Chinese Foreign Minister Wang Yi’s Trip to New Delhi: What’s on the Agenda
Media reports have confirmed that Chinese Foreign Minister Wang Yi will be landing in New Delhi on Thursday evening (March 24). Wang’s visit will be the first such senior level interaction since political relations turned frosty after PLA activity was recorded on the Indian border in April 2020. He is scheduled to meet his counterpart, Subrahmanyam Jaishankar.
Geopolitical tensions have frozen India-China ties for two years and heavily impacted cross-border investments and India market access, but new developments in the extended neighborhood may force a change. India’s Ministry of External Affairs has not made public comments on the visit, whose agenda is still under discussion. In this article, we briefly run through some of the issues that could feature in talks.
Line of Actual Control (LAC), BRICS, war in Ukraine
Wang will reportedly meet with External Affairs Minister S. Jaishankar and National Security Advisor Ajit Doval on Friday to discuss several matters relating to regional security. These include China’s position on the LAC, dealing with the repercussions of the war in Ukraine, and continuing the BRICS diplomatic engagement. The visit comes after comments Wang made at the Organisation of Islamic Cooperation (OIC) Ministerial meeting in Islamabad earlier this week about Jammu & Kashmir.
What’s at stake
- LAC: India has previously required complete de-escalation and disengagement at the LAC as a precondition for talks. New Delhi is clear that resolution on LAC will be prioritized above all other topics of discussion. Beijing’s position appears to be seeking to put the border at the ‘appropriate’ place and that the LAC issue does not dominate the bilateral relationship. This is expected to be repeated by Wang on his visit.
Recently, on March 11, India and China held their 15th round of military talks that did not result in a breakthrough but were considered to be positive. The Hindu reports: “India is hopeful of reaching an agreement to disengage at Patrolling Point (PP) 15 in the Gogra-Hot Springs area, which would leave only Demchok and Depsang as the remaining points of friction with disengagement already reached in the Galwan Valley in 2020 in the wake of the June 15, 2020 clash, in north and south banks of the Pangong Lake in February 2021 and from PP17A in the Gogra-Hot Springs area in August 2021.”
- BRICS: China is keen to host Prime Minister Narendra Modi for the in-person BRICS (Brazil, Russia, India, China) summit that will be attended by President Vladimir Putin. China also holds the chair for the RIC (Russia-India-China) trilateral in 2022. Again, India has made clear it will not be ‘business as usual’ with China without a clear resolution of its border standoff in Ladakh (statement by Foreign Secretary Harsh Vardhan Shringla on March 19 following an outreach from Beijing).
- Russia and Ukraine: The war in Ukraine and involvement of Russia has pushed both India and China into walking a tight balancing rope on the international stage. While China has acknowledged Russia’s ‘security concerns’ and offered to broach a ceasefire agreement, it has laid blame at the door of the United States – reflected in direct media statements and online propaganda. China and Russia have thus far been viewed as much closer political allies on the global stage and opposed to a western-influenced international order.
On its part, India has called for urgent diplomatic settlement but stopped short of outright condemnation. Russia is an important defense partner for India, interestingly in large part due to its problematic security relations with Beijing. Concerning Russia, the two sides appear to have similar views, as does Pakistan. This raises the prospect of a China-Russia pact being joined by India and Pakistan, which would be an important geopolitical bulkhead in Asia for Russian interests, raising the prospect of improved Sino-Indian relations.
- US sanctions: US-led international financial sanctions on Moscow over its position on Ukraine have not been outright supported by China and India. While two China-linked development banks (AIIB and NDB) froze new investments into Russia, Beijing has supported settlement of trade payments in RMB, RMB-ruble trade, UnionPay as an alternative to Visa and Mastercard, and Russia linking to China’s CIPS system. India has continued trade with Russia, and is buying discounted crude oil at about 360,000 barrels a day in March – four times the 2021 average. Current shipment schedules, as tracked by commodities and data analytics firm Kpler, indicate Russia will export 203,000 barrels of oil per day to India for the month. India traditionally does not buy oil from Russia due to steep shipping costs but given how high its energy import bills are, the discounted sale has been advantageous. Russian Urals were being sold at US$25-30 a barrel with freights rates at US$3-4 per barrel, according to Frontline, a New York-listed tanker company.
Political differences continue to spoil scope for India-China détente
New Delhi has clear concerns over China’s perceived transgressions on its bordering areas and Beijing’s foreign policy positions that confront India’s core interests on public forums.
As recently as yesterday, the Indian government rebuked Wang Yi over his remarks while referring to the state of Jammu and Kashmir at a meeting of the OIC in Islamabad. New Delhi sent a harsher than usual reminder to Beijing that as “India refrains from public judgement of their [Chinese] internal issues”, it would expect the same from China.
India has taken various measures since the border standoff in April 2020, which include adding a layer of security vetting of foreign investments from its neighboring countries, thereby blocking several Chinese companies from doing business in India and impacting companies in India with exposure to Chinese funding. India has also taken steps to restrict Chinese investments in sectors it considers important for its national security. Every few months, regulators have taken down Chinese mobile apps citing cybersecurity concerns.
On March 16, India stated that it had approved 66 proposals worth US$1.79 billion in foreign investments from neighboring countries but did not name the countries or companies involved. In a written reply to parliament questions, the Minister of State in the Ministry of Commerce and Industry, Shri Som Parkash said India had received 347 proposals worth US$10 billion in investments from neighboring countries since April 2020. Some of these proposals were likely directed to industries benefiting from the production-linked incentives (PLI) schemes.
The government said that the approved proposals covered 19 industries, such as automobile, chemicals (not including fertilizers), computer software and hardware, drugs and pharmaceuticals, dye stuffs, education, electrical equipment and electronics, food processing, telecom, among others. 193 proposals had been rejected, closed, or withdrawn.
