While his leadership ambitions may not be tied directly to China’s economic performance, President Xi Jinping may not be able to ignore the gathering clouds
As military tensions rise in Taiwan Strait, US House Speaker Nancy Pelosi’s high-profile visit to Taiwan has come as a moment of truth for Xi Jinping. The 20th Party Congress, the quinquennial event where China decides on its leaders, is scheduled for autumn. The Chinese president would like nothing more than to maintain political stability at home to ensure a smooth third term at the helm. It is an objective towards which he has been plotting for a long time.
Yet events foreseen and unforeseen are queering his pitch, stacking up in a way that Xi might be tempted to take the easy way out by ratcheting up nationalist sentiments, distract an increasingly disgruntled public and tide over present challenges.
One way of doing that, is to stir up more trouble over sovereignty disputes along China’s periphery, and along with Taiwan Strait and South China Sea, the Himalayan frontier with India also comes within this ambit. The ripple effect of Taiwan crisis could serve to further intensify the Sino-Indian border standoff.
These are troubled times for Xi. Some of it is his own making. XI’s zero-Covid policy has broken the back of the Chinese economy, causing gangrene that is spreading across all sectors. While his leadership ambitions may not be tied directly to China’s economic performance, Xi may not be able to ignore the gathering clouds.
China’s GDP has collapsed to 0.4 per cent in the second quarter, its slowest growth in two years. Job cuts have become rampant, manufacturing has shrunk. The property sector, which constitutes one-fifth of the Chinese economy, has been hit the hardest. Some estimates say sales have plummeted by 33.4 per cent in July against a rise of 88.9 per cent in June, triggered chiefly by a mortgage boycott as home buyers refuse to pay for presold, unfinished apartments.
Figures vary, but more than 300 projects are affected by the public boycott spread across 100 cities, affecting real estate worth nearly $300 billion. This hits the Chinese middle-class particularly hard, and their anger and patience is spilling over.
An equally serious problem is unemployment. Nearly 20 per cent of young graduates in China cannot get a job. Unemployment has affected 15 million youth, while many are underemployed. This is creating dissent among the jobseekers and may eventually lead to a collapse and renegotiation of the social contract between the CCP and the Chinese people.
To these problems, the Taiwan crisis has added another dimension. Having set the bar of incendiary rhetoric around Pelosi’s visit recklessly high, China now has a problem of matching actions with words. Beijing has already heaped economic sanctions on Taiwan, unleashed fighter jets on Taiwanese airspace, launched multiple ballistic missiles into Taiwanese waters and is conducting long-range, live-fire shooting drills in six spots, effectively blockading off Taiwan.
And yet, even these dangerous, provocative and escalatory steps are seemingly not enough to satiate the charged-up crowd in China who were gaslit that Pelosi’s aeroplane would be intercepted by Chinese fighter jets when it enters Taiwanese airspace and may even be shot down. Xi now faces a crisis of credibility of his own making. The palpable disappointment among the public may serve to even erode his authority, say some Chinese analysts.
At the moment, Xi needs to look strong. The cocktail of pressure may force him to act even tougher against Taiwan. He may gamble on reigniting territorial flashpoints around China’s borders to regain control over the narrative, divert public attention from growing questions around a faltering economy and his leadership.
In this context, China’s steps regarding the LAC deserve closer scrutiny. It is also worth decoding India’s response and the trajectory of bilateral ties.
China’s attempt, with respect to India, seems to be to keep the LAC pot boiling, force India to accept destabilisation as the ‘new normal’, and lock the border standoff in a silo so that ties may move along, as against India’s express desire to de-escalate and disengage for a return to ‘normalcy’.
The 16th round of talks came after a long pause, ostensibly due to China’s disinterest, and reports indicate Beijing’s “refusal to discuss Demchok and Depsang” has stalled any progress.
It is evident that while China has no plans to let the border standoff develop into a full-blown crisis, it seeks to encompass bilateral ties within a dual framework of adversity and tactical cooperation, which scholar Antara Ghosal Singh describes in her paper for Stimson Center as a “new balance or equilibrium: where through ‘controlled conflicts’ at the disputed border, a ‘rising and confident’ India is brought under check, and China’s strength and psychological advantage in bilateral ties are restored.”
