Re-Emergence of Indo-China Conflict: A Proxy Conflict of Trade War In The Making-Where Does Bangladesh Stand?

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By Rashna Mahzabin

“Chinese troops have disengaged at the Galwan area where they had earlier clashed on the night of 15/16 June 2020. Seventeen Indian troops who were critically injured in the line of duty at the stand off location and exposed to sub-zero temperatures in the high altitude terrain have succumbed to their injuries, taking the total that was killed in action to 20,” the official statement read. According to the Army, the clash broke out on Monday night during the de-escalation in Galwan valley region of Eastern Ladakh. These are the first casualties at the India-China border since October 20, 1975, when Chinese troops ambushed an Indian patrol, killing four Indian soldiers. Forty-five years on, this is clearly a testing time for Indian diplomats and defence personnel who have been managing a complicated relationship all these years. What is shocking is that the casualties have taken place after both India and China said that a positive consensus had been reached at the recent talks between Corp Commanders and the two sides were working towards an early resolution of the border tensions. Highly placed Indian government sources said troop disengagement had begun in Galwan and Hot Springs areas.

The world’s two most populous nations and nuclear-armed neighbours have never even agreed on the length of their “Line of Actual Control” frontier, which straddles the strategically important Himalayan region. Recent decades have seen numerous skirmishes along the border, including a brief but bloody war in 1962.

Some key dates of the conflict are mentioned below:

 

Proxy Conflict of Trade War?:
The long-standing trade disputes between the United States (US) and China turned into a full-blown war last year, with each country slapping tit-for-tat tariffs on goods imported from the other. Predictably, economic hostilities between the world’s two largest economies rattled global markets. However, a few countries in China’s neighbourhood saw opportunities in the trade war between the two giants, with India being one of them.

Several economists and analysts predicted that India would be a primary beneficiary of the biggest trade war of this millennium. This was based on two assumptions. One, more and more US companies would move out of China and set up shop in India to avoid paying higher American tariffs. Two, some Chinese firms that are suppliers to American companies would shift their productions to manoeuvre around the US tariffs.

The problem facing the Chinese Communist Party (CCP) is that the United States under Donald J. Trump (despite the cooing noises that he often makes in the direction of Xi) has itself gone into a state of currency and other economic war with China since 2017. In the past, sanctions and other measures constricted the economy of the USSR to such a level that the country imploded in 1992. The expectation within China hawks in Washington is that similar pressure would create a like situation within the People’s Republic of China (PRC). Many countries like Italy and Germany are calling shots on which side they will belong to in this trade war. But, India is still in the “non-aligned” box, maintaining a welter of conflicting relationships. This may change after the Galwan massacre of Indian troops by PLA forces. Galwan has changed the public mood towards China in India in a manner that has been seen elsewhere as a consequence of the novel coronavirus pandemic. This change in public opinion has made it easier to overcome the objections and obstacles placed on the steady US or Japan-style decoupling from China, including in telecom. Interestingly, while India overwhelmingly depends on Russia for defence, it does so in telecom for China, the same two countries which are close allies of each other. The Lutyens Zone and it’s no a small number of holdovers inside the government are still loath to admit that Russia is now China’s closest security partner. The future of Russia under the brilliant strategist Vladimir Putin has firmly tied to that of a China led by the transformational Xi Jinping. Sino-Russian links are multiplying at speed, although the Lutyens Zone pretends otherwise.

 

