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Vol.1 No.4 December 2006 Published by Observer Research Foundation, New Delhi

India-China Relations in the New Era

ndia and China have recognised their comparative and cooperative strengthseven while acknowledging their shared concerns and competitive edge, vis-a-vis each other, and when pitted against the rest of the world. Not surprisingly, the strategic community, in general, and policy makers, in particular, have been keenly engaged in following the developments related to the two countries over the part four decades. The Chennai Chapter of the Observer Research Foundation organised a one-day seminar on IndiaChina Relations in the New Era on October 24, 2006. Participants focussed on the current trends in bilateral relations between the two Asian neighbours and their impact on mutual, regional and global equations.

Politics & Security

R. SWAMINATHAN Differential Priorities Relations between India and China are governed by differential priorities in each country. India has been according very high priority to relations with China, probably next only to relations with the erstwhile Soviet Union, now the Russian Federation, Pakistan, and more recently, the US. Although India is an important factor, it is not an obsessive priority for China. Their views differ on issues pertaining to South and South-East Asia, among others. China is pragmatic and gives primacy to its own strategic interests and is not easily accommodative to others. The border issue is a ticklish part of bilateral relations between the two countries. The mechanism of Special Representatives has been been established to explore, from the political perspective of the overall bilateral relationship, the framework for a boundary settlement. In

1959, China wrote to Jawaharlal Nehru, offering to wait for settling the border dispute if the Indian Prime Minister faced domestic political difculties. Even during the war and after the war, there was no malice between the two countries, only difference of opinion on the delineation of the border. The new guiding principles, in effect, ratify the status quo, renounce the use or threat of force, and call for a package settlement that must be nal, covering all sectors of the India-China boundary. The indications were that both countries realised more opportunities than threats in each other, and an improvement in the relations was inevitable. The presence of the Dalai Lama (including his entourage and the Tibetan Government-in-Exile) is not as much an irritant to the Chinese as it used to be. The Chinese are concerned about the growing strategic relationship between India and the US. The dominance of the US in global affairs, its overwhelming military superiority and the strategic hemming-in of China have prompted China to embark on a quest which it had not earlier soughtseeking a relationship of strategic cooperation with India. Some Indian academics also see an emerging strategic cooperation between India and China. Dr. Sun Shihai at the Institute of Asia-Pacic Studies of the Chinese Academy of Social Sciences has argued that the relationship between the two giant neighbours cannot be characterised as being competitive or cooperative. On issues where they have common interests, they are cooperative; while on some other issues where they have clashing interests, they may become competitive. However, competition does not necessarily mean confrontation or conict. Bilateral relations between China and India have become much less emotional, and more mature and pragmatic, with geo-economics playing a more important role than traditional geo-politics and security concerns, in recent years.

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There is a threat to Indias political stability from left-wing extremists and separatist insurgencies which may receive Chinese help. A possible silver lining is the statement made in October 2005 by the Chinese Ambassador to India that he did not even know why the leftist guerrillas in India called themselves Maoists. The Communist Party of India (Maoist) too has accused China and the Chinese Communist Party (CCP) of having betrayed Marxism-Leninism-Maoism (MLM) and the worlds proletarian movement by allowing itself to be integrated into the world capitalist movement. It looks upon the late Deng Xiao-Ping and his successors in China as revisionists. Nearer home, the Chinese Communist Party (CCP) leadership has chosen to tolerate dissent being expressed by Mao loyalists as against the pro-democratic protests. Confucius is again back in favour among Chinas political elite. Economic reform has transformed one of the worlds most equal, though poor, societies into one with an alarming rich-poor divide. other countrys rapid rise and are also driven by the shortage of talent in crucial sectors in both the countries. While China has comparative advantage in labourintensive mass-produced goods, Indias competitiveness lies in its ability to produce differentiated niche products. Intra-industry trade between the two economies is possible and can help convert competition into new areas of cooperation.

