Russia. Though India stands in no comparison with any of these three countries in the field of military technology, it aims to have a turn around in this field by 2010’.

Professor Zhang added that as part of changing strategy, India aims to establish its ‘hegemony’ in South Asia, control the Indian Ocean and extend its influence to the far-flung South China Sea and Pacific regions. Explaining the first factor, he said that Pakistan is the only country in South Asia having the strength to challenge India, but through waging wars with Pakistan three times, India has already weakened latter’s military potential. At present, India enjoys an edge over Pakistan in fields like conventional weapons and war capabilities, excepting in the nuclear sector. With geographic and other conditions favouring it, India could expand its strategic space in the region when compared to Pakistan. Opinions therefore point out that India has already become a super power in South Asia and the requirement for India now is only to continue the consolidation of such position.

Commenting on India’s efforts to build a blue water Navy and control the Indian Ocean, the Chinese scholar pointed out that in the Post-September 11 period, the region extending from West Asia to Southeast Asia including the Indian Ocean came under the definition of territory vital to India’s global strategy. Energy security has become important for India. Accordingly, India is enforcing a policy to control vital Sea Lanes of Communications whether it is Hormuz or Malacca Straits.

Elaborating the third component, i.e. India’s efforts to influence South China Sea and Pacific Regions, Professor Zhang opined that it meant a shift in New Delhi’s emphasis from South Asia to Asia-Pacific. The shift is also to be seen as part of developing ‘ Look East’ policy of India, seeking to strengthen links with Southeast Asian nations including the Philippines, Vietnam and Myanmar as well as the East Asian big powers like China and Japan. Separately, under its ‘active military diplomacy’, India’s military links with Russia (‘ally’), the US (‘natural ally’), Japan (to ‘reach a balance in the Asian situation’), China and Southeast Asian nations are growing.

Identifying another objective of India under its current military strategy as ‘entering the nuclear club’, the scholar stated that for New Delhi as the status of a nuclear weapon power is essential for the country’s comprehensive national strength; political, economic and diplomatic factors alone may not be adequate for India in attaining such strength. ‘The Indian Government claims to have the right to use nuclear weapons’ and it is ominous, according to the scholar. India’s development of nuclear weapons is primarily meant to get world recognition to its big power status and it can therefore be expected that New Delhi will continue to maintain the nuclear programme in its agenda, he concluded.

Professor Zhang at the same time perceived the following as constraints for India in pursuing its current military strategy – weak economic basis, lack of military technological strength and insufficient capacity to produce advanced weapons. India remains strategically important globally as an Indian Ocean power, a major player to the East of ‘unstable’ West Asia and a big nation southwest of China which allow it to be fit for the big power strategies like that of the US. But in future, India’s emergence may not be acceptable to the USA. In particular, the US may find the India’s long term objective to achieve naval domination over the Indian Ocean as a challenge to its own global strategic interests.

Admittedly, the articles appearing in the Chinese language media on India’s current military strategy do not seem to indicate a hardening of Chinese stand on the subject, at least for the moment. Relations with India continue to be strategically important for China and no definite anti-India trend (notwithstanding revival of references to India’s ‘hegemony’ in South Asia) can be discerned in the writings, which are mainly meant for the Chinese speaking domestic population. The importance however lies in the fact that the Chinese scholars have been allowed to deliberate on India’s military, a topic sensitive for bilateral relations. In contrast, the PRC’s English language press has so far remained cautious in their comments on India. Future trends will be interesting to watch.

(The writer is Senior Fellow, Observer Research Foundation, Chennai Chapter, India. He was formerly Director in the Cabinet Secretariat, Government of India. Email: dsrajan.orf@gmail.com

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Chinese prime minister hopes ties between the two countries will remain ‘vibrant’ in the future

BEIJING:China and India will usher in a “new Asian century,” Chinese Premier Wen Jiabao said on Tuesday, as he expressed hopes the world’s two most populous countries would build on their improving relations.

