India Joins Shanghai Cooperation Organization
India has joined the Eurasian security & trade group the Shanghai Cooperation Organization (SCO), with Prime Minister Narendra Modi taking a seat on the SCO Council of Heads of State, its highest authority. He is joined on this board by Presidents Xi Jinping of China, Vladimir Putin of Russia, and the heads of state for Kyrgyzstan, Tajikistan, Uzbekistan and Kazakhstan. Pakistan has also been invited to join at the same time, with President Nawaz Sharif taking a seat on the board.
The SCO is a strategic body whose interests include regional security, some military cooperation, social development and trade issues. It is an influential think-tank that intends to help the region both by both dealing with unrest and by solving tensions via improving social conditions. Trade is very much part of this, and is also an issue that fits right in with China’s desire to redevelop the Silk Road.
The admission of both India and Pakistan to the SCO is also indicative of a change in China’s stance towards the two countries. China has long enjoyed sound diplomatic relations with Pakistan, and has been known to use that friendship to place stresses upon India. Indeed, border disputes, especially in the Kashmir region, remain.
However, China’s willingness to engage on more favorable terms with India is a sign of changing demographics and needs on China’s part. China now needs India as a strategic partner more than it needs Pakistan. China has its eyes on shifting large volumes of manufacturing capacity to India as its own workforce becomes more expensive and the numbers of Chinese middle class consumers rise. Chinese labor is about five times more expensive than Indian, while its middle class is expected to rise to 600 million by 2020. They will require inexpensive products to service them and only India has the workforce size to accommodate that. This means conflicts between India and Pakistan are likely to be closely monitored by China, especially as they will not want this supply route interrupted. SCO membership for India and Pakistan also creates another dialogue avenue for peaceful relations.
India’s admission to the SCO is also good news for Russia. Faced with sanctions from the EU, Russia is looking for new markets from which to procure supplies, especially in agriculture. With India also involved in negotiations with Russia and the other members of the Eurasian Economic Union over a Free Trade Agreement , having a larger agenda on how Russia and India can better work together is an important platform for growth for both nations.
India is linked to China and Russia via its shareholding status in the Asian Infrastructure Investment Bank. Along with the European Union, these three countries make up the largest equity bloc. This again fits in with China’s Silk Road Economic Belt scheme, as it plans to develop infrastructure and trade ties right across the Eurasian continent. This is further underlined when one considers that Iran, currently a dialogue partner of the SCO, is expected to become a full member just as India is now, once it has agreed nuclear protocols with the Western powers. India as a route for Iran energy supplies is an important strategy for China, which remains energy poor. Having India onside and cooperative is a two way street – China gets security and energy, while India receives infrastructure assistance and trade. The India-China trade corridor is one that all Indian entrepreneurs should be looking very closely at.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email firstname.lastname@example.org or visit www.dezshira.com.
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