Military Relations
India is much more condent now in the eld of national security than it was four decades ago and does not see any major military threat from China. It is also doubtful if China had ever seriously harboured any idea of total war against India. The overall strength of Chinese troops in Tibet and South Xingjian has not shown any signicant increases. The deployment is essentially defensive, but the existence of nearby reserves and the infrastructural developments make it easy to change this to an offensivedefensive posture, if the political leadership desired it to be so. However, any engagement would be objectiveoriented and of short duration, but the present globalised political and economic considerations would probably rule it out. India continues to gure in the threat perceptions of the Chinese. The PLA is regularly updating and monitoring the arms and equipment status pertaining to defence forces of six entities the US, the UK, Japan, India, Russia and Chinas Taiwan Region. Further, a training establishment of the PLA is reported to maintain realistic and accurate models of important sectors of the Sino-Indian border. China has continually been expanding its presence and inuence in ASEAN, Indias close neighbourhood and also West Asia. The pace has been accelerated with increased availability of additional resources due to the booming Chinese economy. What China is attempting, and partly succeeding in, is to get hegemony over its own backyard, and then make the leap to being a power to challenge the United States. This is similar to the route the US had taken earlier in the Americas. Economic engagement between China and India presents a vivid example of how increasing mutual stakes and common understanding owing from purely economic interactions can contribute to improvement of overall inter-State relations. High-level, high-prole visits often raise high expectations, which are generally delivered. Indian domestic and international experience has shown that spontaneous agreements reached at the highest levels, often based on gut-feeling, are difcult to implement on the ground, and lead to frustrations and charges of dishonouring of commitments.

Parallel and Competitive

Growing economic relations between India and China are of more recent origin, more or less coinciding with the onset of comfortable levels of economic growth in the two countries. India-China trade and economic cooperation is marked by strong political commitment by the two leaderships. In a recent Insights Report, MasterCard pointed out that the China-India business synergy is the tip of the iceberg of immense economic powerThe new generation of joint China-India companies will change the competition landscape in global business. Any way one looks at it, this synergy is set to change the world. It would combine Chinas infrastructural and logistical efciency and massive economies of scale with Indias world-class innovations capability, management knowhow and corporate leadership. The unfair competition from Chinese goods (in the global market place) cannot be sustained for long, as Chinese labour rates are bound to inch upward when the labour expects (and demands) its share of the prosperity enjoyed by the entrepreneurs. The expectation is that India and China would soon compete economically on a more-or-less level-playing eld. India and China resumed ofcial bilateral trade in 1978, and signed a Most Favoured Nation (MFN) Agreement in 1984. China is already Indias second most important trading partner, and Indian industrial associations have predicted that China could well become the countrys biggest trading partner within the next two or three years, displacing the US. Two-way investment links between China and India are also increasing. The new investments are critical strategic moves aimed at proting from the

