Rising China Emerging India and the Rest of the world

Chandrashekhar Dasgupta

Mr. Chairman, ACM Mehra, Smt. Shakuntala Bhatia, Ladies and Gentlemen,

I feel deeply honoured by the invitation to deliver the 2010 Prem Bhatia Memorial Lecture. Prem Bhatia was a giant in the world of Indian journalism. As editor, at different times, of no less than three leading national newspapers, he helped shape public opinion on many of the pressing issues of the day. This, in itself, was a lifetime’s achievement but Prem Bhatia also made a distinguished contribution in another field – my own profession, diplomacy – as India’s high commissioner in Nairobi and Singapore.

It was my good fortune to serve in the same capacity as Prem Bhatia in one of his diplomatic posts. We both served, in different periods, as high commissioner in Singapore. Singapore in many ways offers an excellent perspective on developments in India and China and it is as good a starting point as any for launching on the subject of today’s talk.

In the 1950s and ’60s, India received substantial economic aid from the United States despite the donor’s ideological disapproval of nonalignment. US aid policy was influenced by the notion that India and China were engaged in a race for economic development and that the smaller Asian countries were keenly watching the contest from the sidelines in order to decide which model to adopt for themselves. In the event, as we now know, the race was won hands down by some of the spectators! By 1980, Singapore and South Korea were far ahead of China and India in the economic race.

By the time I was posted to Singapore in 1981, the question was being asked in both India and China whether there were lessons to be learned from Singapore’s success in achieving rapid development through greater integration with the global economy. Before leaving for Singapore, I called on the prime minister, Smt. Indira Gandhi. She was in a relaxed mood and found time to deliver an incisive and masterful analysis of the Cold War in Asia. She was articulate also on economic matters but, in these areas, her judgment was less assured. She had a high opinion of Lee Kuan Yew and the transformation he had wrought in Singapore but she maintained that Singapore’s success story held no lessons for large countries like India or China. Singapore’s development was based on foreign investment inflows. This was a successful model for a small island-state but it could never work for a country of the size of India or China because capital for investments flows on the required scale was simply not available anywhere in the world. I must confess that, at the time, I found the prime minister’s argument persuasive.

Indeed, there was a general failure on our part to understand the case for opening up our economy and integrating more fully with the global economy. I remember the observations of a Member of Parliament who was visiting Singapore on a study tour. In those days, our government imposed savage duties on imported goods. Singapore was a virtually duty-free port. After a day with the Port Authority of Singapore, our MP reported, with a mixture of bafflement and outrage, “these people have legalized smuggling!”

Rise of China and India

In contrast to India, China had already embarked upon a sweeping programme of economic reform by the end of the 1970s. Under the leadership of Deng Xiaoping, Beijing launched the ambitious and comprehensive Four Modernizations policy in December 1978. China had no inhibitions in seeking the advice of Goh Keng Swee, a former deputy prime minister of Singapore and one of the principal architects of its economic policies.

In India, Rajiv Gandhi made a tentative attempt to open up the economy in the mid-1980s but failed to mobilize the required political support. The reforms petered out and it was only in the early 1990s that prime minister Narasimha Rao and finance minister Manmohan Singh successfully embarked on a step-by- step programme of systemic reforms. India decided to gradually open up its economy almost fourteen long years after China.

Given this head start and Beijing’s unflinching resolve to accord overriding priority to economic growth over short-term questions of distributive justice, it is not surprising that China’s economic development has outpaced ours. In the 1970s, the per capita GDP of the two countries were roughly comparable. By 2008, China’s per capita GDP (PPP) stood at US$ 5,514, double of India’s US$ 2,721. India’s per capita GDP in 2008 was just a shade above China’s 2000 level -. US$ 2,664. This suggests that we are trailing behind China by almost a decade.

Paradoxically, partly because of this very reason, India’s growth rate may well exceed China’s in the next few years. In the earlier stages of industrialization, developing countries are able to achieve rapid growth by technological leapfrogging; but, as they catch up with advanced countries in technology, the potential for further leapfrogging necessarily diminishes after a certain point. This is borne out by the experience of every country undergoing modernization and China will be no exception. Precisely because it has lagged behind till now, India will retain for a much longer period its potential for maintaining high growth rates by technological leapfrogging. According to the Goldman Sachs projection, by 2050, India will be the only major economy with a growth rate of around 5%. The others will have much lower growth rates.

