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Review Essay

Interdependency Theory
China, India, and the West

Simon Tay

Volume 89 • Number 5

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 Review Essay

Interdependency Theory
China, India, and the West

Simon Tay

Awakening Giants, Feet of Clay: Assessing
the Economic Rise of China and India.
by pranab bardhan. Princeton
University Press, 2010, 192 pp. $24.95.
Playing Our Game: Why China’s Rise
Doesn’t Threaten the West. by edward s.
steinfeld. Oxford University Press,
2010, 280 pp. $27.95.
In the aftermath of the global financial
crisis, the economies of North America
and Europe remain fragile while those of
Asia continue to grow. This is especially
true in the cases of China and India, which
both boast near double-digit rates of growth
and have therefore inspired confidence
around the region. But too many com-
mentators discuss China and India with
breathless admiration—extrapolating, for
example, that growth will continue at a
breakneck pace for decades. In doing so,
they treat emerging economies as if they
were already world powers, echoing the
hubris that preceded the Asian currency
crisis of 1997–98.
Pranab Bardhan’s Awakening Giants,
Feet of Clay: Assessing the Economic Rise of
China and India is a welcome corrective
to that view. It succinctly summarizes
the challenges facing China and India,
including environmental degradation,
unfavorable demographics, poor infra-
structure, and social inequality—threats
that the leaders of China and India un-
derstand. Even as others have lavished
praise on China, and Chinese citizens have
grown stridently nationalistic, Chinese
President Hu Jintao and others in the
current leadership have been cautionary.
As Chinese Premier Wen Jiabao said in
2007, the country’s development is “un-
steady, unbalanced, uncoordinated, and
unsustainable.” In India, meanwhile,
although the government has orchestrated
campaigns to highlight the country’s

Simon Tay is Chair of the Singapore Institute of International Aªairs and

the author of Asia Alone: The Dangerous Post-Crisis Divide From America.

[138]
 Interdependency Theory
growth and reform, its plans to develop from $3 billion in 2001 to $40 billion in
roads and other infrastructure are a 2007—there are various ways in which
prominent and expensive recognition Asia’s awakening giants might step on
of the country’s enduring gaps. each other’s feet of clay. Bardhan’s book
A more contentious claim oªered by does not address this topic.
Bardhan is that internal reform—not the The nadir of Chinese-Indian relations
global market—has been the key driver was the brief, one-sided war between the
of both countries’ growth. Rather than two countries in 1962, which resulted in a
focusing on India’s information technology humiliating defeat (and the loss of more
sector or China’s export-led industrializa- than 3,000 troops) for India. Relations have
tion, Bardhan highlights less glamorous improved since then, but elements of
domestic sectors. Examining the rural cooperation coexist with competition and
economy—in which a majority of Chinese suspicion. Various geostrategic disputes
and Indians work—he concludes that separate Beijing and New Delhi, including
growth is driven from below. He shows, a number of sensitive disagreements
for example, how China’s steepest reduc- about areas along their 2,200-mile border.
tions in poverty had already happened by Tibet shares a long border with India,
the mid-1980s, before the country began and when the region is restive, as it has
attracting sizable foreign trade and invest-been in recent years, China suspects
ment. The main causes of China’s decline Indian instigation. This makes disputes
in poverty, Bardhan argues, were invest- over remote Himalayan points—such as
ments in infrastructure and reforms to Arunachal Pradesh, an Indian state claimed
town and village enterprises, which are by Beijing—loom large, as does China’s
predominantly agricultural. recently intensified criticism of Indian
The book thus suggests that the fates of actions in and around Kashmir.
China and India are in their own hands— There are also newer sources of tension,
and do not depend on the West, as many including competition over Indian Ocean
sea-lanes and the exploration of outer space.
assume. If that is correct, then these giants
can continue to grow despite the global There is even tension over the very trade
economic crisis, towing much of Asia along ties that increasingly link the two countries
with them. This would have great impli- economically. In 2009, India hiked tariªs on
cations for geopolitics and economics. To telecommunications imports from China
the contrary, however, neither China nor by as much as 200 percent in order to limit
India can ignore external conditions. the flow of Chinese goods into that sector,
which New Delhi considers both eco-
GIANT FEUDS nomically and strategically important.
One of the external circumstances aªecting Underlying these tensions is a power
both China and India is their bilateral gap. Rising simultaneously, the two Asian
relationship—and whether it will develop in giants compete for markets, natural re-
a healthy or an antagonistic way. Although sources, commercial investment, and
China and India cooperate in various inter- political influence in Asia and world-
governmental bodies and trade more than wide. Depending on how one measures,
ever—Chinese-Indian trade increased China’s economy is three or four times

fore ign affairs . September / October 2010 [139]