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China: Domestic Politics & Foreign Policy
D S RAJAN Chinas Domestic Politics and Inuence on Foreign Policy is complicated, but is a reality. They are linked to history, and the inuence of the Mao Tse Tung era (1949-76), when the emphasis was on class struggle; development through self-reliance continues. To achieve his domestic goal, of transforming from socialism to communism, Mao wanted a responsive international environment, and adopted the turning to one side strategy reliance on the Soviet Union to ght the US blockade. When the Soviet Union was seen as wanting to take advantage of the US reduction of inuence after the Vietnam war, Mao thought that a new policy was required to ght what he called the Soviet, socialist imperialism, comparable to the US imperialism. Mao also followed the online strategy, in relations with other countries like Japan, the US and nations of Europe. In the post-Mao era, Deng Xiaoping initiated reforms in 1978, with a solid theoretical foundation. Dengs domestic policy focussed on socialism with Chinese characteristics, and he adjusted the foreign policy to ensure that China would not ally with any major power, the US or Russia, and would follow an independent foreign policy of peace, as behoved its status as a Third World nation. He also followed a policy of one-country-two-systems, of capitalism and communism at the same time, to ensure the return of Hong Kong and Macao to China. Both under Mao and Deng, decision-making in China was through a vertical command channel. After the Tiananmen pro-democracy student riots of 1989, when Jiang Zemin was brought in, without changing Dengs basics, he ushered in the Three Represents Theory, by opening up the party to capitalists, saying that the party should represent all sections of the society. In the 16th party congress of 2002, Jiang Zemin dened the three historic tasks as modernisation, national reunication and safeguarding world peace. It was argued that if China wanted to achieve modernisation, a peaceful international environment and a stable environment in the periphery were necessary. In doing so, Jiang Zemin was further dening an existing policy. Safeguarding world peace and promoting modern development are visible, and national reunication involving Taiwan is yet to be achieved. This trend continues even today. President Hu Jintao represents the fourth generation in the Communist Party of China, in which all nine members of the Politburo Standing Committee are professionals, their mindset not dwelling in the past. Hu Jintao is the rst among equals, and is not the supreme leader of China, as is evident from the non-conferment of the traditional title of the Core of Leadership on him, as yet. On the domestic front he has deviated from the DengJiang theory of allowing balanced development and, thus, achieving common prosperity. His primary thrust area is to ll up the income gap between the rural and urban centres, and between the advanced coastal regions and the interior, backward areas, attending to the welfare of the common man, leading to a socialist, harmonious society. Between reforms and stability, stability always comes rst, and that is why the emphasis on socialist construction of a harmonious society; a complete CPC was devoted to discussing harmonious, socialist society, making it the domestic goal of China. On the foreign policy front, Hu Jintao is also aiming at adjustments even while continuing with the basic elements of the Three Represents Theory, with opposition to American hegemony gaining importance. The adjustments in foreign policy manifest prominently in the areas of economy and trade, where there is now a fresh and new thrust in the qualitative use of foreign direct investment (FDI), which is not considered as the complete solution to Chinas progress. While improving relations with advanced countries like the US to boost investment and technology, Chinas peaceful rise, it has been declared time and again, will be totally indigenous. Self-reliance is the dominant guiding theme. The term peaceful rise was a cause of concern to foreigners, so it has been changed to peaceful development. While relying on the West for technology and investment, China considers the West as a potential strategic threat. Hu Jintaos foreign policy platform is also dictated by energy factors. On the strategic front, the Hu regime, like its predecessors, is not comfortable with the West, the unilateralist tendencies of the US in the Asia-Pacic region, in particular, and the entire world in general. China has always suspected that the US and the rest of the West are trying to westernize and divide the Chinese nation, particularly in Tiber and Uighur. Robert B. Zoellick, the US Deputy Secretary of State, has said that the US wanted China to play a role of an important stakeholder in the world system but it is still uncertain what would happen in the future. The Chinese strategists, on the other hand, believe that the West and the US are going to play the hedging card against China for a long time to come.

Shared Neighbourhood
DR GOPALJI MALVIYA The perception exists that after the North Korean nuclear weapons test of October 9, 2006, China is now surrounded by nuclear-weapons States all round. Yet, China is the only nation to which North Korea was talking all along even after the Six-Nation Initiative was launched in 2003