In addition, demographic trends are also likely to work in India’s favour. The latest Chinese study of the country’s age profile (released in July) shows that the ratio of the population of working age (i.e. those between the ages of 15 and 60) to the total population will start shrinking by 2015. In the case of India, this is expected to occur at a much later date. This trend will also help raise India’s growth rate, relative to China’s.

For these reasons, many recent projections suggest that India’s growth rate may catch up with, and surpass China’s in the next decade. According to the Goldman Sachs BRICs paper (2003), this might occur in 2015. This paper assumed that the Indian economy would grow at an average of 5.7% till 2020. A later Goldman Sachs report, issued in 2007, raised India’s projected average growth rate to 8.4%. This suggests that our growth rate could overtake China’s even earlier, during the next few years.

Of course, our per capita income will remain lower than China’s for a far longer period because of the substantial disparity in current levels. The projections concerning relative growth rates indicate only that the current economic gap between the two countries may gradually be closed over a fairly extended period.

Despite China’s spectacular growth rates in the last three decades, it still has a long way to go before it catches up with the levels of prosperity of Singapore or Korea. India, of course, has an even longer distance to travel before it approaches these levels. However, unlike the earlier rise of the two other Asian countries, the rapid economic rise of China and India will lead to a tectonic shift in the global power structure because of the size of their population and, consequently, the overall size of their national economies. Because of this demographic leverage, they have a global footprint and degree of influence that is disproportionate to their level of development.

The “Chindia” fantasy

There are obvious similarities between India and China. Both are developing countries and, on this account, share many common interests in global economic and environmental matters. Both have achieved and sustained impressive economic growth in recent years and are, therefore, ascendant powers, playing an increasing role in world affairs. Not surprisingly, the two countries are frequently clubbed together by political analysts. The term “Chindia” has recently come into circulation, in an overblown version of such bracketing.

In my view, “Chindia” is a fantasy. It focuses only on the similarities in the status and interests of the two countries and glosses over the differences. China’s economy is more than twice the size of India’s and its military capabilities are more impressive. It is a permanent member of the UN Security Council. China wields much greater influence in global political and economic issues. China is already a great power, while India is still poised to acquire that position.

A more realistic view must recognize that China is a rising great power, while India is an emerging great power. A realistic analysis of the impact of the rise of India and China on international affairs must recognize the similarities as well as the differences between the two countries.

Imagining 2025

I said earlier that the rise of China and India (in that order) will lead to a tectonic shift in international relations. What is likely to be the distribution of global power in, say, 2025 and how will the major powers interact with one another?

Estimating future trends is always a hazardous exercise. One cannot think of many successful attempts at forecasting long-term or even medium-term developments. In the late 1960s and 70s, many analysts forecast that the ascendant USSR would overtake the West within a few decades. In the event, the USSR experienced severe economic strains in the 1980s and collapsed altogether in 1990. In the 1980s, there were forecasts that Japan would soon displace the United States as the world’s leading economy. As it turned out, Japan entered a period of extended stagnation, from which it has yet to recover. We can try to anticipate the future only by extrapolating existing trends but such extrapolation is inherently risky because of the large number of variable factors that may cause trends to change sharply.

Bearing in mind these cautionary examples, let us see what analysts tell us about the development prospects of India and China and their impact on the global distribution of power in the medium term – say, by 2025.

The most recent assessment of the U.S. National Intelligence Council suggests that, in 2025, the eight largest economies in the world may be the United States, China, India, Japan, Germany, UK, France and Russia. This broadly agrees with the Goldman Sachs papers to which we referred earlier. China is already poised to replace Japan as the second largest economy. The latest World Bank figures show that, in 2009, China’s GDP (at exchange rates) was US$ 4.9 trillion, just a shade below Japan’s US$ 5 trillion. Apart from India and Russia, the other six countries already figure in the current ranking list. The US National Intelligence Council analysis assumes that “India will probably continue to enjoy relatively rapid economic growth.” As regards Russia, it qualifies the projection by noting that Russia could experience an actual decline if it fails to invest adequately in human capital, diversify its economy and integrate with global markets, or if the oil prices remain low. The US National Intelligence Council projection seems to me to be quite credible.