Galwan: A Pawn
General Secretary Xi has understood the centrality of Artificial Intelligence (AI) in winning the war against the US, and has devoted considerable resources towards ensuring an edge in such technologies. At present, China is still ahead of the US in this crucial battleground, thanks to global champions such as Huawei, Tencent, Alibaba and others. India is as dependent on China in its telecom sector as the defence sector is dependent on Russia. In particular, Huawei and ZTE have a monopoly over the back end of mobile networks, while Chinese brands dominate the cellphone instrument market. Chinese internet offerings generate vast amounts of metadata from India that go to feed its relentless drive to secure a comfortable lead over the US in Artificial Intelligence. Should networks in India begin a decoupling of the Indian telecom sector from the PRC and its entities, that would be a very heavy cost to the latter, and would be another result of the manner in which the PLA has been following the GHQ Rawalpindi playbook on Kashmir. As indeed its approach to the entire border situation with India. Despite multiple bilateral meetings between Prime Minister Narendra Modi and President Xi Jinping, there has not been any progress in Sino-Indian border talks even as the PLA moves further and further into the LAC since 2013. The May 2020 intrusions are only the latest in this saga, but the difference is that this time around, it is unlikely that the Lutyens Zone will any longer succeed in preventing the government from acting in a manner that recognises the fact that the Sino-Russian alliance is diverging from Indian security interests in a manner that makes it imperative for India to abandon the Lutyens Zone policy of playing the ostrich while the two superpowers—China and the US—battle to the finish the way that the US and the USSR did in the past. Once India follows the military logic of the situation on the border and chooses its side rather than swing here and there, the odds that China will prevail over the US in the ongoing contest between the two sides will lessen considerably. In past wars, operations that at the time seemed of small consequence changed the final result. The Galwan incident may prove to be a similar watershed moment in the existential battle between Beijing and Washington should India abandon its longstanding policy of neutrality, in large part out of consideration for Moscow, which is now firmly on the PRC side. The fierce courage of Indian soldiers at Galwan may ensure that the PRC’s many encroachments in other theatres may no longer go uncontested, the way its steady encroachment into the LAC has till recently been. In the South China Sea and in other locations, the possibility of kinetic conflict within a fairly short time span can no longer be ruled out. What took place on land at Galwan may happen again, this time on the China Seas or in the air over the Taiwan straits. India sitting out rather than participating in such a confrontation between the Sino-Russian alliance and countries such as Japan, Australia, France and the UK is no longer as certain as was the case before 15 June 2020.

Firms brace for chaos as India-China face-off puts the business in the uncertain territory:
The clashes that left 20 Indian soldiers dead, along with an unknown number of Chinese casualties, followed a seven-week military standoff between the two nuclear-armed powers. While India in a statement on 15th June said it remains committed to peace on the border with China, an escalation risks disruption for firms from Alibaba Group Holding Ltd. and Xiaomi Corp. to Tata Motors Ltd. that have customers — and investors — in two of the world’s biggest economies.
of companies importing parts or capital from China will have to find alternative sources quickly if tensions escalate,” said Aneesh Srivastava, chief investment officer at Star Health and Allied Insurance Co. “The makers of white goods, luggage bags, auto components and some of the e-commerce companies may have to rework their business strategy.”

Swathes of Indian businesses that rely on raw materials from China suffered in the initial phase of the outbreak that shuttered plants that feed the global supply chain with all sorts of industrial parts. Another bout of disruption can further prolong a recovery in India’s economy that’s set for its first annual contraction in more than four decades this year.

For now, Indian equities and the currency are holding up as the Asian giants have a history of face-offs. They fought a war in 1962 over their 3,488-kilometer unmarked boundary. The challenge now is to de-escalate as the scale of the previous conflicts “was very small,” according to Dai Ming, Shanghai-based fund manager at Hengsheng Asset Management Co. “I don’t think the tensions will affect Chinese firms’ investments or businesses in India just yet,” he said.
India and China, which together account for a population exceeding 2.7 billion, are key markets for each other’s firms. Here are some companies that are seeking to expand their footprint in the two countries.

Business Exposure
Alibaba operates data centers in India and its “UC Browser” is a popular mobile browser in India by page views, according to its prospectus in Hong Kong listing. Xiaomi, on the hand, was the top smartphone brand in India by shipments in the fourth quarter of 2019, with 29% market share, according to its annual report. Huawei Technologies Co., the Chinese wireless network giant blocked from selling its equipment in the U.S., got approval from the Indian government last year to provide 5G gear in the world’s number two wireless market. Tata Motors, parent of Jaguar Land Rover, this week said it’s seeing the beginnings of a demand rebound in China as the world’s second-largest economy opens up. The success of JLR is crucial for Tata, which is struggling with an Indian sales slump that began even before Covid-19 wiped out demand.

E-Commerce Investments
Rising tensions may dull China’s appetite for India’s e-commerce companies as they add to the recent change in policy that put Chinese investors on a list mandating prior clearance for all investments. Plenty of India’s e-commerce firms, including ride-hailing startup Ola and food delivery service Swiggy, count Chinese companies including Alibaba, Tencent Holdings Ltd. and funds like Fosun Capital as their investors.

Supply Chain
An escalation may undermine India’s plan to exploit economic opportunities as governments from the U.S. to Europe, Japan and Australia move to cut dependence on China exposed by the pandemic. Drugmakers including Dr Reddy’s Laboratories Ltd. and Aurobindo Pharma Ltd. either buy some ingredients from China, or export final products, while appliances makers including Voltas Ltd. and Bajaj Electricals Ltd. import parts fabricated there.