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to dissuade Pyongyang from going nuclear. China has been encouraging, pampering, cultivating Pyongyang as a counterweight to the US on the Taiwan issue. It may issue some mildly critical statement against Pyongyang, but has been following a nod-and-wink policy on North Korea. China already has a friendly Pakistan as another nuclear weapons State in the neighbourhood and has made amends with Russia, with the result Beijing is the ultimate beneciary from the North Korean nuclear test. In this situation, the Japanese are likely to ex their muscle and even modify Article 9 of the Japanese Constitution, to go in for nuclear weapons. If that happens, the US would be cornered. The Americans already have a problem on hand with Taiwan. In the perception of some Chinese scholars, the US is a declining military power, given the American experience in Iraq, Afghanistan and elsewhere. It is also a declining economy domestically, and the American technological excellence too may not last long. In this background, China would want to take on the US after a couple of decades, and prides itself as the rising power. Given the US-Japan relations and the Taiwan question, China will have to be assertive in a visible, yet passive, way. Or, so goes the perception. With China changing, there is an imperative need for making continental bridges, continental connectivity, as the momentum for the global power-centre is likely to emerge in Asia. India has to look at China not as a challenge but as an opportunity, be it economic, geopolitic or geo-strategic, as per the Rajamandala theory of Kautaliya. The present-day geo-political situation warrants that China, not the US, should be the best bet for India. If the India-US civilian nuclear deal comes through, China may play the Pakistan card more vigorously against India. We have not been able to counter the prolonged Chinese support of Pakistan, we have not done enough to see that this clique is broken and the threat in this sector eliminated. This has to be addressed and is possible only with greater engagement with China. Starting with the path-breaking visit of then External Affairs Minister A. B. Vajpayee in 1979, China has maintained the twin-promises of not supporting insurgencies in Indias north-eastern States, and not backing Pakistan on the Kashmir issue. Unlike the US, China does not refer to the Kashmir issue any more and, in fact, told Pakistan to respect the Line of Control (LoC) ahead of the Kargil War, which was not the case in the past. The Chinese have displayed positive gestures, and the condence-building measures (CBMs), of keeping the differences on the shelf and improving ties in other areas, a strategy worthy of being replicated on the IndiaPakistan front. India should not adopt a rigid stand on the sanctity of the McMohan Line, as in the past. China has since recognised Sikkim as part of India, and India has acknowledged Tibet as an Autonomous Region of China. Deng Xiaoping sought to make China a modern military machine, but quantity is not a reection on the quality. Dengs deadline has been pushed backwards from 2005 to 2015, or 2020, and the pace is decidedly slow. Despite successive tinkering, the Chinese still follow the Peoples War ideology of Mao, given the large territory, but they are also gradually reducing manpower and increasing machine power. They may have 7000 tanks, but most of them are museum pieces. Just because the Chinese won against India in 1962 does not make them a great military power. From Vietnam in 1978, they came back bruised and broken. The world has never seen the Chinese Air Force, with its Soviet-designed MiGs, in action, particularly under the Himalayan conditions. The real capabilities of their Han class and the Xia class nuclear submarines are also unknown. India is also on the rise, and there is no reason to panic but the Chinese denitely are a bigger military power. India and China have not had a nuclear dialogue so far, and any discussions in this regard could be path-breaking. The Chinese have their India-related concerns with the Dalai Lama and Karmapa being stationed here; Indias Ganga-Mekong initiative, its `tilt towards the US, which occupies Chinas mind while conducting business with India. Similarly, India has its problems with China, its allweather friendship with Pakistan, Chinas involvement in and ability to woo other South Asian neighbours against India, through trade, weapons supply, and small arms proliferation. Through vibrant foreign policy and trade, India needs to make China a better friend so that some of these concerns could be neutralised.

South-East Asia: A Bridge or Divide?

RAAKHEE SURYAPRAKASH The nations of South-East Asia have always practised a balance-of-power strategy, sandwiched as the region is between China in the north, India in the north-west. Through the ages, foreign players have found this region a good playground, with the Japanese, British and the Americans getting involved during the Second World War, and the US, China and the Soviet Union at the height of the Cold War. South-East Asian nations do not necessarily have unied policies, but the thought that multi-polarity is the best way to keep foreign powers out of domestic politics within the region is a unifying force. This applies to China, and their consequent interest in India. The role and concerns of Japan and the US also need to be considered in South-East Asias policy towards India and China.

