The Asian Balance: Assessing India’s East Asian engagement

Geoeconomics is the key to the seas East of Singapore

This was published in yesterday’s Business Standard.

The Asian Balance turns one today. It had promised to “devote itself to chronicling and interpreting the unfolding geopolitics of East Asia. It will be an unabashed advocate of Looking East far beyond the Straits of Malacca”. If anniversaries are a good time for some reflection, recent events make it even more necessary.

I had argued that three factors would shape the Asian balance. First, nuclear deterrence would shift the India-China context away from direct military conflict along the disputed land borders to theatres in and around the Indian Ocean. Second, the small- and medium-sized countries of East Asia would look towards India to help them counter the pressures arising from China’s geopolitical assertiveness. Third, the whole effort to create “one workable grouping (such as the East Asia Summit) is premised on the unfounded hope that a powerful China will play by the rules it promises to”.

It is not uncommon to hear Indian commentators lament how China is expanding its presence in countries traditionally considered close to India, how it has hardened its posture on the border dispute, and how it continues to prop up the Pakistani military-jihadi complex. New Delhi could do little about much of this because, by and large, it lacks direct levers. The structural geopolitics of the subcontinent leads to our neighbours welcoming an outside power to balance India.

Seen from the confines of a subcontinental mindset, New Delhi appears to have few options between resigned hand-wringing and reckless aggressiveness, both accompanied by rhetorical frenzy. But if you realise that the game board of the raja-mandala is global, New Delhi doesn’t look that helpless any more.

In the past year, India has done well to start engaging countries in China’s vicinity in geopolitically meaningful ways. Beijing has noticed. Recently, off Vietnamese shores, an “unidentified caller” warned an Indian naval ship that it was trespassing in Chinese waters. China claims most of the South China Sea as its own. Beijing had also lodged a diplomatic protest with New Delhi warning against oil and gas exploration by ONGC Videsh and Petro Vietnam in that maritime region.

So far, India has not backed off in the face of Chinese pressure. To the extent that New Delhi persists on this course, it will both increase India’s own negotiating leverage with China and signal India’s resolve to East Asian countries. For instance, New Delhi responded to China’s démarche on oil exploration by asking it to stop activities in Pakistan-occupied Kashmir.

Can a weakened United Progressive Alliance (UPA) government hold its nerve if, as is likely, China escalates tensions? Can the understaffed ministry of external affairs create and devote sufficient human resources to its East Asian desks? Can the Indian media tone down hyperventilating coverage of the happenings along the India-China border? In the coming months, the answers to these questions will determine if India can capitalise on the modest gains made last year.

On the other hand, New Delhi has failed to anticipate, understand and respond to China’s economic situation. Three decades of economic growth have increased the productivity of China’s urban workforce, putting upward pressure on wages. But given its export-oriented economy, Beijing must keep wages down to remain competitive. China’s political leaders managed to achieve this by suppressing demands for higher pay and by keeping the currency undervalued.

The last two years have shown that both these strategies are increasingly untenable: even if the irony of a Communist Party acting against the interests of workers is lost in contemporary China, cases of labour unrest are growing. Meanwhile, the United States continues to keep a watchful eye on China’s currency management. We do not know how Beijing will manage to wriggle out of this squeeze, not least because a combination of an ageing society and lower educational levels in rural areas means that the problem will worsen. What we do know is that this creates opportunities for other countries, including India.

With wages in China rising, manufacturers are seeking alternative locations for their factories. India could take advantage of this: if the UPA government creates an investment-friendly atmosphere. Instead, we see environmental regulations being used as political and rent-seeking tools, solutions to vexed land acquisitions that risk worsening the problem and, above all, a complete surrender on the issue of labour reform.

Last year I wrote, “… the seas east of Singapore hold the key to the lands west of the Indus.” I should have added that the rules made on the banks of the Yamuna hold the keys to those seas.

&Copy; Copyright 2011. Business Standard