Eye on China: LAC Disengagement – Rectification & Political Security – HK Banks, Raid & Tech – Xinjiang Sanctions – Tibet’s Sinicization – Pak Drones

Eye on China is a weekly bulletin offering news and analysis related to the Middle Kingdom from an Indian interests perspective.

I. India-China Ties

Much has happened through the week on the boundary in Eastern Ladakh and in terms of the broader trade and diplomatic relationship between India and China. As always, let’s look at each aspect one by one.

Limited Disengagement

Reports inform that disengagement along the disputed regions in Eastern Ladakh gathered pace this week, with troops from both sides stepping back. This isn’t the case across the board on all friction points. Manu Pubby and Dipanjan Roy Chaudhury report that “Indian and Chinese troops have been completely disengaged in the Galwan and Gogra regions while there has been significant withdrawal at Hot Springs and Pangong Tso.” They further state that “Sources said that both sides have decided to cease patrolling for some time in the disputed area so that troops don’t clash as tempers are running high and that the disengagement process can be managed better by avoiding contact. At the contentious Hot Springs area, both sides have moved back a bulk of their troops but continue to retain 50 soldiers each till the next level of Corps Commander talks scheduled for early next week.” 

In The Tribune, Ajay Banerjee writes that “a 3-km buffer zone between the two armies has been created at the Galwan valley, that is Patrolling Point (PP)-14, said sources. The creation of buffer zones at PP-15 (south-east of Galwan valley) and PP-17A (Gogra) has been in line with the agreement arrived at successive meetings of Lt General-rank officers in June. At Pangong Tso, the People’s Liberation Army (PLA) has pulled back its boats that were stationed in the lake, just east of Finger-4. The PLA troops on the ridgeline of Finger-4, however, haven’t budged. Sources said the first stage of disengagement had decided on a graded withdrawal and PLA troops were expected to vacate the ridgeline. India claims the LAC till Finger-8, which is some 6-8 km east of Finger-4.”

The Indian Express’ Krishn Kaushik and Shubhajit Roy quote Foreign Minister S. Jaishankar, saying on Saturday that “We have agreed on the need to disengage because troops on both sides are deployed very close to each other. So, there is a disengagement and de-escalation process which has been agreed upon. It has just commenced, and very much a work in progress. So, at this point, I wouldn’t like to say more than that.” The report cites unidentified army sources as saying that “Chinese troops have vacated the base at Finger 4 in Pangong Tso, and have thinned their strength somewhat on the ridgeline. But Chinese troops, sources said, are still present in large numbers on the ridgeline above Finger 4.” This is going to be a slow process with verification needed at each step.

There’s been some confusion and subsequent clarification about the creation of buffer zones, with some reports suggesting that there isn’t a buffer zone that’s being created but rather patrolling has been temporarily suspended to keep the peace. Let’s see when all of this is over whether the status quo ante is restored and the Indian army returns to patrolling areas that it had been before tensions began. If this is not the case, then Beijing has clearly got the measure of and dictated terms to New Delhi. The standoff at Pangong Tso, meanwhile, is likely to be the main talking point when Corps Commanders meet again next week, although thinning of troops is being reported. This meeting would be the continuation of a process of dialogue that took place through the week. 

Diplomatic Engagement

On Sunday, July 5, Indian NSA Ajit Doval spoke to Chinese Foreign Minister Wang Yi, activating the Special Representatives mechanism. Both these men are designated SRs on the boundary issue. Based on the readouts from both sides, they seem to largely be on the same page. The MEA’s readout, which was limited to the boundary, said that they talked about “a phased and stepwise de-escalation in the India-China border areas” and not taking “any unilateral action to alter the status quo.” It added that they “agreed that the diplomatic and military officials of the two sides should continue their discussions, including under the framework of the Working Mechanism for Consultation and Coordination (WMCC) on India-China border affairs.” The Chinese readout concurred with that, saying that they had reached a “positive common understanding,” and “stressed the importance to promptly act on the consensus reached in the commander-level talks between Chinese and Indian border troops, and complete disengagement of the front-line troops as soon as possible.” In addition, the readout emphasised Chinese sovereignty over Galwan and talked about broader issues, such as the strategic assessment of each other, issues of development, the need to guide public opinion in the “right direction” and “avoid amplifying the differences and complicating matters.” The Doval-Wang talks were covered in the People’s Daily too. Indrani Bagchi reports for TOI that another round of Doval-Wang talks are expected in a fortnight. Her report adds that “the disengagement process actually started on July 2. It was halted for the day on July 3, when PM Modi visited Nimu in Ladakh.” The piece also has a brief mention about some friction in Naku La.