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Ethnicity and Diaspora have a role to play in this, both for China and India. South-East Asia has 3.5 million people of Indian origin, or 17.9 per cent of the total number of Indians abroad. This compares with the 20million strong ethnic Chinese, which is 80 per cent of the overseas Chinese. The Chinese in the region are all in the business class, which means that they control a lot of wealth. According to one estimate, approximately 80 per cent of the nances of Thailand and Singapore are in the control of ethnic Chinese, they control 62 per cent in Malaysia, and about 50 per cent in the Philippines. As much as 70 per cent of the corporate wealth in Indonesia is in the hands of ethnic Chinese. If money speaks, then denitely the Chinese interests do play a role as do the American and the Indian interests, in South-East Asian politics and on policies towards India and China. In the last quarter, Chinese trade surplus hit $110 billion, and its GDP growth rate is predicted at 10 per cent. Any country making so much money and which is so close to South-East Asia is bound to have a bearing on the countries of the region. Indias trade with the region is worth $13 billion, as against Chinas $130 billion. In economic terms, therefore, China is of greater signicance and concern to South-East Asia than India. The nations of the region are concerned about the historical baggage involving China on the military front and (continuing now) on issues pertaining to the Spratley Islands and the islands on the South China Sea. Economic ties, trade and investment are very important to these countries but for strategic reasons they have sought to increase the number of strategic players in the region and included India in their calculations. Indias defence cooperation agreements with these countries and military exercises with them, and bilateral exercises with China, are important signals to Indias engagement in the region. On the trade and investment fronts, the slow growth is mainly due to the inertia in India, which does not match the eagerness of South-East Asia to invest more in the country. indication of the leap-forward in just four years. In 2005, bilateral trade between the two countries amounted to $18.5 billion. China took a path-breaking step in 1992, when Deng Xiaoping launched Special Economic Zones (SEZs) in South China. In the rst 10 years after 1978, the Chinese concentrated a lot on the agriculture sector, and then shifted the emphasis to industry in the early Nineties at the cost of agriculture. This was found to be a grave mistake, which was rectied later. The Chinese realised that they could not develop without proper FDIand 80 per cent of Chinas FDI was sourced from the Chinese of ethnic origin in South-East Asia. The technology, which was of Second World War vintage, was upgraded. Later, the Chinese realised that FDI for its own sake was rendered meaningless unless backed by a gradation. India-China trade is expected to touch the $25 billion mark in another ve years. In the past ve years, Indian exports to China have been of low-technology inputs, iron and manganese ore, and a few manufactured goods. India needs to improve the basket of exports to China, but this will not be possible if we continue to lay emphasis only on the IT sector and ignore the need for India to become a manufacturing power. So much so, when Wen Jiabao visited India, he said India would provide the front ofce for Chinas manufacturing industry. Planning, groundwork and governmental support are required to improve the share of manufactured goods in the export basket for China. India also needs to check against non-tariff barriers in China as encountered in the Westalthough it is also a fact that India too has imposed non-tariff barriers, countervailing duty on many Chinese goods. Just as how the issue of the ban of the export of metallurgical coke to India has been sorted out through bilateral dialogue with China, there are many areas where mutual trade concerns can be sorted out and complementarities arrived at. Trade has to be a two-way street, beneting both nations. Both nations are complementary in pharmaceuticals, and need to invest more in research and development and make the sector a viable platform for cooperation. Oil synergy is an area for joint India-China trade relations. China is willing to cooperate with India in oil exploration and exploitation in Africa, South America and Central Asia. In some areas like Kazakhstan, the Chinese outbid India. It is to avoid this that we need to come to an understanding with the Chinese, to ensure synergy. There is no balance in investments, as the Chinese have invested much more in India. China provides cheap labour, making the country a viable conduit for manufacturing goods for markets in third countries. India need not be apprehensive about the inux of

Trade & Economic Relations

P N G SUBRAMANIAM, IFS (RETD) Export Priorities & FDI Inows Traditionally, trade and economic relations between India and China took a back seat compared to religious-cultural relations. Chinas new economic policy, introduced in 1978, saw the commencement of economic relations with India, which in turn accelerated only in 1993. After the restoration of full consular relations between the two countries, the trade between India and China, which was only $300 million, went up to $1.2 billion by 1996an