This framework is useful for China because it has added advantages. An unstable LAC pins India down on the Himalayan frontier, stretches its force capability and drains its resources, freeing China to play its game on the maritime front, military historian Probal DasGupta tells me in a recent conversation. Mitigation of the continental threat — not the maritime frontier where India has a natural advantage — then becomes India’s highest priority, adds DasGupta.
Satellite images show that along the Amo Chu river, China is building villages that cut 10km into Bhutanese territory. These dual-use villages, called pangda, may give Chinese troops access and control over Jhamperi ridge, allowing PLA a direct line of sight over India’s Siliguri Corridor choke point.
China is also conducting air exercises close to the LAC, and Chinse jets are frequently violating the 10km ‘no-fly’ zone in eastern Ladakh, testing the viability of confidence-building measures. Snehesh Alex Philip reports in The Print that the Chinese “have spent the last two years building up the infrastructure at its bases close to the LAC, including the ones at Shigatse, HJotan, Kashgar among others. These bases have now got longer runways, hardened and underground shelters, besides deployment of a larger number of aircraft.”
On infrastructure front, South China Morning Post has reported that China plans to build a highway called G695 — part of its national programme of building 461,000km of highway and motorway by 2035 — that runs from Lhunze county in Tibet to Mazha in Xinjiang, passing through Tibet, Nepal and some parts claimed by India. The highway, according to the report, “may also go near hotly contested areas such as the Depsang Plains, Galwan Valley and Hot Springs on the LAC.” The highway runs through some of the most desolate areas of the planet, so it is likely to be used for military purposes, not civil.
India’s response to the events unfolding around the LAC and the trajectory of bilateral ties can be divided into structural and tactical — within an overarching framework of pushing back against China’s attempt to impose a ‘new normal’, firming up regulations on Chinese investments and taking a more hawkish view of Chinese trade practices in India, though a hard decoupling can safely be ruled out.
India’s steps include structural developments such as investing in ‘vibrant villages’ programme. This program, for which monetary allowance was made during the budget this fiscal, is aimed at tackling China’s gameplan of imposing de facto legitimacy in the gray areas under Beijing’s control by erecting ‘border defence villages’, called ‘xiaokang’, along the border where the Han Chinese population are translocated. China started constructing these ‘dual-use’ villages in 2017 to strengthen claims over disputed territories and normalising troop habitats.
India is cognizant of the threat, and through its Vibrant Villages Programme (VVP) is focusing on providing essential infrastructure, connectivity, sanitation to some of the most far-flung villages along its northern border. Though, as Union Minister of State for Home Affairs Nisith Pramanik recently admitted in the Lok Sabha, a lot of work in this regard is still to be done.
China experts such as Jayadeva Ranade has pointed out that though government intervention is crucial, the VVP programme won’t succeed unless there is a ‘whole-of-nation’ approach and active participation from the civil society and the corporate sector. Unlike the authoritarian China, we cannot forcefully relocate people to a new settlement. Ranade, however, writes in The Tribune that “though India initiated this effort later than China, the topography and scenic beauty of its border areas have the potential for rapid development of these areas.”
Alongside, the Indian defence ministry is holding Tibetology courses for army officers to “strengthen their connect with the Tibetan community in the border areas”, and the Chief of Army Staff, Gen Manoj Pande, recently went to Bhutan where he undertook discussions with Bhutanese King Jigme Khesar Namgyel Wangchuck and other top civil and military leaders ostensibly on “Chinese activities in the plateau and adjoining areas and ways to further enhance bilateral defence cooperation,” say reports.
The IAF is scrambling jets in response to China’s provocations along the LAC, carrying out night sorties, flying Rafales and Su-30MKIs in response to China’s air exercises and deploying a new S400 squadron along the northern borders with China.
It also can’t be a coincidence that the latest round of the Indo-US joint exercise, ‘Yudh Abhyas‘, slated to be held in October and featuring high-altitude warfare will be held in Auli, Uttarakhand, near the LAC.
