Choosing the Right Allies

The trade war that the US President Donald Trump has started is getting more extreme every day. The World Trade Organisation on Wednesday estimated the US-China trade tensions could cut the trade of goods between two economies by as much as 80 per cent. “This tit-for-tat approach between the world’s two largest economies carries wider implications that could severely damage the global economic outlook,” it said. Indian exporters fear that the reciprocal tariff which the USA threatened to impose on Indian export would not only reduce demand of Indian goods in the short run but it also intensifies fear of dumping from China as a much steeper US tariff on Chinese exports will compel the Chinese companies to look for alternative markets. An analysis by South China Morning Post reveals that in addition to China, Japan, South Korea, Vietnam, Thailand and Malaysia appear as primary targets in US President Donald Trump’s tariff war.

Nonetheless, a group of policymakers in India argues to take advantage of the US tariffs imposed on China by attracting foreign investors to relocate their supply chains to India. This strategy is part of India’s broader objective of ‘Make in India/Atma Nirbhar Bharat’ to reduce its dependence on imports, foster its domestic manufacturing sector and establish itself as a key player in the global supply chain, euphemistically termed as ‘China plus one’ policy. Analysts are of the opinion that while such policies look logical, their executions have been problematic. According to The New York Times, the US imposing tariffs on many Asian countries has made China a more “appealing option” as companies are scared to make a hasty decision amid upheaval in global trade. In a storm of tariffs, many companies see “China as the safest harbor”, it said.

The increasing scrutiny and restrictions on Chinese companies, coupled with attempts to position India as an alternative to China, have created a highly antagonistic business environment that harms both sides. The Modi government has maintained strict restrictions on Chinese investments and the restriction is unlikely to change anytime soon despite growing calls for review of the foreign direct investment (FDI) norms. Nonetheless it is essential to understand that India’s manufacturing industries remain heavily reliant on China’s advanced supply chain and technology base. China has spent decades to build an unrivaled manufacturing ecosystem characterised by scale, efficiency and expertise. Thus, India’s strategy of targeting western FDI to displace China in the global supply chain is unlikely to be successful. But this policy will possibly strain relations with China—the second largest economy of the world.

India-China Relations: Signs of Improvement

On the 75th anniversary of diplomatic relations (April 1), Chinese President Xi Jinping urged India and China to strengthen ties and cooperate on international affairs. Chinese President Xi Jinping told his Indian counterpart Droupadi Murmu that Beijing and New Delhi should work more closely together. In his message, Xi Jinping said China and India’s relationship should take the form of a “Dragon-Elephant tango”—a dance between their emblematic animals, reports Hindustan Times.

Amid uncertain geopolitics, India-China relations look improving. In a recent interview (last week of March) Indian Prime Minister Narendra Modi spoke positively about India’s relationship with China. He said normalcy had returned to the disputed India-China border and called for stronger ties. These are striking comments, because tensions have been high since a nasty border clash in the northern Ladakh region in 2020—the deadliest since a 1962 war. Chinese foreign ministry spokeswoman Mao Ning expressed appreciation for Modi’s words and declared that “the two countries should be partners that contribute to each other’s success”. Even after the Ladakh clash, India-China ties have remained cordial. Bilateral trade is consistently robust; China has been India’s top trade partner. They cooperate multilaterally, from BRICS, the alliance of major developing countries, to the Asian Infrastructure Investment Bank. They share interests in advancing non-Western economic models, countering Islamist terrorism and rejecting what they deem US moral crusading, reports BBC.

Significantly, in a podcast, when the Indian Prime Minister was asked about India-China relations, he said “If we look back centuries, there’s no real history of conflict between us… Our relationship should remain just as strong in the future.” Then he made a second important point that “even within a family, not everything is always perfect.” His choice of words needs to be highlighted. He said “within a family,” which implies that India and China are like family. The third point he made is that everybody regards the 21st century as “Asia’s century,” and this can only be realised with India-China cooperation. In a recent interview, Sudheendra Kulkarni, a close aide to former Indian prime minister Atal Bihari Vajpayee and the founder of the Forum for a New South Asia, used an interesting metaphor regarding the development of India-China relations, describing it as the “process of cultivating a plant.” According to him, the seeds of friendship sown in the fertile soil by both sides are beginning to sprout. Some very hopeful green leaves are visible. In time, these will grow and we are going to see fruits. However, this process must be accelerated. India and China have a huge responsibility to add to the stability and peace of the world and ensure progress, he added.