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Chinese goods, as they are producing only those goods that India needs. If we produce enough goods for Chinese consumption, the question of conicting interests would not arise. India has some advantage in the banking industry, and our mercantile law is second to none in the world, making India a prime candidate for foreign investors. It is not true that the Chinese are getting much more FDI as the calculations differ. The Chinese FDI is also ethnicitydriven, whereas non-resident Indians (NRI) are mostly professionals, and not businessmen or traders. Chinese migrants in South-East Asia and North America have in effect adopted their ancestral villages and towns, and set up industries, exhibited their patriotic leanings and preserved tradition. they would never accept it, and would insist on their viewpoint being accepted, instead. They also kept to the implementation schedules. At an early stage, China decided that the massive investments required for developing the infrastructure should come only from within the community and through the banking system. Deng declared that people could deposit their money in unnamed bank accounts. By the second year, the banks in China were able to mobilise up to $80 billion. The Chinese rate of savings used to be 55 per cent in the early days of banking reforms, and is around 44 per cent at present which is very high by global standards. The average is 23 per cent in India. Going against the norms set by the World Bank and other nancial institutions, China then decided to use these deposits for developing the infrastructure, as the world would not have done it for them. In India, despite slogans of public-private partnership, investment for the infrastructure continues to come from the State. Despite the bad picture being painted about the accounting processes, the Chinese banking system had recovered $120 billion in bad debts by 2004. Another $200 billion has been added since, though some foreign agencies put the gure at $900 billion. Notwithstanding the lurid portrayal of a sinking banking system, it is surprising to note that every major international bank, American, European, Asian and Australian, has operations in China, and wants a stake in the Chinese pie. Investments by these banks run into thousands of billions of dollars. If the Chinese banking system was all that bad and bankrupt, why are all these well-informed, well-heeled people chasing the Chinese market?

Money-making Mixed with Nationalism

K. SUBRAMANIAM China has denitely attracted more FDI than India, but then it also values equipment as part of investment, unlike in India, where equity alone is counted. Chinas nancial sector reforms are vast, little understood, complex, and fascinating. China teaches developing countries that one should be clear about what decisions to take and by whom they should be taken and not parrot IMF and other western slogans as their own. To quote a Chinese proverb, one can walk across the river only by feeling rst for the stones. The economic reforms in China thus evolved over a period, stopping at every stage to study the impact, inadequacies and backlashand administer modications, where required. The four-phased reforms moved seamlessly in a calculated, calibrated manner, from one to the next, and over the years, when the Chinese negotiated with the US and the European Union to enter the WTO scheme, they realized that their economy had remained closed for too long, and thus denied the benets of growth. Today, when there are doubts about the European Union, the American slow down and ip-ops, some Americans view the consistent Chinese growth over the past 25 years as a threat to American economic hegemony. From the early stages of the reforms, China took a conscious decision to learn from others and not follow others. As the World Bank reports would point out later, the Chinese capability of project formulation and implementation is unrivalled and unmatched. Whenever the Chinese presented a report on a project, they were resentful of the criticism made by external agencies, unless the critical point related to a technical issue, where they were ready for accepting modications. If the criticism related to any social, nancial or related aspect,

Law & Practices

VINOD SURANA Any overview of the legal structure in China will provide a window to the world of the Middle Kingdom. The infrastructure that the Chinese have created for the legal system makes a big impression but it is not always necessarily backed by substance. In India the Constitution is supreme. In China, the Legislature is supreme. Unlike in India, where the Rule of Law existed even before the arrival of the Europeans, in China, the Communist Party replaced the Emperor, who was the repository of all power. The Supreme Peoples Court is under the Supreme Peoples Congress, and does not have the right to judicial review, which is fundamental to democracy, and is a basic structure of the Indian Constitution. The Congress enacts, and the court just enforcesand has no right to interpret such enactments. However, as in other areas, even in law, the Chinese