The Indian government has also been publicly engaging with the Dalai Lama this year. The prime minister wished the Tibetan spiritual leader on his 87th birthday on July 6 and posted the news on Twitter. New Delhi also allowed the Dalai Lama to go to his residence in Leh, Ladakh, for a month-long visit. The Tibetan spiritual leader has also been talking to the media, and last week asked his followers to be “compassionate”, “despite what China has done to Tibetans.”
The Tibet issue has been used as a signaling mechanism by India in the past. Pressing the Chinese pain point should be read — along with the strategic and tactical moves — as New Delhi pushing back against Chinese efforts to ‘put the relationship back on track’ without acknowledging ‘peace and tranquility at the border’ as key to restoration of normalcy. It has also been India’s constant diplomatic refrain.
We have, therefore, two competing versions of ‘normalcy restoration’ clashing against each other in a battle of will along the LAC. China is questioning the validity of April 2020 status quo and signaling that it has no wish restore that status while India is digging in for the long haul, using all leverages at its disposal to repel China’s plan and getting ready for a protracted battle of attrition.
Catching up on infrastructure development along the border is an integral part of that plan. According to latest figures provided by the government, India has built 3,595.06 kilometres of border roads in the last five years, of which 2,088.57 km of ‘all-weather roads’ at a cost of Rs 15,477.06 crore have been developed along the India-China boundary.
This, to a large extent, addresses the threat that China’s frenetic infrastructure building poses to India’s strategic interests, as defence analyst Rohit Vats tells me in an email interview. The G695 and other highway networks being built by China are aimed at improving PLA’s connectivity between its bases in Tibet and the LAC, says Vats.
According to him, the G695 highway builds on the “lateral road (that) has existed for quite a long time; the Chinese are now working towards closing gaps (bridge on Pangong Tso to connect Spanggur Tso with Kongka La) and widening and strengthening the road.”
Vats points out that the road “will allow the Chinese forward positions and sub-nodes to support each other by providing lateral connectivity. The Chinese can shift troops fighting vehicles and logistic support between forward nodes or sub-nodes without having to call for additional support from major nodes in depth. This is a major advantage because ability to switch troops and formations between sectors and sub-sectors allows an adversary to exploit a situation by quickly concentrating its troops and firepower.”
On the threat perception this and other similar infrastructure pose to India, Vats says that “it does not create any extraordinary threat” since “with the completion of DSDBO (Darbuk-Shyok-DBO) Road, we had also completed our lateral connectivity between all sectors and are also building additional roads in depth.”
“India’s concern”, he adds, ” was east-west connectivity because of presence of major mountain ranges running in north south direction (Ladakh Range, Karakorum Range). We’re addressing it by building more roads across previously unexploited passes.”
We have a holistic look at the various steps India has and is taking, but that account will remain incomplete if we don’t consider the arena of trade and commerce where despite a ballooning trade deficit India does enjoy some leverages, and has been using those for a more offensive posture against Chinese investments and Chinese businesses in India to eke out a more favourable outcome on the border standoff.
India has announced that telecom businesses may only purchase devices from “trusted sources” for network expansion or upgrades, effectively firewalling Chinese firms from lucrative 5G services. New Delhi has also been taking a sterner view of the trade malpractices of Chinese firms in India, that includes evasion of tax, violation of FEMA and other financial chicanery.
Continuing from last year when the Enforcement Directorate (ED) had raided the offices of Chinese smartphone manufacturers Xiaomi and Vivo, taxmen in April this year seized Rs 5,551.27 crore from Xiaomi for forex violations and followed it up with raids on properties of Vivo in July. According to reports, the ED found that the Indian arm of Chinese smartphone maker had “remitted” a whopping Rs 62,476 crore to China to avoid paying taxes in India.
A few days later came another wave of searches against Chinese smartphone maker Oppo India, and it was found that the company has evaded customs duty worth Rs 4,389-crore. Oppo India is a subsidiary of China-based Guangdong Oppo.
India has also banned more than 100 Chinese apps, including a popular combat and survival game app called BGMI, ostensibly due to its links with China’s Tencent which holds a 13.6 per cent stake in South Korea’s Krafton, the developers. India is also cracking down on Chinese lending apps, and on Thursday the ED has attached Rs 105.32 crore in various bank accounts related to these scammy apps against whom FIRs from victims were piling up.
