China, India and the Future of South Asia


Richard Moore 

China, India and the Future of South Asia 

By Tarique Niazi 

China's growing presence in South Asia is riding on its
accelerated economic and strategic influence in the region.
This article gauges the interplay between economic,
particularly resource factors, and strategic factors in
China's advance in the region and its relations with South
Asian nations. One measure of China's economic outreach is its
current trade volume with all South Asian nations, which now
approaches $20 billion a year. [1] Its bilateral trade with
India alone accounts for $13.6 billion a year, a number that
Prime Minister Wen Jiabao has projected to grow to $30 billion
by 2010. [2] Yet it constitutes just 1% of China's global
trade as compared to 9% of India's. [3] These statistics pale
in comparison with the trade between China and East Asian
nations. China's trade with Japan, which was valued at $213
billion in 2004, [4] is more than 15 times that between
Beijing and Delhi. In 2004 China passed the United States as
Japan's largest trading partner. What is remarkable about
Sino-Indian trade, however, is its dramatic acceleration from
$338 million in 1992 to $13.6 billion in 2004. [5] The
projected $30 billion trade between China and India by 2010
will likely surpass Indo-U.S. trade that is currently valued
at $20 billion a year.

Sino-Indian trade links are gathering strength from India's
computer software industry. Prime Minister Wen attested to
this strength when he began his visit to India on April 9-12
with a stop in Bangalore, the Indian Silicon Valley. China,
which excels in production of computer hardware but lags in
computer software, is sending students to India for education
and training in software engineering. Similarly, it has opened
its doors to Indian software companies. Yet the software
industry only accounts for a fraction of the two-way trade
between Beijing and Delhi. Even Indian software giants such as
Tata Consultancy Services that have opened branches in China
are largely dependent on multinationals. [6] "Only a small
proportion of its work there is for Chinese customers." [7] As
a matter of fact, India's exports to China are predominantly
raw and processed materials, especially steel. Many skeptics
among Indians believe that India's inflated exports will drop
when China's construction boom ends. On the other hand, some
fear that cheaply-produced Chinese imports will eventually
hurt India's domestic industrial base. [8]

China's Premier Wen Jiabao and Indian Prime Minister Manmohan
Singh meet.

Except for Delhi, Beijing runs trade surpluses with all other
partners in the region, including Bangladesh, Nepal, Pakistan,
and Sri Lanka. But China makes up for its trading edge with
massive investment in these countries' infrastructural
development, socio-economic needs, and above all energy
production projects. Of all these areas, investment in energy
production has touched off the stiffest competition both
inside and outside the region. A case in point is the recent
U.S. offer of nuclear power plants to India. China quickly
followed up with a competitive offer of its own nuclear power
plants to Pakistan and Bangladesh to meet the latter's energy
needs. Beijing also showers these nations with low-cost
financial capital to help their struggling development sector.
The largest beneficiaries of Chinese economic aid are
Pakistan, Bangladesh, Sri Lanka, and Nepal - in that order -
emblematic of China's growing scale and diversification of
economic presence throughout the region.

China's Growing Strategic Influence

China has simultaneously deepened its strategic influence in
the region, notably with India's immediate neighbors -
Bangladesh, Nepal, Pakistan, and Sri Lanka. Beijing has long
had a close strategic partnership with Islamabad, but its
overtures to the remaining countries were hobbled by the 1962
Sino-Indian war and its pariah status as the "communist
other," which it endured until the early 1970s. China's entrée
in South Asia gained momentum following its conversion to the
market economy in the 1980s, as its coffers swelled with trade
and investment dollars. This economic strength opened the path
to South Asia, beyond its longtime ally, Pakistan. China
skillfully deployed economic incentives to draw Bangladesh,
Nepal, Pakistan, and Sri Lanka into its strategic orbit. For
China, Bangladesh is a doorway to India's turbulent
northeastern region, including the Indian state of Arunachal
Pradesh, to which China lays territorial claims. Although
China has backed off its claim to Sikkim, a tiny kingdom that
was incorporated into the Indian Union in 1975, its claim to
Arunachal Pradesh remains unchanged even after the new-found
bonhomie between Beijing and Delhi.

