Noted China scholar Dr John Lee pointed out that Beijing viewed the improvement in the relations between India and other countries in Southeast Asia as an intrusion into the traditional sphere of the influence of China.
Noted China scholar Dr. John Lee has said that China would be content if India remained a South Asian power and does not become an Asian Power.
Delivering a talk on China at Observer Research Foundation in Delhi on June 17, 2011, Dr. Lee, a Foreign Policy Research Fellow at the Centre for Independent Studies, Sydney and also a Visiting Fellow at the Hudson Institute, US, pointed out that while China has no problem in India becoming an South Asian power, the improvement in the relations between India and other countries in Southeast Asia was viewed in Beijing as an intrusion into the traditional sphere of the influence of China.
Dr. Lee said another reason is that China believed that with the simultaneous growth of both the nations in the region, it was very important to maintain the balance of power.
Dr. Lee cautioned that improving trade relations do not necessarily lead to overall improvement of relations between two counties and said that a country should be cautious while relying on economic relations. Drawing analogy from history, he said the vast amount of trade between Britain, France and Germany during the first decade of 20th century could not stop World War I.
Dr. Lee said it was assumed that the trade relationship between India and China benefited both the countries but it was not the case as they had different models of economies with India having services led GDP and China having a manufacturing led GDP. The relationship gets complicated further with India trying to increase its manufacturing share in the global market and China trying to improve its services sector. The Chinese government restricted India from accessing its software and services market and the Indian government stopped China from entering its manufacturing sector.
He also gave recent examples of how China's important economic relations with Japan, South Korea and Australia did not prevent deepening of bilateral strategic tensions between the countries.
Speaking about the Chinese growth story, Dr. Lee noted that its economic growth benefited only 300 million people while almost a billion did not get as much benefit from the growth. China's wealth growth had been benefiting the people closer to the Communist Party of China and not the private sector as a whole. He said the current economic structure of China had certain short term benefits but while examining it in detail, it appears as a weak model. He gave evidences supporting his findings - the large amount of loans that are provided by the State controlled banks had doubled during the time of the financial crisis which helped China to maintain the 10 percent growth rate, but he said that throwing money at the problem only offered short term solutions and did not solve the problem entirely. The banks in turn got the money from citizens who had very little choice while depositing their money as the banking was state owned, and thus maintaining the inflow of money.
Responding to a question about when China will change its current economic model, he said that it was more of a political answer than an economic one as when the current model proves ineffective the Chinese government will change it. Since a significant amount of capital access is reserved for SOEs (State-owned enterprises), with three-quarters of all bank loans put aside for them, foreign firms find it difficult to gain access to capital for further investment. This restricts foreign firms from gaining access to the most lucrative markets in China. Also, until Chinese economy is domestic consumption driven and not merely the exporter of manufactured goods its biggest influence will be in the commodity markets.
The discussion that followed the talk featured China's ability to leverage its economic power. He said that since China was a great trading partner and not the leader of the global economy, it was difficult for China to use the bilateral trade as leverage. China's strict political mechanisms inhibit China from being able to widen its scope of influence. Being confined to state-based operations, resources are majorly disseminated through these means and thus China lacks the leverage that comes hand-in-hand with a globally interdependent open political economy. What remains to be seen is the extent to which China is able to translate its economic footprint into a strategic political and diplomatic apparatus.
(This report was prepared by Rahul Prakash, Research Assistant, at Observer Research Foundation)
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