China wants to expand its influence in South Asia -- in all of it, the land, the sea, and the air. That’s why Beijing is spending billions of dollars to build long-stretch highways like CPEC and taking over Sri Lanka’s and Pakistan’s ports.
That’s something foreign investors should watch closely, as a clash between India and China would have devastating effects on the economic integration of South Asia and the performance of the financial markets of the region.
Officially, China and India are moving closer to addressing old and new issues that divide them, with high profile meetings like the one at the end of this week, when Prime Minister Narendra Modi will meet with the Chinese President Xi Jinping.
The two leaders are expected to bridge the “gap of trust” between the two countries, as some media sources in both countries interpret the high-level summit. But unofficially, India and China are moving further apart, due to Beijing’s miscalculation of India’s capability to spoil its plans.
“Beijing’s miscalculations regarding India have created conflict with a regional power that has the capability and desire to disrupt China’s outward push,” explains Raffaello Pantucci in “China’s South Asian Miscalculation,” published recently in CURRENT HISTORY (April 24, 2018). It is a calculation that could cause serious complications for China’s broader South Asian vision, and ultimately provoke a clash between the two Asian giants.”
What makes this confrontation more likely is the rise of hawkish voices in both countries, especially In India where there’s a growing sense that China is trying to encircle and strangle it.
“The story is one of growing confrontation, as hawkish national security establishments on both sides increasingly outflank economic pragmatists who want to take advantage of the potential benefits of a more cooperative relationship between the two Asian giants,” adds Pantucci.
Then there’s a shift in fortunes of the economies of the two countries. India’s economy is gaining momentum, as China’s economy loses steam.
That could certainly provide India the resources to push back against China with its own checkbook (ie, South Asia diplomacy), further intensifying the antagonism between the two countries.
The Indian economy is expected to grow at an annual rate of 7.4% in 2018 and 7.8% in 2019, according to a recently released IMF Economic Outlook. India’s projected 2018-19 growth rates are well above China’s 6.6% and 6.4% over the same period. And things could get even worse for Chinese economic growth over the long-term, due to the continued rise of the country’s nonfinancial debt.
A strong Indian economy will further help India strengthen its naval capabilities and up its participation in joint naval exercises with America, Japan and Australia in the South China Sea and the Indian Ocean, irking China.
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