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imitate and replicate foreign modelsand these at times are better than the originals. In recent years concepts like human rights and environment are gaining acceptance as the Chinese are learning the long-term costs of ignoring them. Yet, they just could not comprehend the concept of the Right to Information Act in India, that the citizen could seek information from the Government. To them, it was a sacrilege, in thought, let alone action. The Supreme Peoples Court of China has four divisions, two civil and two criminal. Unlike the Indian system, where a case passes through a hierarchy, there they can go to the Supreme Court directly, as a court of rst instance. At least one-fourth of the Judges of the Supreme Court of China are below 35 years of age. After three years of legal practice, they pass an exam and become eligible to become a judge. Be it the judiciary, the law, the business sector, whatever, the Communist Party is everywhere. Any business interest in China has links with the Party and investments, land documents, factory settings, are all linked to the Party. If ve or 10 years down the line, a foreign investor has a problem, then a whole lot of local municipal representatives would descend on him, to tell him how the factory was located on municipal land without documentation or permission, and was thus liable to be reclaimed. This is very common. So unless the Party is with you it is a high-risk venture. Everybody is bullish about doing business in China but many international joint ventures operating in China are still not making prot. There are trade unions now in the private sector, which actually means that it is not so simple. There are a lot of hidden costs. Though on paper a MoU may be loaded in favour of the western investor, on the ground, things are different. Doing business in China means that the documentation is simple, clear, and complete. If possible, have it translated in Chinese so that you sign both the English and the Chinese versions, and you understand the Chinese version. Try to put in liquidated damages in consonance with targets and schedules and have a clause for arbitration outside China, no matter how expensive it is. The chances of you getting justice within China are difcult, if not impossible. Things are changing, there have been a couple of judgements favouring the international investor but again they are few and far between, and not commensurate with the investments made and the losses incurred. today is equal to that of the US, 100 quadrillion British thermal units (BTU) and will double by 2020, when it would have risen only by 25 per cent in the US. In Asia, oil consumption would go up by 88 per cent, natural gas by 191 per cent, coal by 97 per cent, nuclear power by 87 per cent, hydro-electric and other renewable resources by 109 per cent. A ve-fold increase in imports is projected for the Asian region between the years 2000 and 2030 against a six-fold rise for South-East Asia; this explains Chinas tryst with ASEAN nations. China is the second largest energy-consumer after the US. Energy consumption has doubled and is growing at an average of 4.6 per cent. The coefcient of energy, which is an important barometer, that indicates the measures that have been put in to optimise the energy used, energy efciency, compares very well with that of the developed nations. The industrial aggregates, in order, are coal, electricity and petroleum. Recent estimates have indicated that China has enough coal to meet the nations energy requirements for another 200 years. The Gulf region accounts for 49.55 per cent of Chinas oil imports, of which 96.22 per cent is transported by foreign tankers. This exposes a weak and vulnerable link in case of international sanctions. Oil imports from West Africa account for 22.76 per cent, which again is being transported 100 per cent by foreign tankers. South-East Asia accounts for 15.11 per cent supply of the oil sources, 52.43 per cent of it being carried by small, domestic tankers, and the rest by foreign tankers. The top ten suppliers to China are Saudi Arabia: 16.7 per cent, Iran: 13.6 per cent, Angola: 11.1 per cent, Oman: 10.2 per cent, Yemen: 7.7 per cent, Sudan 6.9 per cent, Russia 5.8 per cent, Vietnam 3.8 per cent, Congo 3.7 per cent, and Indonesia 3.7 per cent. Other nations together account for the remaining 6.8 per cent of the total imports. By 2020, the Gulf region would account for 45.5 per cent of Chinas oil imports, followed by Africa 25 per cent, and Asia-Pacic ve per cent, as against 50.9 per cent, 24.3 per cent and 15.2 per cent, respectively, in 2003. With liberalisation, participation by non-State actors and joint ventures has gone up, both for crude and nished oil products. The routes for oil import into China are important in terms of maritime security and maritime interest. From the Persian Gulf, it is transported via the Straits of Hormuz, the Malacca Straits to the Taiwan Straits, to China. From West Africa, it is through North Africa to the Mediterranean to the Strait of Gibraltar to Cape of Good Hope, and from there to the Malacca Straits to the Taiwan Straits and then China. From South-East Asia, it is through the Malacca Straits to the Taiwan Straits, to China. From Venezuela, it is via Panama Canal to the Pacic Ocean. Given the

Maritime Security
COMMODORE R S VASAN (RETD.) Energy has become a key element in all policy-making, on the domestic, foreign and security fronts in every country, and China is no exception. Asias consumption

