The incursion by the Chinese army into the Depsang Valley in Ladakh in April, and Chinese President Xi Jinping’s statement in March that the border dispute is at the top of his agenda in Sino-Indian relations, had the potential to slow down the strengthening of economic and cultural ties between India and China. Instead, Dr. Liu Youfa, the Consul General in Mumbai of the People’s Republic of China (PRC), says both neighbours must now focus on joining hands to safeguard the future, rather than falling into the trap of dwelling on the past.
Before taking up his present assignment at the beginning of 2013, Dr. Liu, who has a PhD in Economics from Nankai University, China, was Vice President of the China Institute of International Studies in Beijing. During his 30-year career he has worked as Second Secretary at the Embassy of the PRC in Australia and Papua New Guinea, and as a Counsellor at the Embassy of the PRC in Tanzania, Ethiopia, and the U.S.
In an interview with Gateway House’s Karan Pradhan, Dr. Liu elaborated on the bilateral mechanisms that India and China can build on, the need to increase investments and reduce India’s trade deficit with China, the potential to collaborate on securing energy supplies, and the role of both economies in a globalising world.
Q. The border dispute at Ladakh between India and China has seemingly been resolved for now. How, in your opinion, did the two countries manage to reach this understanding?
One thing is for sure – for the sake of the future of a healthy cooperative relationship between China and India, neither India nor China can afford to sleep on the legacies of 50 years ago. We need to move forward. It is this forward-looking mindset from the top of both governments and both nations that helped to dissolve the recent tension over the border. It is a good thing that our leaders have agreed to expedite the negotiations so that both sides can work out the differences and try to seal a deal that would be acceptable to both governments and both peoples.
Q. What sort of bilateral mechanisms will the two countries need to put in place now to ensure that we don’t go back on this recent progress?
Firstly, our countries have different political systems, values and traditions. We may not agree on everything and that is why when two countries decide to move bilateral relations forward, we need to start from the top. Strategic political guidance at the top is the priority. The two leaders from the governments of both nations must meet on a regular basis, exchange views on things which would be important to both sides, so that the business communities, the think tanks and the media of both sides have a clear road map to follow.
Second, we need to expand the areas and the scope of cooperation, because good relations will not be sustainable unless we base political ties on sound cooperative relations of economic, trade, industrial cooperation, education, tourism and so on.
Thirdly, our economic relations have to take a drastic step, or many steps, forward. Last year, the bilateral trade stood at $66.5 billion. The figure looks good, but as an economist, I think it’s very low. It is not proportionate to healthy political relations. In terms of bilateral investments, it’s even worse. Two-way investment flow stood at less than $ 2 billion. As of last year, China’s outward moving FDI stood at $600 billion, out of which less than one-thousandth came to India. I’m sure our Indian friends are also very concerned about the growing deficit in trade.
Q: How can bilateral investment be increased to reduce the deficit on the Indian side?
It can be done in these ways: Through investment, Chinese enterprises can set up production or processing lines in India. That immediately reduces the deficit both ways. When joint-venture projects manufacture and remarket the products to third-party countries, it will help to increase India’s exports.
The next point is industrial co-operation. At this moment, the economic relations are concentrated mostly in trade. The more we develop only trade, the more we would see an imbalance occurring on the Indian side. That is why we need to bring in industrial cooperation, which would in turn help bring out the potential in both countries.
At the moment, we have to be frank that both India and China are not in an advantageous position in terms of global technology trade. We are both at the middle and lower levels. The R&D cooperation between our two countries, to me, is the only way to lift our positions in the global technology chain. And we have to admit that during the post-financial crisis era, technology-related comparative advantages will be the critical factor in deciding whether India and China will maintain their current economic growth or elevate their capacity.
Q. China and India are the world’s second and fourth largest importers of crude oil, respectively. What do the two countries need to do to work together on securing energy supplies?
The first thing is to try to avoid competition. Both India and China have their traditional suppliers of oil. We should avoid competition amongst ourselves. Secondly, we should compare notes in terms of oil imports, so that we do not increase the imports at the expense of the other side. Thirdly, we should start cooperating in terms of exploitation, production and the processing of oil. And fourthly, we should try to develop our own capabilities to produce oil and process oil, either in India, China or somewhere else.
In terms of global governance in the areas of petroleum and gas, China and India should join hands so that we can jointly deal with the competition from the developed world and from the developing world, because both India and China are new rising economies. We are facing challenges from both ends.
Q. The western role in Africa so far has mainly been aid-driven and has not really matched the anticipated results. In what way can China, India and the other BRICS states be of more help to African countries?
The BRICS mechanism has provided an excellent platform for India and China to join hands. With regard to sustainable development across Africa, the most critical area is connectivity in terms of the land transportation, such as the highways, the railways, sea and air transportation. Here India and China can join hands in helping African countries to build and expedite the infrastructure for continental interconnectivity.
Secondly, both India and China have the obligation to help the less developed African countries to catch up in the areas of economic and social development. Thirdly, development assistance should not be tied to project aid, but to capacity-building. In this regard, India is doing much better than China, I must admit. The fourth way is through R&D. Both India and China have the obligation to join hands to provide assistance in terms of research, in terms of mature technologies.
African countries cannot afford the capital to import state-of-the-art technology and it will not necessarily be applicable to them. Those are expensive toys. But the mature technologies, applicable to African situations, would be the area where both India and China can join hands.
This interview was exclusively written for Gateway House: Indian Council on Global Relations. You can read more exclusive features here.
For interview requests with the author, or for permission to republish, please contact Advait Praturi at praturi.advait@gatewayhouse.in or 022 22023371.
On June 10, Gateway House hosted a discussion titled ‘Bridging the gaps: India and China in the next decade.’ To read more on the event, click here.