“I have a belief, that is when China and India are truly strong enough to fully bring out their own spirit and style, then that will truly usher in a new Asian century,” Wen told a press conference shortly after the end of national legislature’s annual session.

Wen played down concerns that China and India would become competitors when they became much stronger as they vied for foreign investment, energy and other scarce natural resources, as well as regional influence.

Wen recalled his successful visit to India last year, and said the two countries reached a strategic partnership for peace and prosperity, signed a political principle guiding the settlement of the border issue and worked out a five-year plan for China-India trade and economic development.

This year marks the year of friendship between China and India, Wen said, adding, “cultural exchanges will be high on the agenda.” “I hope by then our two countries’ fraternal and friendly relations will still be vibrant... and remain dear to the hearts of the two Oriental nations,” Wen said.

China-India relations have improved in recent years as both countries have made efforts to complement instead of compete with each other’s growth.

The two nations signed a landmark agreement in January to jointly secure energy security, rather than trying to outbid each other to secure reserves.

However the two countries still have not resolved a decades-old border dispute.

India says China occupies 38,000 square kilometres of Indian territory in Kashmir while Beijing claims 90,000 square kilometres of the Indian state of Arunachal Pradesh.

The dispute led to a brief war in 1962.

A formal ceasefire line was never established after the war but the border has remained mostly peaceful. The two sides ended three-day talks on the boundary dispute this week without resolving the issue, although they agreed to continue the dialogue at an unspecified date. Agencies

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China to be India's largest trading partner

Agencies/ New Delhi

China will overtake the US as India's largest trading partner in a year if the present trend of over 30 per cent annual growth in bilateral trade continues, Commerce Minister Kamal Nath said in New Delhi on Thursday.

The annual bilateral trade, currently estimated to be around $18 billion, is expected to reach $20 billion by 2007, one year ahead of target, said Kamal Nath, addressing the India-China Joint Business Forum, organised here by the Confederation of Indian Industry (CII).

"If the present annual growth of over 30 per cent, which in the last five years has even crossed 60 per cent, continues, China may be our largest trading partner in one year overtaking the US, with which our trade is around $21 billion," said Kamal Nath.

Echoing similar sentiments, China's Commerce Minister Bo Xilai said: "If the present trend of trade flow is maintained by 2010, the bilateral trade could reach $50 billion."

"There is a huge demand in the Chinese market. Last year, there was 95 per cent increase in input (raw materials) from India," said the Chinese minister, who is leading a large delegation comprising 40 officials and 42 business representatives to attend the India-China Joint Economic Group meeting being held after six years.

To boost investment flow, the two countries on Thursday signed a draft agreement on investment protection and promotion.

Inviting Indian companies to invest in China, Bo said the agreement would provide the legal basis to encourage the flow of investments.

The Chinese minister highlighted that the Canton Trade Fair, which is completing a centenary this year, would provide a good platform for Indian companies to showcase their products and services.

He said Indian investments currently constituted barely one per cent of the foreign direct investment flow into the country.

Stating that by 2010, the domestic market in China would be one of the biggest with the savings of residents expected to soar from current levels of $1.7 trillion to over $4 trillion, Bo said Indian companies should look more closely at the Chinese market for supply of luxury and consumer goods.

"We are keen that developing countries have a bigger share of the Chinese market," he said.

Setting up the mechanism to remove trade and investment hurdles, the two countries have decided to constitute six task forces to study issues like harmonisation of standards for products, non-tariff trade barriers, rules of origin of products and raw materials and consultations on WTO negotiations.

In addition, the two countries have decided to set up a CEOs' Forum to identify potential areas of investments and possible collaborations.

Led by China's Trade Development Bureau and the CII, the CEOs' Forum is expected to become operational in three months.

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Challenges ahead in Sino-Pakistan ties

By Ziad Haider

LAST month, President Musharraf visited China to celebrate 55 years of Pakistan’s diplomatic relations with its most valued ally. His focus was on securing energy assistance and bringing “our economic ties in consonance with our excellent political and diplomatic ties.”