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importance of the Malacca Straits and its vulnerability in terms of all imports into China, China is showing a lot of interest in the security of the Malacca Straits through regional cooperation, bilateral initiatives, nancing and beeng up of the necessary security requirements. China is also developing land-routes, as also the Kraa Isthmus, by which it can cut across the land-route, thereby avoiding dependence on the Malacca Straits. Chinas potential oil sources bring out the geo-strategic implications of energy politics. The Tarin Basin, close to Central Asia, and one of the gas sources close to the South China Sea, is another boiling pot. Given the proximity to Myanmar, Laos and Thailand, with the Kraa Isthmus further down, it is in this region that the Chinese have plans to tap the gas reserves and sources so as to be able to transport the gas over land to their areas of operation. The oil and gas pipelines grid is rather well connected and well spread out to facilitate the transmission from the distant outposts to the areas of operation. With the prospect of the delimitation of the Exclusive Economic Zones (EEZs) coming up in 2009, the South China Sea is a potential source of conict, with too many actors and all of them wanting a share in the offshore drilling pie. To ensure that others did not come in, China awarded a lot of oil-drilling contracts to the Americans in the Eighties. In 1997, China decided to build strategic reserves in oil60 days supply of crude stocks and 30 days of rened stocks, thus a total supply of 90 days. They are also in the process of nding alternate routes, the Mekong River for instance. A sample run carrying 1,200 tonnes of oil was undertaken up this river, to convey a message that this passage has the potential as an alternate transport platform, along with the land route, and the Kraa Isthmus. Most oil wells in China are in the North and the North West; southern China does not have oil so they export oil from the North and import for the South. The surge in demand and the strategic partnerships (Saudi Arabia, Venezuela, ASEAN, Argentina, Israel, Nigeria, Indonesia, Kazakhstan and Canada) from 1996 till 2005 are seen to have been dictated by the desire to protect their energy demands. Call it by whatever name, peace dividend, or peaceful rise, or whatever, nally energy is going to be the engine for Chinas rise and spread. The Chinese investments in Central Asia, Iran, Iraq, Sudan, Angola, Nigeria and Myanmar have been vast and concentrated. Chinas energy-related investments are simple: oil for money, weapons, or whateverthus developing strategic contours in bilateral relations. China is involved in a big way in Irans Nekka pipeline to the Caspian Sea, indicative of a Pan Asian global transregional energy bridge over land, which is meant to counter oil reserves depletion and transportation risks across the Malacca Straits. The importance of the energy triad of Russia, Gulf-Arab region and Central Asia is a conscious card, and explains the relations that China has been building with each of them. Chinas military thrusts in recent years are also related to energy security, be it a foothold in Myanmar or cooperation with Pakistan, Bangladesh, Sri Lanka and the Maldives. The Chinese development of a deep port in the Maldives is crucial to monitoring the ships on the sea lanes of communication (SLOCs), and also for monitoring the American presence in the region as a part of the on-going maritime security operations. Whether or not China is a threat to India in the Indian Ocean region, they are clear about what they want to do in the region and India needs to be sensitive to this. In all this, India was a slow-starter in the energy conundrum, and would need to learn from the Chinese experience. It is only now that we have gone to the African coast for our energy requirements. We have also started cooperating with the Chinese in certain areas, but in a limited way.

SPEAKERS

Dr Gopalji Malviya, Professor & Head, Dept of Defence and Strategic Studies, University of Madras D. S. Rajan, formerly Director, Cabinet Secretariat, Government of India Raakhee Suryaprakash, Research Assistant, ORFChennai K. Subramaniam, formerly Joint Secretary, Ministry of Finance, Government of India
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P. N. G. Subramaniam, IFS (retd), formerly Indias Consul-General at Shanghai R. Swaminathan, IPS (retd), formerly Director-General (Security), Cabinet Secretariat, Government of India Commodore R. S. Vasan (retd), Additional Director, ORF-Chennai Vinod Surana, Surana & Surana, International Attorneys, Chennai.

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