One issue of tension in South Asia concerns a conflict between
India and Bangladesh over another northeastern state, Assam,
where Indian leaders claim some 20 million Bangladeshis have
moved. Bangladesh denies such claims. It is certain, however,
that Assam has a significant Muslim minority that currently
accounts for 30% of its population. Nevertheless, Indian
officials, especially L.K. Advani, leader of the Bhartiya
Janta Party (BJP), which promotes Hindutva, a version of hyper
Hindu nationalism, fear that Assam will become India's second
Muslim-majority state, after the state of Jammu and Kashmir.
[9] Above all, China prizes Bangladesh for its immense natural
gas reserves of 60 trillion cubic feet (TCF), which rival
those of Indonesia. Bangladesh's geographic proximity to
Myanmar makes these reserves accessible to China through
pipelines. Also, Dhaka has granted China exploration rights
for developing natural gasfields of its own [10], but
large-scale development of gasfields will wait until the
question of pipeline is settled. In the meanwhile, Bangladesh
has opened to Chinese exploration "one of the world's largest
reserves of best quality bituminous coal," which is ash-free
and with little sulfur content. [11] Khalida Zia,
Bangaladesh's Prime Minister, during her visit to China on
August 17-21, further agreed to Beijing's investment in
developing her country's natural gasfields. targeting that
source of cheap energy for manufacture of industrial and
consumer goods for re-export to China. China will also assist
Bangladesh in nuclear power production. [12] By contrast,
India's access to Myanmar's gas reserves hinges on Dhaka's
willingness to allow Delhi a passage for laying a gas

Oil Exploration

Sino-Bangladesh economic relations are not, however, without
friction. The major irritant is the textile industry that
accounts for 77% of Bangladesh's annual exports, which are
valued at close to $4.6 billion. [13] Around 1.8 million
Bangladeshis are employed in this industry. With the
dissolution of the Multifiber Agreement on January 1, 2005,
which ended textile export quota for countries such as
Bangladesh, and China's entry into the World Trade
Organization (WTO), Dhaka's garment industry will now have to
compete with the world's textile giant - China. Beijing is,
however, calming such competitive tensions by outsourcing
textile jobs to Dhaka that have comparative advantage of
low-cost labor, which is half of China's. In addition, Prime
Minister Wen, during his visit to Dhaka last April, pledged to
consider zero tariffs on Bangladeshi exports to help bridge
Dhaka's yawning trade gap. More importantly, it is the
strategic relationship between the two that overrides their
non-strategic concerns. [14] Bangladesh's Prime Minister
Khalida Zia, during her visit to Beijing on December 23-27,
2002, signed the "Defense Cooperation Agreement," which was
further reinforced by Prime Minister Wen's most recent visit
to Dhaka.

Nepal's strategic location between China and India makes it
important. Nepal's borders meet China's restive western
province of Tibet on the one hand, and Indian states in which
Naxalites [15] are active on the other. Nepal's Maoist
insurgents, who control a vast swath of the countryside, have
cross-border links with India's Naxalites, whose activities in
many rural areas are the bane of the Indian government. [16]
Nepalese Maoists and Indian Naxalites share a Maoist belief in
the "village" as the pivot of revolution. It is widely
believed in India that both Nepalese and Indian Maoists are
sympathetic to China. Beijing, however, denies links with
either and whatever sympathies Mao era revolutionaries may
have had for the Naxalites, their program would seem to have
little resonance among contemporary Chinese leaders. What is
clear is that China and India vie for Katmandu's favor to
advance their respective strategic goals. Since the
replacement of Nepal's democratic government with an absolute
monarchy in February of this year, India has cold-shouldered
Nepal's King Gyanendra, while China has embraced him by
describing the so-called royal coup as Nepal's "internal
matter". [17] In return, China wants the Nepalese monarch to
stay clear of any foreign (Indian or the U.S.) influence that
could make trouble in Tibet. To strengthen the political
status quo in Tibet, China is integrating Nepal into the
Tibetan economy, laying a highway that will connect the two.

