India & China in 2015: Five factors that will make or break ties

The wheels are already in motion for Prime Minister Narendra Modi’s first major foreign policy event of 2015 – the Republic Day visit of United States President Barack Obama. Modi’s biggest diplomatic challenge in 2015 will, however, not come from the United States – it will most likely be far closer to home, whether from the western frontiers or from across the Himalayas.

During Modi’s first half-year in office, there has been little unanimity in marking his report card on almost any issue. But one area where there has been some agreement is on the foreign policy front, where there has been new dynamism, evinced by Modi’s clocking up of the miles on rapid-fire trips to Bhutan, Myanmar, Australia, the US and Nepal. Perhaps the single most fascinating element of his diplomacy was his attempt to craft new relations with China. It is no secret that Modi has been a long-term admirer of the China model. As Gujarat chief minister, Modi made as many as four visits to China. Even his “Make in India” drive, his advisers say, has on many levels drawn inspiration from China’s manufacturing success. Both Modi and the relatively new Chinese President Xi Jinping, who took over in March 2013, have appeared keen to use the change in government in Delhi to overhaul ties. That much was clear in the unprecedented diplomatic activity that followed Modi’s election victory – Beijing was the first country (besides the invited SAARC leaders) to dispatch a high-level envoy to congratulate Modi.

So far, the reboot has only been half successful, as Xi Jinping’s visit to India in September 2014 showed. Modi went out of his way to host Xi, travelling to his home state of Gujarat to personally welcome him. There, he signalled to Chinese companies that his government will be far more open to investment than the cautious two-term UPA, which was generally averse to opening up many sectors to the Chinese. For the first time, India has set up two China-dedicated industrial parks, in Gujarat and Maharashtra. But just as Modi and Xi strolled along the River Sabarmati, troops between both countries were engaged in an unexpectedly long stand-off along the Line of Actual Control (LAC). The face-offs at Demchok and Chumur quickly took the shine off the visit. On the second leg of Xi’s trip, in Delhi, a more stern-faced Modi warned of the long overdue need to demarcate the LAC. The Xi visit, in a sense, neatly captured the dichotomy – and complexity – of relations.

What will 2015 have in store? Here are five factors that will determine how Modi’s China reboot will go forward in the coming year:

1.) The Modi-Xi relationship: The biggest – and hardest to predict – factor will be the influence of the two strongmen at the helms of their respective countries. Xi is the first Chinese leader in two decades to enjoy unquestioned influence over the Communist Party. The previous Chinese leadership was cautious and worked by consensus, with a leader who often had an awkward relationship with the military. Xi, however, faces no such limitations. At home, he has spoken of a more assertive and strong China. At the same time, he has also demonstrated flexibility, for instance by defying expectations and meeting with Japanese Prime Minister Shinzo Abe in Beijing to defuse ties despite prevailing hostilities. Modi’s first visit to China as Prime Minister – slated to take place in the first half of 2015 – will shed some light on how the two leaders are prepared to make use of a rare instance during which India-China ties will be, at least to some extent, unencumbered by the burdens of domestic politics in both countries.

2.) The Border: Besides Modi’s first visit to China as PM, 2015 will also see a first ever meeting of two new Special Representatives on the boundary dispute. India recently appointed National Security Adviser Ajit Doval as SR, who will take forward the deadlocked talks with Chinese State Councillor Yang Jiechi, who presided over the last round, having taken over from long-time Chinese SR Dai Bingguo. On a recent visit to Beijing, Doval’s predecessor as NSA and SR, Shivshankar Menon, expressed optimism that the boundary may be settled sooner rather than later. Menon and Dai together addressed students at Peking University last month. “I think we can do it,” Menon was quoted as saying, “Because we have governments in both the countries today who have strong mandates and very clear strategic ideas where they want to take their countries”. The bigger issue for both countries is ensuring that incidents such as last September’s stand-off do not repeat. While they push towards a settlement, the more urgent need is, as Prime Minister Modi suggested last year, clarifying their differing perceptions of the LAC to ensure that patrols do not encounter one another.

3.) Trade: Modi’s election victory has been a source of much optimism for China Inc., which has long chafed at what it described as hostile investment policies for Chinese companies. Their generally favourable experience of Gujarat, and the announcement of two industrial parks, has boosted perceptions in China. For the first time, Chinese companies have also been given the green light to participate in India’s plans to build express and bullet trains. 2015 could see a sweeping change in what has been a buy-sell, transactional relationship to deeper economic engagement.

4.) China’s Silk Roads: Xi Jinping’s first year in office has been highlighted by a few landmark initiatives. If at home it has been an unprecedented corruption crackdown that has netted a few hundred Communist Party officials (and in the process conveniently eliminated quite a few of Xi’s rivals), his signature diplomatic initiative has been the launching of an ambitious “One Road and One Belt” initiative. This refers to the Silk Road Economic Belt, which envisages China linking up with Central and South Asia through roads, railway lines and energy pipelines. Last month, China flagged off the world’s longest cargo rail link, connecting its manufacturing hub of Yiwu to Madrid. One leg of the belt is a corridor aimed at connecting China’s Yunnan province with Myanmar, Bangladesh and India. Another links China to Pakistan through PoK. The Maritime Silk Road is a plan to boost Chinese investments in ports in the region. Countries such as Indonesia, Sri Lanka and the Maldives have already signed up. India has signalled its wariness, declining Chinese requests to affirm its participating during Xi’s visit. For India, the Silk Roads present a difficult challenge: does India participate in a venture that will deepen Chinese influence, or stay away from what is becoming an inevitability?

5.) The Elephants in the Room: Relations will also be tested by China’s deepening economic engagement with Pakistan, bolstered by the PoK corridor, which has become a source of anxiety for India. China, on the other hand, has watched warily as Modi has deepened ties with Japan and the US managing an increasingly complicated dynamic will shape ties in 2015, starting with the small matter of a Republic Day visit to New Delhi.