India-China Strategic Economic Dialogue: Another Positive Step

India and China concluded their inaugural Strategic Economic Dialogue (SED) in Beijing. The forum was the result of an arrangement decided in the Joint Communiqué of India and China signed on December 16, 2010 when Chinese Premier Wen Jiabao visited India. Held in Beijing over two days, the Indian side was led by the Deputy Chairperson of the Planning Commission Montek Singh Ahluwalia, with a unique format to enhance inter-ministerial coordination by taking along representatives from nine ministries. The Chinese side was similarly led by Zhang Ping, Chairman of the National Development and Reform Commission (NDRC). In terms of diplomatic practice this is only the second such dialogue format that China has with any country. The other exercise is between China and the United States in the form of the US-China Strategic and Economic Dialogue (S&ED), established by President Obama and Chinese President Hu Jintao in April 2009, and which has already undertaken three rounds of talks as an annual exercise.

The India-China SED mechanism is a reflection of the two countries’ wish to deepen and elevate the current levels of exchange and interaction. In the past there had been mechanisms such as the India-China Joint Economic Group (JEG) on Economic Relations and Trade, Science and Technology (ministerial-level; established in 1988); a Joint Study Group (set up in 2003); a Joint Task Force (report completed in October 2007); apart from Joint Working Groups on Trade, Agriculture and Energy. However, clearly, the current dialogue format widens the ambit of interaction. The SED also comes as an acknowledgement from both sides to correct the growing burden of trade deficit that India carries (US $20 billion for 2010) in its trade relationship with its largest trading partner, China, and address issues relating to market access for Indian companies in China in competitive sectors such as pharma and IT, as also the hurdles Chinese companies face in expansion of operations in India. India’s trade with China is expected to touch $70 billion this year with a goal to cross the US $100 billion target by 2015. In the context of a tenuous global recovery the initiative to deepen investment cooperation as also to communicate on macro-economic policymaking also serves to address extra-regional economic challenges.

Seven thematic areas were taken up for deliberations in the SED:

• World Economic Situation
• Respective Domestic Macro-economic Situations
• Mid- and Long-term Development Plans
• Improving Investment Environment
• Energy Efficiency and Conservation, and Environmental Protection
• Infrastructure Cooperation
• Water Use Efficiency

Apart from the overall focus on deepening bilateral investment cooperation, there is a stress on promoting cooperation in energy efficiency and conservation techniques as well as environmental protection towards sustainable development. One of the key outcomes of the discussions was the decision to enhance cooperation in infrastructure, especially in the railway sector. It is mooted that Chinese expertise and technology would be sought in building six high-speed rail corridors in India. This proposed project, for instance, serves multiple purposes. Firstly, road transport has overtaken railways as far as its share of the freight and passenger market is concerned (road transport accounts for about 65 and 90 per cent, respectively, of the freight and passenger market in India). Rail transport, specifically within the electrically powered, dedicated freight corridors (DFC) and using High-speed rail (HSR), would address the burden of greenhouse gas emissions both directly (no diesel locomotives) and indirectly (preference for HSR would keep many vehicles off the road as well). The laying of additional lines, electrification of existing track and installation of new physical infrastructure would generate employment and growth, both in the rollout stage and eventually when towns on these HSR lines are able to develop new business opportunities with the changed circumstances of time and distance between two nodal points. China’s bullet trains were launched in 2007 and within a few years China has built the world’s largest high-speed rail network. While corruption and safety in the Chinese execution of HSR has been pointed out, the exact nature of Chinese participation in the Indian execution of DFC and HSR remains to be seen.(See Note 14)