The usual abundance of rhetoric and agreements, however, must not distract from three fundamental, though far from existential, challenges facing the relationship: internal security concerns in Pakistan, warming Sino-Indian ties, and China’s increasingly global orientation and commitments. Pakistan must cut through the “all-weather” emotion in its China talk and coolly appraise these issues as it looks to China to literally and figuratively fuel its economy.

During his trip, President Musharraf solicited civil nuclear assistance to meet Pakistan’s energy needs as per plans to expand nuclear power production from 437 MW to 8,800 MW by 2030. Prior to the visit, one Pakistani official noted that the issue was to be raised as one of “paramount importance” for Pakistan’s economic growth. Two of Pakistan’s three civil reactors have been built with Chinese assistance. Current international unwillingness to bend nonproliferation rules for Pakistan has left only the Chinese door ajar.

Yet the sole statement to emerge was President Musharraf’s claim that peaceful nuclear cooperation would continue. Whether this refers to existing facilities or jointly building new ones is unclear. Meanwhile, Beijing’s silence is unsurprising. Between its Nuclear Supplier Group commitments and the AQ Khan affair, there are clear sensitivities involved in airing a view for or against Pakistan’s case for now. Still, anonymous official statements have trickled in from Pakistan that “initially China is expected to provide us two more nuclear plants of 325 MW each preferably in 2006.” Whether this materializes remains to be seen.

President Musharraf also highlighted Pakistan’s strategic location and the Gwadar port as a “trade and energy corridor” to western China. He called for increasing the current $4 billion trade and advancing free trade zone negotiations. Along with 13 official agreements and memoranda of understanding in areas such as energy, trade, and defence, private firms concluded agreements for joint ventures worth $500 million. President Musharraf pledged to continue expanding exclusive economic zones for Chinese investors while Premier Wen Jiabao stated that China would encourage its enterprises to increase investment. Yet on the heels of the premier’s remarks came “I hope Pakistan will adopt measures to guarantee the personnel safety and property of Chinese in Pakistan.”

Herein lies the most obvious thorn in the relationship. Within two years, there have been three separate attacks on Chinese nationals working on key infrastructure projects. Last month’s incident brought the death toll to seven. “Pakistan now needs to put Chinese investors at ease,” noted one Chinese analyst. “Especially with the cartoon incident, investors need to feel they won’t be threatened.”

Such attacks hit Pakistan where it hurts, jeopardizing investments and friendships. And that is precisely why they are occurring. Two of the attacks took place in Balochistan where disenchantment with the federal government has translated into a violent low-level insurgency. Indeed, there is little reason to believe that other attacks won’t happen again unless internal security improves and institutional changes occur.

A more subtle challenge is warming Sino-Indian ties. With the post-Cold War tectonic shifts, the rise of China Inc, and the Sino-Indian thaw entailing a staggering $18 billion trade, the sound logic of a relationship forged to contain India has partially unravelled. China has for example assumed a more neutral tone on the Kashmir issue. Though it will still need “the Pakistan card” as it rubs shoulders with a rising India, the relationship has lost some of its burning necessity. Of course, Pakistan and India are also plodding along with peace talks but the parallel dialogue and dealings must prompt serious thought in Islamabad.

But perhaps the most critical if least recognized factor is China itself. The fact is that the globally oriented, economically booming, and internationally acclaimed China of today is not the isolated, ideologically and militarily inclined regional power that befriended Pakistan. While Pakistan remains of strategic value to China, it has become a less vital piece in China’s ever-expanding pie of friends and markets partly due to its limited economic appeal. Driving this evolving outlook are the significant generational changes in Chinese leadership.

Premier Wen Jiabao is by no means beholden to Premier Zhou Enlai’s warm outlook towards Pakistan. As such, ties between leaders will require personal chemistry and upgrading based on current realities. President Musharraf acknowledged as much in stating that his visit allowed him to get closer to the Chinese leadership.