In the same way, Beijing cherishes friendly relations with Sri
Lanka, which occupies a strategically important heft of the
Indian Ocean stretching from the Middle East to Southeast
Asia. After 9/11, the U.S. sought access to Sri Lankan ports,
airfields and air space for its armed forces under the
Acquisition and Cross Servicing Agreement (ACSA). The ACSA is
the first such agreement between Sri Lanka and a Western power
since its independence in 1948. (Though in the early 1980s,
Colombo allowed a radio transmitter on its territory to beam
Voice of America (VOA) broadcasts into China, Myanmar, and
North Korea.) Both China and India would prefer Sri Lanka to
stay out of Western alliances, as they jostle for advantage
with Colombo. Sri Lanka's prolonged ethnic conflict between
its Sinhalese majority and the Tamil minority has, however,
strained its relations with Delhi. India, with a
Tamil-majority state of its own, treads cautiously in
mediating the conflict, which makes it suspect with Colombo.
Tamils are not just India's "co-ethnics" but "co-religionists"
as well. As Hindus resisting the domination of the Buddhist
Sinhalese majority, the cause of Sri Lankan Tamils resonates
with the Hindu majority in India. This groundswell of support
influences India's policies towards the Tamil-Sinhalese
conflict. In May 1991, a Tamil suicide bomber assassinated
Rajiv Gandhi, a former prime minister of India, for sending in
20,000 Indian troops to keep peace in Sri Lanka. Although
India was outraged by Rajiv's assassination, its official
policy continues to seek justice for the Tamil minority.
China, however, with no such concerns to balance, boldly
vouches for Sri Lanka's territorial integrity with little
regard for the national aspirations of the Tamil minority.

Of all these nations, Pakistan's strategic significance has
long been preeminent for China. Although smaller, Pakistan
rivals India in possession of nuclear weapons. It has long
denied India access to western and Central Asian nations,
while at the same time literally paving the highway of
Karakoram for Beijing's direct access to Eurasia. Above all,
it has tied down 500,000 to 700,000 Indian troops in the
Kashmir Valley for the past 15 years, thereby indirectly
easing India's challenge to China's defenses on their disputed
border. Although both countries agreed to the status quo on
the border, their troop deployment along it remains unaltered.
More importantly, Pakistan emboldens the region's smaller
economies to stand up to India and seek Chinese patronage,
which hurts India's stature in the region. Although India is a
potential regional economic powerhouse, its economic clout is
far from matching China's. Moreover, India is encumbered by
border disputes with almost every neighboring nation, which
make its neighbors more receptive to Beijing's economic and
strategic outreach.

China's Diplomatic Triumph

Besides strategic gains, China has benefited diplomatically
from its growing influence with Bangladesh, Nepal, Pakistan,
and Sri Lanka. Today, all of these nations affirm the
"one-China" policy, stating that Taiwan is an "inalienable"
part of the People's Republic of China (PRC). India also has
affirmed a "One-China" policy but with a difference: while
declaring Tibet an integral part of China, it continues to
host the Dalai Lama. By contrast, all India's neighbors shun
the Dalai Lama while proclaiming that Tibet is an integral
part of China. With China eager to join the South Asia
Association for Regional Cooperation (SAARC), which presently
represents the seven nations of Bangladesh, Bhutan, India,
Maldives, Nepal, Pakistan, and Sri Lanka, all six of India's
partners call for Beijing's entry into the SAARC - to the
palpable annoyance of Delhi. Thus, at a time when China is
making successful overtures to ASEAN and throughout the South
China Sea, it is also extending its diplomatic and economic
reach toward South Asia, SAARC and the Indian Ocean. [18]

India, as the resident power of South Asia, considers the
region its "near abroad," and does not want Beijing to intrude
on to its turf. What unnerves India most is China's eye on
South Asia's biggest prize: the Indian Ocean. While India
would like to prevent China's advance into its sphere of
influence, it lacks the regional or international clout,
diplomatically, militarily or economically, to stem Beijing's
march on South Asia or the Indian Ocean.

China, however, has sought to calm Delhi. Prime Minister Wen
Jiabao's four-day visit to India on April 9-12 attests to
growing efforts to woo Delhi. China's major goal is to keep
India from forging military and strategic alliances with the
U.S. that might undermine Beijing's goal of reunification of
Taiwan. Well aware of India's historic concerns for its
territorial integrity, China deftly plays on India's
nationalist instincts and its visceral aversion to domination
by foreign powers. China's deft diplomacy is facilitated by
the current U.P.A. (United Progressive Alliance) government of
India that rests on a liberal-left coalition, many of whose
members are more suspicious of western powers than of Beijing.