Previously, it was reported on March 6, that the Maharashtra state government had been seeking clearance from the central government on investment proposals worth over INR 50 billion from Chinese firms. As on June 15, 2020, Maharashtra had signed memorandums of understanding (MoUs) with three Chinese firms — Hengli (INR 2.5 billion), Great Wall Motors (INR 37.7 billion), and PMI Electro Mobility Solutions, a joint venture with Foton (INR 10 billion). Again, the central government has not specified if the 66 approved investments from neighboring countries involves any of these firms.
Trade and supply chains
Irrespective of the escalating political tensions, India’s bilateral trade with China grew 43.3 percent in 2021, observing a sharp uptick in both exports and imports, based on China government data. According to the China General Administration of Customs, India’s imports from China rose to US$97.5 billion in the calendar year 2021 – up 46.1 percent from US$66.7 billion in 2020. Keeping in mind the pandemic outbreak in 2020, imports from China in 2021 were up 30.3 percent over 2019.
The data also recorded that India’s exports to China grew to US$28.1 billion in 2021, up 34.9 percent from US$20.9 billion in 2020. Exports to China in 2021 were 56.5 percent higher than in 2019, a record jump in the bilateral trade relationship. The export growth could be influenced by India’s ambitious push to grow its export trade to be worth over US$450-500 billion in the next fiscal year.
China will also be wanting to cooperate with India on the International North-South Transportation Corridor (INSTC), which facilitates Indian-Iranian supply chain movement from Mumbai via a maritime route to the Iranian ports at Bandar Abbas and Chabahar, then heads North through Iran via road (and from next year, rail) to Iran’s Caspian Ports at Anzali and Rasht. From there, goods can once again be shipped across the Caspian to ports in Azerbaijan, Russia, Kazakhstan, and Turkmenistan. The latter provide access to Central Asia, while the Azerbaijani Port of Baku has recently gained in significance as it opens up a Russia-avoiding, southern route to EU markets via Georgia and Turkey. China and India will look to align planned investments so they do not duplicate projects. Again, this is likely to lead to greater cooperation between the two countries, at least in third-nation infrastructure developments, logistics, and transportation.
Economic crisis in Sri Lanka
India gave Sri Lanka a US$1 billion credit line late last week to help ease their foreign exchange crisis and facilitate purchase of food and medicines. In January this year, India extended a US$400 million currency swap and offered US$500 million credit to buy petroleum products. Meanwhile China has also extended a credit line to Colombo and allowed currency swap. Sri Lanka is also seeking US$2.5 billion in fresh assistance (a loan of US$1 billion and a credit line of US$1.5 billion) from Beijing to shore up its deteriorating finances.
The economic catastrophe is the latest of indictments on the country’s mismanagement under President Gotabaya Rajapaksa and his brother, Prime Minister Mahinda Rajapaksa. In April 2021, and to the dismay of its outsized agriculture sector, the Sri Lankan government announced an overnight total ban on chemical fertilizers – for health objectives – but more likely, to cut the country’s import bill. After the actual cost of the ban became obvious, it was rolled back.
Moreover, while the COVID-19 pandemic has destroyed Sri Lanka’s mainstay tourism industry, the war in Ukraine steeply pushed up oil prices, amplifying Colombo’s debt crisis. Cut to the present and a series of economic crises threaten to overwhelm the island economy. There are daily public protests over prolonged power cuts and extreme shortages of everything from food staples and medicines to fuel and cooking gas, and other necessary items.
What’s at stake
New Delhi and Beijing will be monitoring the situation closely. India does not want instability in a neighboring country it has strained to keep within its sphere of influence. Contending for that influence is China who has invested heavily in Sri Lanka’s infrastructure build.
In 2017, Sri Lanka leased the Hambantota Port to China for 99 years and subsequently converted its outstanding debt into equity. Most recently, China pumped US$1.4 billion into land reclamation work for the Port City of Colombo (PCC), a marquee Rajapaksa government project to rival ports in Singapore and Dubai in the future. In return, China was offered around 116 hectares of land on a 99-year lease. As per media reports, the PCC is a public-private-partnership (PPP) undertaking between the Sri Lankan government and CHEC Port City Colombo Pvt. Ltd, which is a subsidiary of China Communications Construction Company (CCCC), a state-run infrastructure company involved in Belt and Road Initiative (BRI) projects. China’s dismay at Sri Lanka has been that the funding for the various infrastructure projects it has financed has not yet materialized into cash flow opportunities for its other SOEs in, for example, property development on reclaimed land and so on.
Besides courting China, the Rajapaksa brothers have also sought Indian investments. Earlier in March, India’s National Thermal Power Corporation Ltd (NTPC) and the Adani Group signed separate agreements to establish renewable energy projects in Sri Lanka’s north and east regions. While the Adani Group reached a rather clandestine agreement to set up two renewable energy projects in Mannar and Pooneryn, in Sri Lanka’s Northern Province, NTPC inked an estimated US$500 million investment deal to jointly develop a solar power plant in Sampur, in Sri Lanka’s eastern Trincomalee district with the Ceylon Electricity Board (CEB).
India and China are likely to coordinate additional assistance into Sri Lanka and will both probably wish to see some form of regime change. Again, this has the potential for the development of unusually mutual interests between China and India (as concerns Sri Lanka).
Following his India visit, Wang is scheduled to visit Nepal between March 25 and 27, as part of his South Asia tour.
India Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Delhi and Mumbai. Readers may write to email@example.com for more support on doing business in in India.
We also maintain offices or have alliance partners assisting foreign investors in Indonesia, Singapore, Vietnam, Philippines, Malaysia, Thailand, Italy, Germany, and the United States, in addition to practices in Bangladesh and Russia.