Following from this projection, the Council draws the conclusion that it is a “relative certainty” that a ‘global multipolar system is emerging with the rise of China, India and others” and that “by 2025, the international system will be a global multipolar one with gaps in national power continuing to narrow between developed and developing countries”.

This most significant feature of this assessment of the US National Intelligence Council is the contrast with the previous projection it offered four years earlier. In December 2004, the Council’s projection for 2020 indicated continued US dominance in international affairs and emphasized that most major powers had forsaken the idea of balancing the United States.

I have two comments on the new projection. First, it has correctly assessed the waning of US dominance. The “unipolar moment” is passing. My second comment is that the emerging international order is more accurately described as “polycentric”, rather than “multipolar.” I shall try to explain each of these comments.

Towards a Polycentric World

The global power structure has been in a state of continuous evolution since the disintegration of the USSR in December 1989 and the resultant collapse of the bipolar order. In the immediate aftermath of the Soviet collapse, the United States enjoyed a degree of primacy unparalleled in modern times. It had no equal or even near-equal. The extent of US primacy was so great that no other power, or even a combination of other major powers, could act as a counterweight. In other words, the traditional balance of power mechanism ceased to function for the first time in many centuries. A vivid demonstration was provided in 1990, when Russia and China reluctantly acquiesced in the Security Council resolution legitimizing the US-led military action against Iraq.

Since then, there has been a considerable reduction in the extent of the US lead, on account of the continuing rise of the BRIC countries and, more specifically, the ascendance of China as a global commercial, financial and military power, and the rehabilitation of the Russian economy. As a result of these developments, the scope for US unilateralism has shrunk perceptibly. The US still has no equal. It is the preeminent global power and is likely to retain this position till at least 2050. However, by 2025, it may have a near-equal and rival in China. It is conceivable that, in the not too distant future, China may be able to mobilise countervailing coalitions against the United States on specific international issues. The “unipolar moment” is passing.

In my view, the direction in which the global order is evolving is better described as ‘polycentric”, rather than “multipolar”. In contrast to the Cold War period, states will not typically group themselves into mutually hostile alliances led by one or another major power. States are more likely to form temporary and shifting coalitions, seeking out partners with common national interests on a specific question. The term ‘polycentric” describes such a system more accurately than “multipolar”.

There is another striking difference between the Cold War era and the emerging international order. An important feature of the emerging order is a relatively high degree of economic interdependence between the major power centres. During the Cold War, there were two parallel international economic systems – the western market-based system, and COMECON, the parallel system of the Soviet bloc. Each system had its own rules governing trade and investment. Because of the collapse of the Soviet Union and COMECON, we now have a single global economic system. This fosters a much higher degree of economic inter-dependence between major countries. Two decades ago, the economy of the second most powerful country, the Soviet Union, suddenly collapsed; but this caused negligible damage to the Western economies. If a similar catastrophe were to occur in China today, the fallout would cause incalculable economic damage to the United States, European Union and Japan.

A high degree of mutual economic inter-dependence tends to act as a restraining factor in conflict situations. It helps to moderate political conflicts and contain tension. During the Cold War, the prospect of Mutual Assured Destruction ruled out recourse to an all-out war between the major powers. In the emerging international order, the prospects of mutual economic destruction will hopefully act as an additional restraint.

Relations between the preeminent power, the United States, and its emerging rival, China, are likely to have a comprehensive as well complex character. It will cover a wide range of strategic as well as commercial, financial and environmental issues, in contrast to the narrow focus on strategic issues that marked the US-Soviet engagement during the Cold War. In recent years, China’s diplomacy has become increasingly assertive and this may be the beginning of a sustained trend as China becomes more powerful. This could give rise to complex questions in China’s relations with the United States and other major powers.