Beijing's overtures to Delhi are strengthened by its failed
effort to wean Tokyo away from the U.S. orbit and by growing
China-Japan tensions over territorial and historical issues.
Tokyo's stand on Taiwan, its decision to welcome the U.S. 1st
Military Corps to Japan with important implications for
aggressively redefining the US-Japan Security Treaty, and its
view of Beijing as a threat to Japan's national security, all
further distance the two. Against this background, Wen's
ability to convince Delhi to agree to form the "India-China
Strategic and Cooperative Partnership for Peace and
Prosperity" is significant. The partnership has been touted in
Beijing as "the most significant achievement" of Wen's
four-nation tour (April 5-12), which took him to Bangladesh,
India, Pakistan, and Sri Lanka. [19]

Seeing new possibilities for a breakthrough in its relations
with India, Beijing recently made a number of bold concessions
as a means to improve relations. Not only did China accept the
long-disputed territory of Sikkim as part of the Indian Union,
Prime Minister Wen even presented Indian Prime Minister Man
Mohan Singh with cartographic evidence of his government's
changed stance: an official map that shows Sikkim in India. In
response, Delhi backed off its long-held stand on Tibet,
accepting it as an integral part of the People's Republic of
China (PRC). For its part, Delhi agreed to accept the status
quo in their border dispute until a mutually satisfying
resolution is found. China wants to keep Aksai Chin, an area
of 35,000 square miles in Ladakh, Kashmir, which it seized
from India in 1962 while India wants to reclaim Aksai Chin
through negotiations. Aksai Chin offers strategic access to
China's restive western region of Xinjiang, which makes it
difficult for China to let go of it.

Significantly, China agreed to support India's bid for a
United Nations Security Council (UNSC) seat, albeit without
specifying whether it would endorse the Indian call for veto
power. This stands in sharp contrast to China's leading role
in blocking Japan's effort to obtain a Security Council seat.
China has also softened its longstanding commitment to
Pakistan on Kashmir, perhaps in part because of the reported
infiltration of Muslim fighters from Kashmir into the Chinese
Muslim-majority autonomous region of Xinjiang.

China appears to be prepared to make these concessions to
Delhi in order to forge a "strategic partnership." For its
part, India is interested not only in defusing tensions with
China. With China poised to overtake the U.S. as India's
largest trade partner, India is also seeking to boost
bilateral trade and ensure energy security. India's giant
appetite for energy resources will soon rank it as the world's
third largest consumer of fossil fuels after the U.S. and
China. Delhi hopes its strategic partnership with Beijing will
facilitate its energy drive.

However, the quest for energy is marked by both competition
and cooperation between Beijing and Delhi. In South Asia, it
is the competition that dominates. India is competing with
China to woo energy-rich nations such as Bangladesh and
Myanmar that are politically closer to China. Thus far, Delhi
has been blocked in attempts to build a pipeline from Myanmar
to India, which would run through Bangladesh. The fact that
Myanmar remains within the Chinese sphere of influence, makes
it difficult to move ahead with the plan. [20] China, on the
other hand, is building a 1250-kilometer pipeline from gas
fields in Myanmar to its Yunnan province. China is also
building a deep-sea port at Gwadar, Pakistan, along the
Arabian Sea coast, which will help diversify its energy
shipments from the Middle East to Central Asia. [21] For its
part, India is building Chahbahar port in Iran to gain access
to oil and gas reserves in central Asia through Afghanistan.
Elsewhere, India and China are cooperating in energy
development. For example, they have agreed to invest to
develop Iran's giant oilfield of Yadavaran. Similar joint
ventures between Beijing and Delhi have been made in oil and
gas development in the Sudan.

While strengthening ties with India, China faces the challenge
of keeping Pakistan on its side. Islamabad has a long history
of military alliances with the U.S. from CENTO and SEATO in
the past to its present status as the major non-NATO U.S. ally
in the region and a nation whose importance to the U.S. grew
with the war in Afghanistan. Unlike India, Pakistan always has
been malleable to U.S. influence. Wen Jiabao, however, drew
Pakistan into a "Treaty of Friendship, Cooperation, and Good
Neighborly Relations [22]," which binds both signatories to
desist from joining "any alliance or bloc which infringes upon
the sovereignty, security, and territorial integrity of the
other side." [23] Gen. Pervez Musharraf, Pakistan's military
leader, has attempted to keep the contents of the Treaty under
wraps by blocking the release of its full text, despite the
fact that China's People's Daily published it. Nevertheless it
is obvious which of the two will have to avoid unwanted
alliances, and whose interests of "sovereignty, security, and
territorial integrity" will be served.


China has invested in South Asia's smaller economies of
Bangladesh, Nepal, Pakistan, and Sri Lanka to gain a strategic
foothold and create a diplomatic profile in the region. This
effort has transformed the region from India's "near abroad"
into China's own backyard. India's economic power and military
might in the region are counterbalanced by a growing Chinese
presence. China has, for the most part, used its strengthened
position in the region to make peace with Delhi in such
longstanding conflicts as border disputes, and it has joined
India in joint energy development projects, despite the
latter's strategic partnership with the U.S. China's gains in
reaching accommodation in both South Asia and Southeast Asia
stand in sharp contrast to the deepening conflicts in
China-Japan relations.