China’s MoFA on Thursday said that the “overall situation at the China-India boundary is stable and ameliorating.” The next round of talks took place on Friday under the WMCC framework. The MEA said that the two sides “reviewed the situation in the India-China border areas including the progress made in ongoing disengagement process along the LAC in the Western Sector.” The Chinese readout says that the “two sides expressed that they will seriously implement the important consensus reached by the foreign ministers of the two countries and the special representatives on the border issue…the two sides fully affirmed the positive progress made by the frontier defense forces of the two countries in implementing the consensus reached at the military-level talks and easing the situation on the ground.”

After this, the Chinese ambassador to India put out a long statement. This was Sun Weidong trying to address issues of public opinion, particularly after that PTI interview, which was far more aggressive. But make no mistake, this wasn’t an olive branch or a rolling back of Beijing’s narrative on the Galwan valley clash or the situation at the boundary. For instance, he said: “We are neither a warlike state nor an assertive country. The right and wrong of what recently happened at the Galwan Valley is very clear. China will firmly safeguard its sovereignty and territorial integrity, and ensure the peace and tranquility in the border areas.” He also talked about the broader strategic direction, very subtly hinting at the US: “Why should we fight against each other that will only hurt those close to us and gladden the foes?”

And then spoke about the broader relationship, particularly discussing the debate in India about economic decoupling. “Some people have been trumpeting the so-called “decoupling” of China-India economic and trade relations, with an attempt to completely exclude “Made in China”. One basic fact they ignore is that the current global industrial and supply chains are formed in a process of natural selection by market optimization over the past decades. The business community and people of India are the beneficiaries of China-India economic and trade cooperation. Any self-protection, non-tariff barriers and restrictive measures against China are unfair to Chinese enterprises, unfair to Indian employees who lost their jobs as a result, and unfair to Indian consumers who can not get access to the products and services they deserve. It will only harm others without benefit to oneself, and it will eventually hurt oneself as well.” He also went back to the “manufacturing partnership” narrative.

Domestic Politics & Economics

Alas, I don’t think this is going to yield dividends for Beijing, unless there is a significant policy shift. The past few weeks have witnessed a growing discussion in India about the relationship with China. NCP’s Sharad Pawar believes that China is a bigger threat to India than Pakistan. Leading members of the Indian National Congress, AICC spokesman and MP Abhishek Singhvi and Rajya Sabha member Deepender Hooda, on the other hand, are advocating a deeper partnership with the Quad and pushing back against China on issues like Hong Kong and Xinjiang. Congress leader Rahul Gandhi is attacking the Modi government on the situation at the LAC. He’s also attacking the government in the context of potential donations by Chinese firms. All this means that China remains a political hot potato in New Delhi, which in turn makes any political normalisation extremely costly.

On the economic front, the Confederation of All India Traders has objected to the bid placed by a Chinese joint venture company for a global tender by the railways for manufacturing Vande Bharat trains. The traders body has written to union railway minister Piyush Goyal on Saturday urging him to not allow the bid placed by the Chinese joint venture company CRRC Pioneer Electric (India) Private Limited which is one of the six bidders for the project. At the same time, Reuters reports that the Indian government has petitioned the Rajasthan High Court to stop any of the Chinese companies whose 59 apps it recently banned from obtaining an injunction to block the order. Another report says that the Indian government is reviewing around 50 investment proposals involving Chinese companies under its new screening policy. Finally, ET reports that the commerce and industry ministry has sought stricter scrutiny of goods coming from Bangladesh, Sri Lanka, South Korea and the Asean bloc, amid fears of Chinese imports increasingly being routed through these countries. The ministry has requested the finance ministry to introduce stringent provisions related to rules of origin, to empower customs officers for checking the abuse of FTAs.

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