Defence Players
Meantime, companies producing defence-related products may emerge as winners if the standoff prolongs. Shares of China’s Beijing Emerging Eastern Aviation Equipment Co. and Anhui Great Wall Military Industry Co. soared by their daily limit of 10% on Wednesday. AVIC Aircraft Co., China Avionics Systems Co., AECC Aviation Power Co., Jiangxi Hongdu Aviation Industry Co. are among the stocks that rallied. In India, defence equipment maker Bharat Dynamics Ltd. rose for a third straight day, and electronic communication product manufacturer Bharat Electronics Ltd. gained 1.2% on 16th June.

Bangladesh-Stuck In The Middle
Amid India’s stand-off with China over the Galwan Valley and its struggles to resolve its border dispute with Nepal, it appears that Beijing is making a move to woo Bangladesh, another old friend of New Delhi.
Barely a month after Bangladesh prime minister Sheikh Hasina and Chinese president Xi Jinping held a discussion to upgrade their bilateral relations during the COVID-19 pandemic, Bangladesh’s ministry of foreign affairs announced that 97 percent of its products — an eye-popping number — would be exempted from Chinese tariffs starting 1 July. And this is not the only overture Beijing has recently made towards Dhaka, which like Nepal, has traditionally enjoyed close cultural and economic ties with India. China vowed that Bangladesh would be a top priority should Beijing develop a coronavirus vaccine. “Of course, Bangladesh is our important friend and Bangladesh will surely get priority,” Deputy Chief of Mission at the Chinese Embassy in Dhaka Hualong Yan was quoted as saying by The Daily Star. He added that Bangladesh and China were “working closely” to deal with the situation.
New Delhi has every reason to worry about Dhaka being weaned away. Bangladesh, a member of China’s Belt and Road Initiative (BRI), which India has steadfastly refused to join, has seen an estimated $31 billion investment flow from China over the years, mainly in infrastructure and energy.

Beijing’s investments in Bangladesh — including the construction of a six-km bridge across the Padma river (as the Ganga is known in the country) for around $3.7 billion and a $2.5 billion power plant at Payra near Dhaka — rank only behind its $60 billion investment in the China-Pakistan Economic Corridor (CPEC).

In 2015, China became Bangladesh’s top trade partner, a position India had occupied for 40 years, and currently accounts for 34 percent of its total imports. Worse, India’s big brother attitude towards Bangladesh, which stands in stark contrast with China’s model of “non-interference” bolstered by big-spending, has led to deep resentment in the minds of ordinary citizens, as per a report in The Diplomat.

All of which surely hasn’t escaped the attention of Hasina, who has already scheduled a visit to China in the first week of July, the first such trip to Beijing after her re-election. Hasina is also expected to press for the Bangladesh-China- India-Myanmar (BCIM) economic corridor which has failed to take off and which China has had an eye on reviving.

What further complicates matters are what occurred last year between India and Bangladesh when officials privately acknowledged a strain due to the Citizenship Amendment Act (CAA) and the National Register of Citizens (NRC) despite Prime Minister Narendra Modi and Hasina referring to India-Bangladesh ties a ‘shonali odhyay’ (golden chapter). “Bangladesh is India’s best friend in the neighbourhood and remarks about pushing back infiltrators and lumping Bangladesh in the same league as Pakistan has generated a lot of worry among the public,” a senior Bangladeshi official, speaking on condition of anonymity while referring to the CAA, told Hindustan Times. Experts say India is right to be wary. As per a report in DW, Siegfried O Wolf, director of research at the South Asia Democratic Forum (SADF), a Brussels-based think-tank, says China’s increasing influence in South Asia poses a massive challenge to New Delhi for both, political and security reasons. “China has a port facility [Hambantota] in Sri Lanka, they have Gwadar [in Pakistan], they are building a port facility in Myanmar [Kyaukpyu] – this gives India the feeling of being surrounded by China. This is the military dimension of Indian concern,” Wolf told DW. He also cautioned that China might use investments to gain political influence. “So there is a threat for India that China might influence the government of Bangladesh.” This influence may also have an economic dimension, Wolf added. “We have seen China driving out other countries from the market. For instance, it has become very difficult for French and German companies to get contracts in African countries.”

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