Since November 2024, after Indian Prime Minister Narendra Modi and Chinese President Xi Jinping had met in Kazan, Russia, on the sidelines of the BRICS Summit, there has been an important shift in the bilateral relations. Over the last four months, several positive developments have been witnessed. Important agreements were reached when Indian Foreign Secretary Vikram Misri visited Beijing earlier this year and met with Chinese Foreign Minister Wang Yi and other officials. In January, the two sides agreed to resume direct flights and the pilgrimage after five years, looking to build on the thaw in ties following the disengagement in Eastern Ladakh after a four-year standoff in the border area. The two governments are looking to restart direct flights from Delhi and Lucknow and Kolkata to Lhasa from May 2025. It is reported that the first flights will be to and from Lhasa to facilitate the Kailash Mansarovar Yatra. Later in the year, flights from India to Beijing, Shanghai and other Chinese cities are likely to be restarted.

Meanwhile, it is reported that Chinese electric vehicle (EV) giant BYD is set to establish its first manufacturing plant in India’s east coast. According to a Business Standard report, the company has identified Rangareddy district in Telangana, about 60 kilometers from Hyderabad, as the site for its proposed EV and battery production unit. The move comes amid rising tariffs in Western markets, forcing Chinese automakers to explore alternative growth opportunities. BYD’s India expansion is driven by escalating trade barriers in key export destinations. The United States has also announced steep tariffs on Chinese electric cars, raising duties to over 100 per cent from 25 per cent, effectively limiting BYD’s ability to compete in these markets. These protectionist measures have prompted BYD to seek new opportunities in emerging economies with growing EV demand.

The Economic Times reported that Indian private industry has been nudging the Modi government to relook at the current investment regime, which was tightened in 2020 following the Covid outbreak and tensions with China along the Ladakh border. Recently, voices in favour of easing FDI rules have grown stronger. Some experts and commentators argue for collaborating with countries like China, particularly in the field of technology. The Economic Survey 2023–24 had made a strong pitch for attracting Chinese investment to boost domestic manufacturing and access export markets. It had argued that an increase in FDI inflows from China could raise India’s participation in global supply chains and support export growth.

Bay of Bengal: the Gateway to East Asia

For years, India’s ‘Look East/ Act East’ policy considered Myanmar as the gateway to East Asia. It has not paid the desired dividend. The much hyped Trans Asian Highway and Trans Asian Railway through Manipur and Myanmar are nowhere near completion. Both Manipur and Myanmar are in flames. The other viable alternative route to East Asia and Indo-Pacific region is through Bay of Bengal and adjoining Andaman Sea, as the common maritime space between India and Southeast Asia which has emerged as a geographic ‘Gateway’ to forge stronger linkages. Realising the importance of the Bay of Bengal as a strategic trade route, Bangladesh has already proposed China to use Bangladesh as “an extension of the Chinese economy — building, producing, and marketing goods for China and the world.” The chief advisor of Bangladesh’s interim government, Mohammed Yunus, during his recent visit to China has also made very shameful, preposterous and provocative comments saying that since India’s north-eastern states are landlocked with no access to the sea, Bangladesh is the only guardian “of the ocean in this region”. By calling Bangladesh the ‘guardian’ of ocean access for the northeastern states, Yunus has drawn China in, weaponised geography and triggered regional security alarms. By highlighting the “landlocked” nature of India’s northeastern states and positioning Bangladesh as their “guardian” of ocean access, he was essentially leveraging Bangladesh’s strategic geographic position, comments India Today.

China has become increasingly interested in reviving an old project of constructing a canal that would connect the Gulf of Thailand with the Andaman Sea across the Kra Isthmus in southern Thailand. Such a canal would significantly reduce travel times through heavily-navigated trade routes. In 2015, as part of its Maritime Silk Road initiative, a key component of its Belt and Road Initiative (BRI), an MoU was signed between private entities from China and Thailand to explore the feasibility of the canal, highlighting its potential to reshape trade routes and reduce reliance on the Malacca Strait. If constructed, the Kra Canal would provide a strategic alternative to the Strait of Malacca, reducing shipping distances by approximately 1,200 nautical miles.

Bengal’s Strong Connection with China

Thanks to Buddhism, Bengal and Odisha have a long history of trade and cultural relations with countries of East Asia, including China. The Chinese traveler Fa Hien, who visited Bengal during A.D. 411-412, has written that there were 24 monasteries in the Tamralipta region (present-day Tamluk and its adjoining areas in Medinipur district), West Bengal. He stayed there for a while to copy Buddhist texts. More than 200 years later, the Chinese pilgrim Xuanzang came to Bengal in A.D. 638 and noted in his travelogue that the Tamralipta region had 10 monasteries. Ancient Tamralipta Bandar was a seaport in the eastern part of India that was located near the confluence of the rivers Rupnarayan and Hugli. Till the eleventh century, Tamralipta port, near the Bay of Bengal, was a great centre of trade and commerce. It was the departure point of the Mauryan trade route towards South and South-east Asia, as well as abroad. Pre-modern Bengal and China were significantly connected through socio-political and economic exchanges in which both regions reciprocated movements of traders, travelers, diplomats with commodities and ideas. Kooria (2021) showed how the Bengal–China connections between the Ilyās Shāhī (1342-1486) and early Ming dynasties (1368-1644) in the early fifteenth century across the Bay of Bengal and South China Sea played a central role in the cultural geography and diplomatic vocabulary between individuals and communities in foreign lands.

