India wants FDI and China seems game, but what about LAC stalemate?

The decision by the Indian and Chinese foreign ministers to meet twice this month has sparked off speculation that the groundwork is being laid to normalize bilateral relations, which could also lead to an early resumption of dialogue between the two Asian giants at the highest political level.

Indian foreign minister S Jaishankar and his Chinese counterpart Wang Yi had met in early July in Kazakhstan’s Astana on the sidelines of the Shanghai Cooperation Organisation summit. On July 25, they met again in Laos’s capital, Vientiane, on the sidelines of ASEAN (Association of South East Asian Nations) foreign ministers’ meeting.

Seeking FDI amid border face-off

The meetings come amid the Narendra Modi government’s recent assertion of the need for actively seeking FDI (foreign direct investment) from China to push India’s growth and development.

Dialogue between the two countries at the highest political level — between Modi and Xi Jinping — had stopped since violence erupted along the Line of Actual Control (LAC), the informal border between the two countries, after Indian and Chinese soldiers clashed in May 2020.

A face-off continues at the LAC, with heavy deployment of troops in the area by both sides.

Need for multipolar world

At their meeting on July 25, Jaishankar told Wang that “our conversation provides another opportunity to take forward our ongoing discussion about our bilateral relationship”.

The Indian foreign minister said that as the two most populous countries and two major economies in the world, a stable Sino-Indian relationship was important not only for Asia but also for creating a multipolar world.

Shadow on ties

Jaishankar, however, pointed out that the disturbance to peace and tranquillity along the border has cast a shadow on the ties between the two countries for the past four years.

“We have both made considerable efforts to resolve the related issues. Our endeavour is to complete that process and ensure that there is full respect for the Line of Actual Control and the agreements that we have signed in the past,” he said.

The Indian foreign minister added, “I hope that today’s meeting will allow us to give stronger guidance to our officials in that regard.”

The Chinese view

The military face-off between the two sides stemmed from China’s unilateral decision to move its troops along the LAC in April 2020 to take control of several strategic points in violation of the agreements to maintain status quo in the area.

China has since withdrawn troops from some of the points but is yet to vacate its position from other strategic positions it had occupied.

Wang Yi told Jaishankar that in the current complex international landscape and daunting global challenges, China and India should “step up dialogue and communication, increase understanding and mutual trust, properly handle differences, and develop mutually beneficial cooperation”.

Wang further said that the two sides should “take a rational approach to rise above differences and frictions, to promote the improvement as well as stable and sustainable development of China-India relations”.

Economic Survey

In its Economic Survey, the government has made a strong case for attracting investments from Chinese companies to boost exports.

Citing examples of countries such as Mexico, Vietnam, Taiwan, and South Korea, which have benefitted from Chinese investment, the Survey said, “To boost Indian manufacturing and plug India into the global supply chain. Whether we do so by relying solely on imports or partially through Chinese investments is a choice that India has to make,” it added.

FDI as a strategy

The Economic Survey argues in favour of choosing FDI as a strategy rather than relying on trade.

“China is India’s top import partner, and the trade deficit with China has been growing. As the US and Europe shift their immediate sourcing away from China, it is more effective to have Chinese companies invest in India and then export the products to these markets rather than importing from China, adding minimal value, and then re-exporting them,” the Economic Survey said.

The Modi government’s announcement of seeking FDI from China has created a sense of outrage among the Opposition ranks, especially the Congress, which has sharply criticized the government for resuming economic cooperation with China even though its troops continue to occupy Indian territory at the LAC.

Modi’s climbdown

But Modi’s decision to lower the temperature at the LAC and normalize relations with China was evident for several months.

He told American magazine Newsweek in the run-up to the Lok Sabha elections that “for India, the relationship with China is important and significant”. He added, “It is my belief that we need to urgently address the prolonged situation on our borders so that the abnormality in our bilateral relations can be put behind us.”

Modi said in his interview, “Stable and peaceful relations between India and China are important for not just our two countries but the entire region and world.”

He added, “I hope and believe that through positive and constructive bilateral engagement at the diplomatic and military levels, we will be able to restore and sustain peace and tranquillity on our borders.”

China moderates tone

Other senior members of his government have also scaled down the anti-China rhetoric in recent months, and Beijing has responded by refraining from issuing any strong criticism of India even when a US Congressional delegation was allowed to meet the Dalai Lama in Dharamshala in June.

However, at the meeting, Wang Yi did not give any assurance of withdrawing Chinese troops from the remaining flashpoints at the LAC. Instead, the Chinese foreign minister suggested that the two sides focus on developing and improving economic cooperation between them and adopt a relaxed approach to manage their differences.

After the meeting, the Chinese foreign ministry also asked India to take steps towards increasing FDI from China and resuming direct flights between the two countries.

What about LAC?

But can the Modi government afford to normalize economic cooperation between the two neighbours unless China decides to withdraw troops from the remaining areas at the LAC?

Though the Prime Minister is keen that relations with China be put back on track, his reduced majority in parliament now makes it even more daunting.

Experts pointed out that even during the Somdorong Chu episode in Arunachal Pradesh in the mid-1980s, a similar stand-off between Indian and Chinese soldiers had occurred.

It had continued even during Rajiv Gandhi’s historic visit to China in 1988 — the first prime ministerial visit between the two sides since the 1962 border conflict. The Somdorong Chu stand-off was ultimately resolved only in 1993, after the two sides signed an agreement to maintain peace and tranquillity along the border.

Whether a similar move can be initiated by Modi remains a matter of speculation.