Eye on China: Sun’s Message – Space Competition – Defense Paper – Reforms & Defaults – Innovation Gain

Eye on China is a weekly bulletin offering news and analysis related to the Middle Kingdom. This week we cover the new defense white paper; new Chinese ambassador Sun Weidong’s agenda; Xi’s reform meeting; Li Peng dies; Bank of Jinzhou’s financial woes; US-China talks in Shanghai and much more…

I. India-China Relations

– Sun Takes Charge: China’s new ambassador to India, Sun Weidong, landed in Delhi this week, and quickly got down to business. In one of his first substantive tweets, Sun confirmed that China has provided satellite data on India’s flood-hit regions to assist relief efforts. This was done upon ISRO’s request. Before Sun landed, he held a briefing with Indian journalists in Beijing, during which he outlined his vision and priorities.

Here’s a cheat sheet based on his comments:

  • The top priority for bilateral relations, according to Sun, is the next informal summit between Xi and Modi planned later this year.
  • Beijing’s big pitch to New Delhi is that they need to band together against “the ugly path of unilateralism and protectionism.”
  • There are several key areas of future collaboration, such as the WTO, the defence of the UN system, cyber-security and climate change.
  • China wants an “early settlement” of the boundary dispute. Sun added that “the basic principle of a package planned though mutual adjustment to resolve the boundary issue” had been identified. However, he also said, “but before we finally come to a solution to this boundary dispute, we have to properly manage our differences so as to ensure peace and tranquility in border areas.”
  • Sun also wants the two sides should not allow any “individual case” to disrupt the bilateral relation.
  • China has  proposed a joint approach with India to address some of the major issues in the region, including the Rohingya refugee crisis along with possible initiatives in Nepal, Afghanistan and Iran.

– Space and Defense: Meanwhile, China’s new defense white paper, which was released this week, also spoke about efforts to promote security and stability along the India-China border. The two sides, as confirmed this week, will be holding the annual Hand-in-Hand military drills in Meghalaya this year. The exercise is at the company level, which suggests that around 100-120 infantry troops from both sides will be participating. It will be based on counter-terrorism and humanitarian assistance and disaster relief operations.

(You can find a detailed breakdown of the different elements of the white paper in my colleague Suyash Desai’s PLA Insight Newsletter.) 

Responding to a question about the white paper, Indian Navy Chief Admiral Karambir Singh said that India needs to “watch China carefully” in terms of its actions in the IOR and “see how we can respond within our budget and the constraints that we have.” 

Another area that could potentially become a source of cooperation but also competition between India and China is space. Earlier in the week, the Chinese foreign ministry congratulated India on the launch of Chandrayaan 2, adding that “we would like to work with India for outer space exploration.” Later in the week, the Indian armed forces conducted their first ever simulated space warfare exercise, IndSpaceEx. TOI’s report on the exercise quotes an unidentified Indian official as saying: “There is the need to explore effective tactical, operational and strategic exploitation of the final frontier of warfare. We cannot keep twiddling our thumbs while China zooms ahead.We cannot match China but must have capabilities to protect our space assets.” That didn’t go unnoticed in Beijing. This Global Times commentary notes that while there is a potential to cooperate, “India must guarantee that its space development does not target any third country, or it will face serious consequences. China still has various tools to use as countermeasures, if India’s space ambitions go astray and trigger an arms race between the two countries.”

– Trade & Investments: The Hindu BusinessLine reported that the Indian Commerce Ministry has been holding a series of meetings with various industry associations on tariff elimination under the proposed RCEP deal. This is significant since the minister in charge, Piyush Goyal, has been on record in the recent past that Indian industry was not in favour of the deal. He will be now traveling to China on August 2 and 3 for an RCEP Ministerial meeting. Some of the concerns that the Indian side has are rather neatly captured in this story on the impact of Chinese imports on Punjab’s bicycle industry. The piece quotes Badish Jindal, president of the Federation of Punjab Small Industries Associations, as saying that China has been placing its proxies in Bangladesh and Sri Lanka…supplying its bicycles in India through these SAFTA countries, dodging the customs charges it would have had to add to the item’s cost.

Meanwhile, two Chinese firms appear to be betting on the Indian market. One of them is Starbucks rival Luckin, which has inked a JV with Americana Group, opening up the Middle East and India for its coffee retail business. The other is tech giant Tencent. This Mint report tells us that the company has invested nearly $2 billion across a number of Indian start-ups and is still looking for investment opportunities. Also, ByteDance, the parent company of TikTok, which continues to face serious scrutiny in India, says that it wants to invest $1 billion in India over the next three years. Also, it says that it is “in the process of examining options for safe, secure, and reliable services” to store data “within India’s borders.” Finally, there continues to be much discussion about whether India has managed to eke out gains amid the US-China trade war. This Financial Times piece argues that India hasn’t managed to do so owing to capital shortage, infrastructure bottlenecks, such as road connectivity, the rail network and speed of freight trains along with poor labour productivity. 

Click here to read and subscribe to the full newsletter…