India’s first Chinese immigrant, Tong Ah Chew (Atchew, according to British records), arrived in Kolkata with loads of tea in 1778 and set up a sugar mill near the city. As an eastern port, Kolkata was the closest entry into India from China and East Asia, so this became India’s only Chinese community. The city’s Chinese population swelled to more than 20,000 in the early 20th Century when many fled China to escape its civil war and conflict with Japan to find work in the tanning and leather industries. They intermarried and integrated with locals, writes BBC.

Bejoy Kumar Basu from Calcutta was a member of the historic Indian Medical Mission to China (1938-1942). The Indian medical team was composed of five doctors, including Dr. Dwarkanath Kotnis, who traveled to China to aid wounded and plague-stricken Chinese soldiers during the Second Sino-Japanese War. He served on the frontline and saved the lives of many Chinese soldiers. After four years in China, Dr Kotnis fell ill and died at the age of 32. “The army has lost a helping hand, the nation a friend. Let us always bear in mind his international spirit,” China’s former communist leader and revolutionary hero Mao Zedong reportedly said in a tribute. After returning to Calcutta/Kolkata, Dr. Basu pioneered the practice of Acupuncture and Moxibustion, the traditional therapeutic modalities, on Indian soil from an integrated viewpoint since 1959.

In 1924, India’s first Nobel Laureate Rabindranath Tagore visited China. Recalling Rabindranath Tagore’s initiatives to bring India and China culturally closer, Chinese envoy Xu Wei stressed further improving bilateral ties between the two nations. Wei, the Consul General of China in Kolkata, was speaking at a programme in Visva-Bharati in Santiniketan to mark the end of the centenary celebration of Tagore’s 1924 visit to China. Hailing 75 years of India-China diplomatic relations, Wei said, “There is every possibility, potential and great scope in further improving our bilateral ties and we are proceeding along that path.”, reports Business Standard.

In 2015, after a meeting with Chinese Vice-President Li Yuanchao, in Kolkata, West Bengal chief minister Mamata Banerjee said, the Chinese government had expressed keen interest in enhancing economic activity with West Bengal as the state is both economically and geographically close to China. It may be recalled that the former Chinese Consul-General in Kolkata Ma Zhanwu on September 12, 2018, said his country was mooting a bullet train service between Kunming and Kolkata, traversing through Myanmar and Bangladesh.

On December 18, 2024, Chinese Consul General Xu Wei met with Vandana Yadav, the Principal Secretary of the Department of Commerce, Industry & Enterprises, State Government of West Bengal and the Managing Director of West Bengal Industrial Development Corporation (WBIDC). After the meeting, Yadav said that West Bengal has a natural geographical advantage in developing cooperation with China, and has great potential in cooperation in manufacturing, agriculture and other fields. The Government of West Bengal stands ready for closer local exchanges and cooperation between India and China.

Observations

China is India’s top trading partner and India’s imports far exceed China’s imports from India. In the evolving trade war which will have a serious impact on India and other emerging countries, India should select its partners very carefully. Both China and the USA need India to win this trade war which the Chinese President described as China’s ‘second long march’. Hope India’s policy makers will not make a “Turkish blunder” which refers primarily to the Ottoman Empire’s decision to enter the war in 1914, betraying its previous position of neutrality and siding with Germany. Defeat in WW1 ultimately led to the collapse of their empire.

Various research suggests that the distance between countries in terms of culture, institutions, geographic proximity, and economic development matters in the foreign direct investment (FDI) decisions made by firms. A study by Shige Makino and Eric WK Tsang (2011) identifies the historical ties between countries as an additional factor affecting such decisions.

Historical ties play an important role in attracting investment. Stressing on this, the West Bengal Chief Minister, during her recent visit to the United Kingdom (UK), spoke about how Bengal was looking forward to further cementing ties with partners in the UK and beyond. Ms Banerjee called the relationship “very deep” as pre-independence Kolkata served as the capital of India. But the UK and other European countries do not have much capital to invest overseas. It will be prudent on her part if her government approaches China or Japan who have huge funds to invest. A strong historical relation between Bengal and China will act as a catalyst.

Views expressed are personal