1. China's current trade with India ($13.6 billion), Pakistan
($3.06 billion), Bangladesh ($1.14 billion), Sri Lanka
($350 million), and Nepal ($200 million) is rapidly
growing. Although reliable trade figures are not known for the
remaining two South Asian states of Bhutan and Maldives,
the total volume of bilateral trade between China and South
Asia is set to reach $20 billion a year. See "Boost  
All-weather Partnership between China, Pakistan." People's
Daily, April 5, 2005. Habib, Haroon (2005). "Bangladesh,
China Sign Nine Agreements." The Hindu, April 9, 2005.

2."Sino-Indian Trade to Reach $30bn 2010." Press Trust of
India (PTI), April 11, 2005.

3. The Economist (2005). "Rivals and Partners." The Economist,
March 3, 2005.

4. Blustein, Paul (2005). "China Passes U.S. in Trade with
Japan: 2004 Figures Show Asian Giant's Muscle," The
Washington Post, January 27, 2005.

5. The Economist (2005). "Rivals and Partners." The Economist,
March 3, 2005.

6. op. cit.

7. op. cit.

8. The Economist (2005). "As China's prime minister goes to
India, Indians should learn that they have less to fear
from their giant neighbor than they think." The Economist,
March 3, 2005.

9. Prominent among them is Mr L.K. Advani, leader of the
opposition, who accuses Bangladesh of infiltration into
Assam and neighboring northeastern states. See Dutta,
Sreeradha (2000). "Security of India's Northeast: External
Linkage." Strategic Analysis, vol. xxiv(8), November 2000.

10. Bajpaee, Chietigj (2005). "India, China Locked in Energy
Game." Asia Times, March 16, 2005.

11. op. cit.

12. "Khalida, Jiabao hold official talks: Six deals signed:
China to help peaceful use of nuclear energy." The New
Nation (Online Edition), August 18, 2005.

13. Zeitlin, Arnold (2005) "Bangladesh's Ambivalent Relations
with the PRC." China Brief, volume V(5), March 1, 2005.

14. Kapila, Subhash (2005). "Bangladesh-China Defense
Cooperation Agreement's Strategic Implications: An analysis."

15. "Naxalism" is a village-based peasant movement that is
fast spreading in southern and northeastern states of
India, which include Andra Pradesh, Madhya Pradesh, Uttar
Pradesh, Bihar, Jarkhand, Maharashtra, Orissa, and Tamil Nadu.
The Naxalite movement adheres to Marxist and Maoist
ideologies, which are believed to bind it with Maoists in
Nepal, also.

16. "The Bothersome Little People Next Door." The Economist,
November 4, 2004. The Economist estimates that at least
some Naxalite activity can be discerned in as much as forty
percent of India's 593 districts.

17. The Chinese Foreign Ministry's spokesman Kong Quan called
King Gyanendra's dismissal of the Nepalese government "an
internal matter of Nepal." see "China Hopes Nepal to
Realize Social Security." Xinhuanet, February 1, 2005.

18. See David Rosenberg, Dire Straits: Competing Security
Priorities in the South China Sea, Japan Focus, Japan  
Focus posted April 13, 2005.

19. See Mahmood, Afzaal 92005). "Sino-U.S. Rivalry and South
Asia." The Dawn, Karachi (Pakistan), April 16, 2005.

20. Bajpaee, Chietigj (2005). "India, China Locked in Energy
Game." Asia Times, March 16, 2005.

21. Niazi, Tarique (2005). "Gwadar: China's Naval Outpost on
the Indian Ocean." China Brief, vol. V (4), February 15,

22. The treaty was signed on April 5, 2005 by Chinese Prime
Minister Wen Jiabao and Pakistani Prime Minister, Shaukat
Aziz. For reference, see "Pak, China Sign Treaty of
Friendship; Beijing's Assurance to Defend Territorial
Integrity, Sovereignty." The Dawn, Karachi (Pakistan),
April 6, 2005.

23. See Mahmood, Afzaal 92005). "Sino-U.S. Rivalry and South
Asia." The Dawn, Karachi (Pakistan), April 16, 2005.

Tarique Niazi teaches Environmental Sociology at the
University of Wisconsin, Eau Claire. He specializes in
resource-based conflicts. He prepared this article for
Japan Focus. Posted August 21, 2005.


ISSN: 1557-4660 

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