The US response to China’s rapid ascent is likely to be two dimensional. It may seek China’s cooperation in dealing with an increasing range of current political, economic and environmental issues. Under its policy of ‘engagement”, the US already attaches great importance to such consultations on UN Security Council questions and East Asian regional issues. The scope and depth of consultations are likely to increase with the expansion of China’s global role in distant areas such as the Middle East and Africa.

At the same time, the long-term interests of the United States call for limiting China’s influence relative to that of other powers. It would be logical for the United States to favour a wider diffusion of power. The United States may take a benign and cooperative attitude in regard to the rise of other major powers, which do not perceive Washington as a potential adversary. The recent nuclear deal with India and Indo-US defence initiatives could be forerunners of this trend.

An Indian Perspective

From an Indian perspective, what are the implications of the evolution of this polycentric global order?

In the first place, as we move towards a polycentric world, India must follow a multi-directional foreign policy, seeking to cultivate co-operative relations, to the extent possible, with all countries and, more particularly, the major powers. This will enable us to obtain maximum leverage with each of the major powers. For example, success in cultivating close bilateral ties with Washington can also raise our profile in Beijing. Likewise, a cooperative relationship with Beijing can give us leverage in Washington. In tomorrow’s polycentric world, nonalignment will be reincarnated in the form of a multidirectional foreign policy.

While pursuing such a policy, we should pay special attention to our relations with the United States. Even after fifty years, the United States will still continue to be the preeminent power in a polycentric world. Even if China’s GDP is larger by 2050 in aggregate terms, its per capita GDP will remain far below that of the United States. The BRICs report suggests that China’s per capita income may rise to a level of US$31,357 by 2050; but, by that year, the corresponding figure for the United States may be US$ 83,710. This disparity will reflect the considerable technological edge that the United States will still retain at mid-century. US leadership in science and technology will also find reflection in military affairs.

India has an advantage in building closer ties to the United States. Both countries are open societies. The interaction between civil society groups in the two countries will play a major role in facilitating closer Indo-US ties at the official level. The crucial role of Americans of Indian origin in this regard has received well-deserved attention. Interactions between professional, academic and business associations can play a major role in building mutual trust and confidence, paving the way to closer cooperation also at the official level.

India’s rise is already being reflected in the evolving US policy. During the Cold War years, Washington attached relatively low priority to nonaligned India. US policies in South Asia frequently emerged as a fall-out or by-product of its policies towards regions which it regarded as strategically important, in particular, the oil-producing Gulf and West Asian region. Pakistan was ready to provide military bases to the US and play the role of a subaltern ally to secure US strategic interests in this area. The imperatives of US policy in the more important Gulf and West Asian region explains why US South Asia policy accorded priority to Pakistan over India, even though India was a much bigger country than Pakistan and carried much greater influence in international affairs. For a decade after the Cold War, the United States and its European allies tended to bracket or – to use terminology favoured by Indian commentators – “equate” or “hyphenate” India and Pakistan. It was only in the 1990s, as India’s economic reforms started to yield results, that the United States and its partners decided to “de-hyphenate” India and Pakistan.

What portents do these projections hold for India-China relations?
On the whole, we have good relations with China at present. Commercial ties have grown rapidly. This has provided a positive impetus to bilateral relations, even though the degree of inter-dependence between the two economies is still quite small. China has an impressive military presence in our border areas but its posture is not hostile and, in this sense, China does not pose a threat to India.

Looking into the future, we have to consider the possibility of a negative change in the Chinese posture. China’s posture could change suddenly in the event of a political upheaval in that country. A powerful and unpredictable China could pose a threat to its neighbours. Chinese policies might also change if there is a big change in the power equation between the two countries. This is a common feature of inter-state relations. Let us consider each of these possibilities.