The SED is now poised to be an annual event on the India-China diplomatic calendar with the second round to be convened in India in 2012. Prior to that, however, there would be a working group meeting to implement the consensus and decisions agreed to by the two sides at this inaugural meeting in Beijing. China and India at this juncture have similar problems to tackle (stabilizing the economy, ensuring distributional equity, fulfilling social needs in health, education, etc., and managing the current promising levels of growth). The current SED mechanism, once it evolves further, would be an indispensable asset both for target-setting and for sharing “lessons learnt” from individual growth experiences. It is understandable that India and China need time to shape the form, content and composition of this dialogue mechanism. The India-China SED is qualitatively different from the US-China S&ED as of now. The latter has a wider radius of interaction (16 agency heads from the United States including senior military representatives from the Pentagon and US forces in Hawaii as well as from the Chinese side participated this time). Eventually, there could be efforts to supplement a more evolved version of the India-China SED towards an “S&ED” (strategic and economic dialogue). All efforts should be made to enrich the agenda of the SED mechanism both as a concept and in practical ways. There could be sub-dialogues on regions which are perceived to be arenas of competitive contention (Africa and the South China Sea, for instance). The SED should eventually create a greater interface at the sub-national level by including other arenas of cooperation (defence, academics, general tourism, medical tourism, sports, and cultural interaction) involving wider exchange at the level of people.

The SED thus reflects significant elevation of dyadic ties. India and China have also demonstrated that they are capable of scaling up their level of engagement confidently, even as differences on issues such as the border, stapled visas, Tibet, the China-Pakistan equation, the India-US partnership, suspicion over movement and activity in the South China Sea and the Indian Ocean, remain.

Notes/References:

1. 1. The Indian side included representatives of the Planning Commission, Ministries of Railways, Water Resources, External Affairs, Power, New and Renewable Energy and the Departments of Commerce, Information Technology and Industrial Policy and Promotion.
2. Agreed Minutes of the 1st India-China Strategic Economic Dialogue, URL: http://www.indianembassy.org.cn/newsDetails.aspx?NewsId=252.
3. Keynote Speech by Mr. M.S. Ahluwalia at the 1st India-China Strategic Economic Dialogue (SED), Beijing, September 26, 2011, URL: http://www.indianembassy.org.cn/ newsDetails.aspx?NewsId=251.
4. The 2011 U.S.-China Strategic and Economic Dialogue, U.S. Fact Sheet – Economic Track, 5/10/2011, URL: http://www.treasury.gov/press-center/press-releases/Pages/ TG1172.aspx.
5. Simon Rabinovitch, “China suspends new high speed rail plans”, August 11, 2011, http://www.ft.com/cms/s/0/598d4052-c40d-11e0-b302-00144feabdc0.html#ixzz1Z Gug 9741.
6. “China, India to boost investment”, URL: http://news.xinhuanet.com/english2010/ video/2011-09/28/c_131164287.htm.
7. “India, China to enhance investment, open up markets”, URL: http://articles.economictimes.indiatimes.com/2011-09-26/news/30204513_1_….
8. “World Bank Approves US$975 Million Loan for the Eastern Dedicated Freight Corridor Project in India”, Press Release No:2011/519/SAR, URL: http://web.worldbank.org/ WBSITE/EXTERNAL/COUNTRIES/SOUTHASIAEXT/EXTSARREGTOPTRANSPORT/0,,contentMDK:22929177~menuPK:579604~pagePK:2865114~piPK:2865167~theSitePK:579598,00.html.
9. “Open China market to Indian IT and pharma products: Montek Singh Ahluwalia”, URL: http://articles.economictimes.indiatimes.com/2011-09-26/news/30204692_1_ strategic-economic-dialogue-bilateral-trade-open-china-market.
10. “Railroad Yield Gap Hits Six-Month High as Debt Sales Mount: China Credit”, URL:
    http://www.bloomberg.com/news/2011-03-01/railway-yield-gap-at-six-month-….
11. Ashwini Phadnis, “India, China pledge to deepen cooperation”, September 26, 2011,
    URL: http://www.thehindubusinessline.com/industry-and-economy/article2486654.ece.
12. “China and India hold first strategic economic dialogue in Beijing”, September 26, 2011, URL: http://www.globaltimes.cn/NEWS/tabid/99/ID/677075/China-and-India-hold-f….
13. Ananth Krishnan, “India, China to open up markets”, September 26, 2011, URL: http://www.thehindu.com/news/international/article2486694.ece.
14. Such interactions are vital sources of “trusting” and “trustworthy” behaviour. See Joe Thomas Karackattu, “‘Social Capital’ and its significance in reimagining Chindia”, Strategic Analysis, Vol 36, No 1, January 2012 (forthcoming) for a detailed discussion on why India and China have failed to generate trust despite articulation of norms and encouragement of formal institutional arrangements to promote bilateral relations.