China and India: Doing Brisk Business Despite Contested Border Claims

Dr Ivanovitch - MSI Global
Dr. Michael Ivanovitch

Having unsuccessfully tried to drive a wedge between Russia and China, geopolitical strategists have now turned their attention to an enigmatic odd couple of the world’s largest democracy and a rapidly developing communist superpower.

To that end, the Indo-Pacific region has been invented as a new geostrategic concept to include India, with clearly stated political, economic and security implications.

And an apparently dormant Quadrilateral Security Dialogue (aka the Quad Group) -- including Australia, India, Japan and the United States – has been revived in the last two years as part of Washington’s “pivot to Asia,” to confront China’s allegedly increasing global power projections, and to lead the West’s response to the war in Europe.

The Quad’s mission statement is to keep the Indo-Pacific “free, open, inclusive, anchored by democratic values, and unconstrained by coercion.”

Understandably, therefore, India’s Quad membership has raised questions in view of its close ties with Russia and China within BRICS (Brazil, Russia, India, China and South Africa) and the Shanghai Cooperation Organization (SCO), some people call the NATO of the East.

India has always refused bloc alignments

Quad members are also criticizing India about its treatment of minorities and huge energy trades with Russia -- despite Western sanctions.

Delhi’s response to all that is simple: India has the right to pursue its national interests.

So far, China and Russia have shown no major concern about that policy. They maintain partnership ties and transact a growing trade business with India.

According to Indian sources, Delhi’s Russia trades last year have been estimated at about $30 billion, with more than a 30-fold increase of Russian energy supplies. Moscow and Delhi are settling trades in national currencies, and they are also setting up a special financial system to handle their rouble-rupee transactions. They expect that to pave the way for larger and broader trade relations, including the sale of Russia’s advanced weapons.

Russia and India are old and close friends with no open questions, but Delhi’s relations with China are still complicated by colonial legacies of contested areas along their 3,488 km borders. There are also hints of rivalries and animosities caused by Beijing’s support of Pakistan, considered to be India’s arch enemy.

Despite that, China’s foreign trade statistics show $136 billion of bilateral trade with India in 2022. The trade balance favors China with a surplus of $101 billion, on exports to India rising 22% and Chinese purchases of Indian goods plunging 38%.

That important trade imbalance is to a large extent owed to the countries’ economic growth differentials. China last year struggled to recover to a 3% GDP growth. As a result, China’s total imports stagnated to an annual growth of 1.1%. By contrast, exports increased 7% as Chinese companies revved up their foreign sales to ride out the weak domestic demand.

China and India are leaders of Global South

India experienced a very different cyclical development last year. Its GDP growth soared 6.8%, triggering a 25% increase in import demand, and a foreign trade deficit on goods and services accounting for 3.4% of GDP.

India made a net contribution to global economic output, but that large trade deficit took 3.7% off its domestic demand growth.

The China-India trade should level up this year. China’s economic growth is expected to accelerate to a 5% to 6% range, while India’s growth is estimated to cool off a bit to 6%. That will be necessary to reduce India’s 6.8% consumer price inflation, and to narrow its rather large 7.5% of GDP budget gap.

How much a more balanced trade will help to iron out difficult Sino-Indian border issues is an open question. Talks continue on military and political levels to manage a very tense situation. Beijing and Delhi are patiently looking for a peaceful solution to problems inherited from the times of the Qing Empire and the British Raj.

That will be a long process. It took Russia and China nearly three centuries to completely agree on 4,200 km of their common borders – although most of the problems were solved and agreed by the Treaty of Kyakhta in 1728.

Interestingly, the Russian official who negotiated that treaty warned his government in a secret memorandum of 1731 against going to war with the Qing Empire. And that warning was heeded, except for relatively minor border skirmishes in late 1960s as Nikita Khrushchev and Mao Zedong sought to settle their doctrinal communist scores.

Today’s China and India are looking at a very different picture. As leaders of the rapidly developing Global South, the two countries account for more than a third of humanity and for one-fifth of world economy. Soon, they should also be presiding over a reportedly large BRICS expansion, with new trade and monetary arrangements to strengthen the group’s pivotal role in global commerce and finance.