Some analysts believe that China is likely to become politically unstable in the near future. The US Sinologist Gordon Chang, for example, has been predicting the “coming collapse of China” for several years. These scholars point to several negative factors such as the fact that China’s political development has lagged behind its economic growth, the discontent arising from growing income disparities and the declining prestige of the Communist party. These factors have, indeed, generated social tensions. Nevertheless, the Chinese leadership has been successful so far in maintaining stability. It is acutely conscious of the dangers of an upheaval and it seems ready to adopt flexible and pragmatic policies in order to maintain political stability. On balance, bearing in mind the track record of the Chinese leadership, I would discount predictions of chaos or collapse. It is possible that the required institutional restructuring may not proceed altogether smoothly. This could result in blips in China’s growth trajectory but a collapse or upheaval is most unlikely.

As we noted earlier, many projections indicate that our growth rates may overtake China’s in the near future. Thus, the economic gap that now exists is likely to be closed in gradual stages. Thus an adverse shift in the India- China power balance appears to be unlikely. On the contrary, a narrower gap in the power potential of the two countries would be a stabilizing factor in bilateral relations. Growing economic exchanges would also help to consolidate bilateral ties.

Thus, my conclusion is that the overall prospects for India-China bilateral relations are quite promising, provided that neither side misunderstands the intentions or capabilities of the other.

There has been much talk recently about the so-called “Copenhagen spirit” and India-China cooperation in multilateral forums after the climate change summit last December. There is nothing new in the “Copenhagen spirit”. Climate change is an area where the two countries have cooperated very closely ever since negotiations on the subject began in 1991. As developing countries undergoing rapid industrialization, the two countries share common interests and these are reflected in their stand in the negotiations. For similar reasons, there are opportunities for India-China cooperation on many other global economic and environmental issues.

However, this logic does not necessarily apply to all other multilateral issues. China has a permanent seat on the UN Security Council. In more recent years, it has also become a party to the NPT and a member of the Nuclear Suppliers Group and the Missile Technology Control Regime. Unlike India, China already has a seat at the high table. In these areas, therefore, its interests often do not coincide with our interests. For example, there is no particular reason for China to be enthusiastic about our efforts to secure a permanent seat on the Security Council. Indian and Chinese interests may not always coincide in future when a rising India seeks inclusion in these or other exclusive policy forums. In some cases, China is not likely to extend active support to India though it may refrain from opposing our efforts in the interests of good bilateral relations. We will have to turn to other major powers to seek support or sponsorship.

How will polycentrism affect our immediate neighbourhood in Asia? The eminent American sinologist, John Garver, the author of an otherwise insightful book on India-China relations, maintains that there will be a contest between China and India for so-called “spheres of influence” in our neighbourhood, in which China is likely to emerge as the winner. I have great respect for Garver’s writings on China but I disagree with the “spheres of influence” forecast.

In the first place, it underestimates the role of other Asian countries. Not only Japan but also Korea, Indonesia and ASEAN (as a regional grouping) will certainly be major players in the Asian context. We will fail to understand Asian developments if we focus too narrowly on China and India. The rise of India and China is only a part of a larger historical development – the Asian Renaissance.

Moreover, Asia is not isolated from the rest of the world. Outside powers – above all, the United States – will continue to play an extremely important role in Asian affairs. It would be a huge error to discount their influence. In addition to its economic influence, the United States will continue to be leading maritime power for the foreseeable future. It will be able to maintain a stronger naval presence in the Pacific and Indian Oceans than China or India, respectively.

The diffusion of power in a polycentric world will give the smaller Asian states a wider range of policy options on any specific issue, making it possible for them to avoid becoming excessively dependent on any major power. There is no reason to expect these states to fall into anyone’s “sphere of influence”. A polycentric order will prevail in Asia, as in the world as a whole.

Mr. Chairperson,
Allow me to sum up my conclusions. While the future is always shrouded in uncertainty, current trends suggest that the world is moving toward a polycentric order. By 2025, a number of major countries are likely to act as autonomous power centres. The United States will continue to be the preeminent power but China may begin to emerge as a rival and near-equal. The gap between the power potentials of the United States and China may gradually diminish and this may also be the case in regard to the gap between China and India.

In a polycentric world, India’s traditional policy of non-alignment may take the form of a multi-directional foreign policy. Within the parameters of such a policy, priority is likely to be accorded to forging close ties to the preeminent power, the United States.

Thank you.