With China’s great power is also coming great responsibility that may limit cooperation with Pakistan. In the nuclear realm, China has been under pressure from the US to assume global commitments to curb proliferation and demonstrate responsible nuclear stewardship. Self-interest also compels China to continue doing this. These trends pose the question of whether Chinese assistance in addressing Pakistan’s nuclear deterrent and energy needs might be less forthcoming in the future.

Much depends on Pakistan’s deeds and position in the non-proliferation system, and China’s strategic calculations. The US precedent of breaking non-proliferation rules for India certainly gives China more space to manoeuvre. “Now that the United States buys another country in with nuclear technologies in defiance of international treaty, other nuclear suppliers also have their own partners of interest as well as good reasons to copy what the United States did,” noted an editorial in the People’s Daily.
The irony in all this is that even as China’s growing politico-economic clout has somewhat reduced Pakistan’s importance in Beijing’s eyes, it has made China critical to Pakistan’s economic future.(re-iterating tht pak. needs china more than the reverse).
President Musharraf partially understands this. His call for broadening and injecting “strategic vigour” in the relationship through trade and investment recognize the long-term imperative of anchoring the relationship not just in the politico-military realm but also in the economy. But the question that lurks in the shadows is whether and at what cost to its own economy can Pakistan so decisively contribute to the Chinese economy as to command a greater share of Beijing’s increasingly roving strategic attention?

All this is not to say that the corrosive effects of realpolitik will eventually hollow out the friendship. As the older generation of the Chinese is wont to say when meeting Pakistanis, “women shi lao pengyou” or “we are old friends.” Old friends indeed and the relationship remains a strong one from which both sides benefit greatly. India alone remains a compelling, if less potent, basis for a union. But old friendships also require continual work adapting to each other’s changing interests and needs.

Here, the onus is on Pakistan because simply put it needs this relationship more than China. It must keep in mind that when inviting old friends over, one must first ensure that one’s own house is in order. But perhaps the more crucial lesson in geo-politics is that even old friends can change.

The writer is a Fulbright scholar in Malaysia.


editorial from dawn,pakistan.

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China dominates India on almost every macroeconomic indicator. In the 2003-04 GCR, China was ranked at 25th place on the macroeconomic environment index, compared with India’s 52nd place. Newspaper headlines reveal the same story: China has had a faster GDP growth, and its per capita income is twice that of India. China’s exports have been growing faster and are substantially larger in terms of volume. It produces more steel, builds more roads, highways and skyscrapers faster than Indians can build slums. For foreign analysts, the most favored measure of economic success is the level of foreign direct investment (FDI). And almost every comparison of China and India will tell you that China attracts 10 times the amount of FDI as India.

Looking at microeconomic indicators, however, a far more complicated picture emerges. In 2004, India ranked 30th in the BCI, far ahead of China’s 47th place ranking. On other components of microeconomic competitiveness—company operations and strategy, and quality of the national business environment—the Indians (30th and 32nd) were similarly ahead of the Chinese (39th and 47th). Yet perhaps the most stunning revelation is that since 1998—the first year this microeconomic ranking was produced—China’s standing has declined, whereas India’s has improved substantially.

Despite a sharp increase in FDI amidst a growth rate of nearly 10% a year, China’s microeconomic foundations for growth since joining the WTO have deteriorated. India, in contrast, has quietly and solidly improved its microeconomic competitiveness. In terms of BCI, China was ahead of India by two places in 1998; in 2004, it was behind India by a yawning gap of 17 places.