These steps have drawn howls of protests from Beijing, but India seems determined to erect guardrails for Chinese businesses in India, and these measures are seemingly coordinated with a spate of regulations aimed at limiting Chinese investments and keeping the funds away from strategic and sensitive areas.
India has already made Chinese investments subject to government approval, and data from Department for Promotion of Industry and Internal Trade (DPIIT) shows FDI from China has fallen from $350 million in 2017-18 to $60.5 million in 2020-21, making China (taking 2000 as the base year) only the 21st largest investor in India, with a cumulative investment worth $2.45 billion as of March 2022, reports Moneycontrol.
India obviously has a problem with the trade deficit, and imports from China — despite a series of curbs, duty hikes and tougher standards — has taken a quantum leap by 45 per cent year-on-year in 2021-22 while exports to China remain stagnated. India’s playbook seems to be that while norms shall be tightened and rules shall be enforced wherever possible, no sweeping trade measures against China would be imposed even if it is strategically beneficial.
This comes from a realisation that a hard decoupling from the Chinese economy is neither feasible nor prudent for the Indian economy which still has its inherent weaknesses. However, the trajectory of commercial ties — a steady decline in investments and efforts to firm up India’s manufacturing base — shows the government is working towards a long-term plan for a soft decoupling.
In the short term, going by the steps that are being taken on the business practices front, India seeks to harness the leverage it enjoys due to its vast smartphone market which is second only to China but holds more potential.
China hasn’t made too much of a noise over the penal steps taken against Chinese smartphone makers, and the companies themselves are staying put in India and delivering more handsets than ever because, as CNN quotes a researcher as saying, “foreign phone makers have realized that these companies need India more than India needs them.”
Which brings us to the battle of leverages and the Sino-Indian tussle at a policy level. In her paper for Stimson Center mentioned above, scholar Ghosal points out that India very often fails to recognize the strategic cards it holds over China, and identifying these leverages will go a long way in formulating an effective China strategy.
She writes that the success of China’s BRI and Two Oceans Strategy rests to a large extent on India’s cooperation, as does the need for stability in China’s western frontier that enables Beijing to focus on the threat posed by US and its allies’ network, whereas India’s “non-cooperation can pose the biggest hurdle to China’s South Asia strategy and advancement of its Indian Ocean footprints.”
Ghosal posits that in order to get India’s cooperation, however, China relies on a combination of tactical cooperation in certain areas and a cost-effective measure of periodically instigating trouble at the border, creating an incentive loop for India instead of any real trade-offs that may address India’s strategic needs or larger developmental aspirations.
This is understandable. Unlike the US, which actively aided and invested in China’s meteoric rise, an engagement strategy that realist scholar John Mearsheimer calls “the worst strategic blunder any country has made in recent history: there is no comparable example of a great power actively fostering the rise of a peer competitor” China is unlikely to extend similar courtesies to India, which it identifies as its long-term adversary that possesses the potential to challenge its national rejuvenation and global dominance.
Beijing would do everything within its power to scuttle India’s rise and prevent it from becoming a global manufacturing hub that could upstage China’s prominence in the global supply chain and trade networks. Conversely, India must be aware of its unique capabilities that include demographic dividend (as against a shrinking China), a domestic market that may rival and even better China’s, language compatibility with the US and West and prospects of posting fast-paced growth over a foreseeable period.
This confluence of factors in India’s favour is being noticed. Economists are predicting that China’s debt-ridden economy, prospects of slowing population growth and an ageing, shrinking demography could mean “it could be eclipsed by India as the world’s most important buyer of minerals in a decade” and India’s faster population growth would have “material consequences”.
India must work towards making itself the centre of a model where it replaces China, strengthen vastly its manufacturing capabilities and aim for a softer decoupling from Chinese economy. The IPEF is, at this stage, is still a fuzzy concept devoid of meat and bones but it does present India with a model to progress towards that goal. This future is not all rosy, however, and certainly not a given.
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