When in a corner, show teeth

A chastened but sanctimoniously aggressive dragon

Qin Gang, China’s foreign ministry spokesman, made some eminently reasonable and sensible points yesterday. The Asian Development Bank’s approval of a loan package to India—which includes financing of a project in India’s Arunachal Pradesh state (which China calls ‘Southern Tibet’ and claims as its own)—he said, “can neither change the existence of immense territorial disputes between China and India, nor China’s fundamental position on its border issues with India…On China-India border issues, China always believes that the two sides should seek for a fair and equitable solution acceptable to both through bilateral negotiation.” (via Indrani Bagchi’s Globespotting blog)

In other words, ADB’s approval of a loan doesn’t change the positions of India and China with respect to the territorial dispute, and that bilateral negotiations (not multilateral economic fora like the ADB) are the place to sort the issue out.

So who were those unreasonable and insensible people who thought otherwise? None other than the representatives of the People’s Republic of China. None of their counterparts on ADB’s governing board agreed. Diplomacy being the art it is, it was left to Mr Qin to sound as if it was someone else who was flagrantly violating the norms of conduct at multilateral economic institutions.

The Chinese foreign ministry, however, does not stop at that. Mr Qin goes on the offensive. The ADB, he warns, “should not intervene in the political affairs of its members. The adoption of the document has not only dealt a severe blow to its own reputation but also undermines the interests of its members. The Chinese Government strongly urges the ADB to take effective measures to eliminate the terrible impact thereof.”

China’s entire approach to the ADB loan issue signals a dangerous portent for Asia. It would perhaps have been understandable if China had limited its protest to a symbolic pro forma objection. To transform the ADB as a forum to push its position in a bilateral dispute is an entirely different matter—and one that has serious implications for its relations with its East Asian neighbours, with whom it has unsettled disputes too. A charitable explanation is that it couldn’t back down without losing face once it had fired the first salvo. If you feel less charitable, you will see fresh signs of a deliberate strategy to flex its economic muscles for purely political ends. When zero-sum games are pursued at positive-sum arenas, the latter quickly become the former.

A new spring?

Looks like there been a change at South Block

Dr Manmohan Singh should not have attended the summit meeting of the Shanghai Co-operation Organisation (SCO) at Yekaterinberg not only because India is formally only an ‘observer’ at that outfit, but also because it is not a club that India ought to join. The co-location of the summit with that of Brazil-Russia-India-China (BRIC) was unfortunate, but even so, there was nothing to stop the Indian prime minister from attending the BRIC event, and insulate himself from the SCO pow-wows. Dr Singh, it turns out, does not have the appetite for such sharp diplomacy.

But recent events suggest that there might be a little more spark in the second UPA government than there was in the first one. First, some tough-minded diplomacy—including a threat to review India’s relationship with the Asian Development Bank—succeeded in isolating China’s attempt to use a multilateral economic forum as an instrument its bilateral political dispute with India. Like at last October’s Nuclear Suppliers Group (NSG) meeting, not only were Chinese moves foiled, but China was completely isolated. Now this is in part due to China’s attempts to overplay its hand, but diplomatic victories are seldom the result of serendipity. There was hard work involved.

Second, Dr Singh’s meeting with Asif Ali Zardari showed a welcome change of style. “I am very happy to meet you,” Dr Singh told Mr Zardari “But I must tell you quite frankly that I have come with the limited mandate of discussing how Pakistan can deliver on its assurances that its territory would not be used for terrorist attacks on India.” In front of the assembled media. Of course, the Indian media reported it, the Pakistani media seems to have ignored it and the Pakistani foreign minister tried to paper it over, but it still is infinitely better than two smiling faces shaking hands as if nothing had happened in Mumbai last November. Beyond style, the substance of the talks appears to be that India is willing to re-engage Pakistan in a dialogue, on condition that between now and July 16th, Messrs Zardari & Co need to deliver a meaningful something on the issue of cross-border terrorism.

Third, the Indian government denied visas to members of a US government outfit that wanted to visit India to audit religious freedom, especially “concerned about judicial processes with regards to the incidents in Gujarat and Orissa are not functioning properly and we only wanted to get them going.” (It’s funny how these groups are terribly selective about improperly functioning judicial processes: for instance, the Kashmiri Pandits marooned in various Indian cities don’t even have a judicial process.) Denying them visas is a gentle way of saying “no, thank you” to these kind American people.

And finally, even in Yekaterinberg, it appears that the diplomatic minders did what they could to distance the Indian prime minister (see the missing) from the SCO publicity material.

If all this appears to be a nice start in managing the form of foreign affairs, it is because the bar was set so low in the last five years. The next five will be rougher and more challenging. So let’s hope it is a new spring.

Update: Now some Pakistani grandee declares that Dr Singh’s remarks are ‘unacceptable’, which is as weird as it is absurd. That is the Indian prime minister’s mandate, and there’s nothing in it for Pakistan to accept or reject. Also, it turns out that top Indian officials repeatedly emphasised to the media that the foreign secretaries will only discuss the investigations into 26/11, nothing more.

Indian knickers, Chinese twist

China, Arunachal Pradesh and the politics of an ADB loan

And now it is at the Asian Development Bank (ADB). A few days ago Financial Times reported that China had used procedure to delay the approval of ADB’s new multi-year financing plan for India. Because a small part of it, around $60 million, is for “flood management, water supply and sanitation” in Arunachal Pradesh (read ‘disputed territory of South Tibet’ in Chinese). This twisted the usual knickers: some commentators pointing out that China’s upstream damming of the waters of the Brahmaputra is one reason contributing to Arunachal Pradesh’s need for the water management project. Thanks to the elections, the politicians’ knickers remain untwisted. But what should you make of it?

First, it’s important to recognise that China’s actions are both pro forma and theatre. It is to be expected that China will signal the existence of the territorial dispute at every opportunity. At the ADB while it postponed a board meeting that was to have approved the financing package for India, it is highly unlikely that it will go to the extent of completely sabotaging it (expect the plan to be approved at the next meeting). To wreck it would be too direct, too brazen a signal that it puts politics before economics at multilateral fora. It can’t afford that at a time when the G-8 is making way for the G-20 and increasing China’s clout in global economic governance.

It is unclear if China’s neurotic reaction to the word Arunachal Pradesh was due to its ADB delegation playing safe, or indeed a well-considered position approved by the higher authorities in Beijing. If it is the latter, then it stands to reason that India, and the rest of the world, must recognise—and respond—to the politicisation of multilateral institutions like the ADB.

Second, for its part, the ADB must realise that it is, in the end, a bank. And a bank that bases its lending policy on the basis on non-prudential considerations—not least with its largest and best customer—is asking for trouble. This is something that the ADB’s governors must keep in mind at their future meetings.

Finally, there is the question why the Indian government needs the ADB to borrow $3 billion for development projects? One explanation is that borrowing comes at relatively easier terms. Fair enough: but to the extent that such terms act as crutches, weaken or rule out market discipline and crowd the private sector out, such financing is a curse in the longer term. Herein lies the tragedy—the UPA government not only frittered away five years of unprecedented opportunity, but actually crippled India’s public finances. If it had not done so, India would be less reliant on multilateral loans…and better resist unfriendly actions like the one by China.