Can trade bridge a political chasm? Economic and political relations between India and China in the 21st century

Jasodhara Banerjee, a journalist and editor at Forbes India, has written an intriguing analysis of why the rapid increase in trade and business links between India and China has not given rise to better political relations between the two countries.

In her research paper, Can trade bridge a political chasm? Economic and political relations between India and China in the 21st century, Jasodhara first lays out the growing trade and economic cooperation on the one hand and on the other, the ongoing fraught political relationship over long-standing borders disputes, China’s efforts at building dams over the Brahmaputra river, its growing presence in the Indian Ocean, India’s presence in the South China Sea, and both the countries’ interest and stakes in Pakistan, Afghanistan, Sri Lanka and Myanmar. Basing her analysis on interviews with academics, academicians, experts and journalists in India, the USA, the UK and China, Jasodhara then explores three main factors which impinge upon the lack of progress on the political front.

The first is that although the growth in trade between India and China has seen a significant surge, it is not significant when compared to the overall volumes of foreign trade conducted by each of these countries with other nations. Foreign trade data in fact show that India forms a small portion of China’s total foreign trade, and China forms a small portion of India’s. Foreign Direct Investment by each of these countries into the other is also very small, when compared to the volume of their bilateral trade.

The second is that the political bilateral issues between India and China - such as the dispute over border territories - are not strictly bilateral. The issues have remained unresolved over several decades, during which time both India and China have pursued foreign policies that have strengthened their ties with other countries. These alliances lend a multi-dimensional context to the bilateral issues, thus making them more complex and difficult to resolve.

The third factor, she argues, is the ongoing significance that China attaches to sovereignty over economic benefits. From the interviews conducted, this paper concludes that although economic issues and the search for natural resources is an increasingly important factor in China’s foreign policy, it remains less important than sovereignty. Jasodhara ends with a challenge. 

Would it not be profitable, she asks, for both nations to work towards normalising social and living conditions along the Line of Actual Control (on the China-India border), reduce troops, and allow border trade, rather than hold on to a rigid concept of political boundaries that has proven to be a drain on the economies and energies of both countries?

As with all Fellows’ research papers, any opinions expressed are those of the author and not of the Institute.