The most important thing to note in any China-India comparison is that there is a substantial difference between the macroeconomic measures and microeconomic measures of these two countries. China’s GDP growth is faster, as widely acknowledged, but its corporate performance has been very poor. The index of Shanghai Stock Exchange has declined by 50% since 2001. Based on Standard & Poor’s Compustat data for 346 top-listed companies in both countries, BusinessWeek calculated that the average Indian firm posted a 16.7% return on capital in 2004 versus 12.8% in China. This performance gap between Indian and Chinese firms has long persisted. According to a UBS report, during the 1998-2003 period, the average return on capital employed (ROCE) for an Indian firm was about 17%. For Chinese firms the figure was only 11%. If anything, these numbers may overstate Chinese performance. Many of the performance indicators do not take into account the fact that the cost of capital is heavily subsidized for state-owned firms in China. BusinessWeek quotes Chen Xiaoyue, president of Beijing National Accounting Institute, as saying that two-thirds of 1,300 listed Chinese firms fail to earn back their true cost of capital. This implies that return on capital might have been negative if capital were appropriately priced in China.

This growing gap between macroeconomic and microeconomic performances has several serious implications. That India came from behind China provides the single best proof that India’s achievements are due to its longer history of capitalism. The fact is that China was significantly ahead of India in economic liberalization in the 1980s and for the first half of the 1990s. My view is that economic reforms began to stall in China since the late 1990s, but in India they have continually moved forward, however gingerly.

The performance gap also raises some serious questions about the state of the Chinese economy. As Michael Porter of Harvard Business School, author of the microeconomic competitiveness study, pointed out: “Wealth is actually created in the microeconomic foundations of the economy.” GDP is an output measure, and the idea of economic growth is not so much to increase output but to create wealth. That the Chinese firms are making lower—and potentially negative—returns on their investments suggests that value is not being created. Indeed, there is now evidence that the Chinese economy is less impressive in wealth creation compared to the Indian economy. The World Bank has just released a report that provides some measurements on wealth creation (based on 2000 data). China’s per capita income is about twice that of India, but by wealth measures, China is only 37.6% wealthier than India. China looks especially poor in the area of intangible capital—which is a function of education, rule of law and other intangible characteristics of an economic system. China has an intangible capital of $4,208 per capita as compared with India’s $3,738.

Journalist Simon Long duly noted in a survey article in the Economist that China produced more, but India was more efficient in the long-run. Yet his conclusion seemed to proclaim: “But who cares?” This obsession with output measures—apparently shared by Brezhnev and Western observers alike—is extremely damaging. For one thing, this obsession overstates Chinese achievements and understates those of India. The outputs China produces are visible, especially in the form of skyscrapers in metropolises, but to appreciate Indian strengths one has to interact with Indian entrepreneurs and managers in order to understand their impressive visions and capabilities.

Output obsession has also led to a wrong policy model. The idea that building skyscrapers, airports, highways and power stations is equivalent to economic growth has done the biggest damage to China’s microeconomic competitiveness. In China, this idea has led to massive and forcible seizures of land, the destruction of perfectly functional housing structures and a reduction of arable lands. These actions are terribly destructive in their economic effects, one of which is that the sense of property rights security—so fragilely maintained since the end of the Cultural Revolution—is undermined. The damage is especially extensive in rural China. My own research shows that rural entrepreneurship flourished in some of the poorest regions of China in the 1980s, but in the 1990s, financing became more difficult and, according to Chinese education researchers, rural basic education suffered.

Quote:
Mr. Huang is an associate professor in international management at the MIT Sloan School of Management and the author of Selling China (Cambridge, 2003). He is working on a book about the domestic private sector in China, entitled Capitalism with Chinese Characteristics.

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source:

http://www.feer.com/articles1/2006/0603/p031.html

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China made a “demonstrative support” to Pakistan at the height of the conflict that its forces almost sparked off a stand-off on the Sino-Indian border in Arunachal Pradesh.

excerpt from.......
Chinese forces increased activity during Kargil crisis

http://www.nation.com.pk/daily/may-2006/1/index11.php

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& LA TIMES.....

media cant seem to get enough of this apparently.

http://www.latimes.com/news/nationwo...,7837110.story

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& NOW,THE COMPARISON OF FREEDOM!!!

http://www.computerbytesman.com/goog....htm?tiananmen

[Officer of Engineers]

China began its economic reforms alot earlier than India. It stands to reason that China made its mistakes alot earlier than India but to suggest India will not make mistakes is a bit too much to bet on.