 Simon Tay
as large as India’s. And whereas China the wake of the recent crisis, is over what
is India’s largest trading partner, India mix of democratic jockeying and authori-
ranks only tenth among China’s trading tarian decisiveness makes economies
partners. Yet in government ministries most robust.
in New Delhi and corporate towers in The challenge for Beijing and New
Mumbai, Indian elites typically refuse to Delhi is to combine power and legitimacy.
concede India’s status as number two. Only then can the Chinese and Indian
Of course, there are forces—especially governments take measures that may be
the Association of Southeast Asian unpopular in the short run or damaging
Nations—that seek to promote Asian to some politically connected sectors but
regional cooperation and weaken the necessary for long-term progress: stimu-
appeal of competition between Asian lating job growth, alleviating poverty,
states. But although it hosts regional protecting the environment, or other
summits that include o⁄cials from China vital tasks.
and India as well as o⁄cials from its One hears often of a “Beijing consensus”
member states, asean is an association of but rarely, if ever, of any Indian model of
only small and medium-sized economies, governance. Indeed, India’s case appears to
so it lacks the economic heft to direct be sui generis, especially since the mod-
regional integration. Therefore, although ern Indian state was born a democracy—
China and India may make shows of sol- unlike other postcolonial states, such as
idarity in the asean forum and elsewhere, South Korea, which were or remain
they will continue to compete economi- autocratic. Moreover, New Delhi has not
cally, politically, and otherwise. traditionally sought to influence the polit-
ical practices of other Asian states (lest its
ASIAN LODESTAR own domestic issues become vulnerable
A major factor in the Chinese-Indian to intervention by foreigners). Asia there-
competition—and in its perceived sig- fore lacks a strong homegrown exemplar
nificance for the wider world—is that the of successful economic development under
two countries have such diªerent political democracy. Indonesia might become such
systems. Their trajectories, therefore, oªer a model, as it has been transitioning to
insights into the prospects for development democracy since Suharto’s fall in 1998
under authoritarianism and under democ- and now has annual growth rates of four
racy. In addressing this point, Bardhan to six percent. But, for now, autocratic
rightly cautions against the simplistic China remains Asia’s lodestar.
conclusion that authoritarianism is supe- This concerns many in the West who
rior to democracy with regard to growth. warn against China’s model of state capi-
Yet he echoes simplistic characterizations talism, criticize its human rights abuses
of the subject, writing, for example, “India’s and censorship, suspect Beijing of pursu-
experience suggests that democracy can ing a manipulative currency policy, and
also hinder development in a number of generally see China as a risen dragon
ways” and “in China, there is more deci- seeking domination. According to this
sive policy initiative and execution than view, China’s economy has opened and
in India.” The real debate, especially in globalized but its politics remain frozen

[140] fore ign affairs . Volume 89 No. 5

around the Communist Party. This, in
turn, suggests that the Chinese state will
remain radically diªerent from, and even
opposed to, the liberal states of the West.
WESTERN RULES
Edward Steinfeld’s book Playing Our
Game: Why China’s Rise Doesn’t Threaten
the West oªers a diªerent perspective on
China’s rise. The changes in China’s eco-
nomic and political systems are not con-
tradictory, Steinfeld argues, but are more
or less in sync. This, he argues, is because
of “institutional outsourcing” from the
global system: globalization brings with
it commercial discipline and requires
states to institute rules in order to foster
change and anchor progress.
Having been influenced by foreign
investors and experts, the Chinese gov-
ernment and business community have
deliberately altered China’s commercial
environment, especially with regard to
legal institutions and industrial-labor
relations. For example, in 2007, the National
People’s Congress enacted a labor con-
tract law that provides individual workers
with far more job security than they had
under the preexisting laws, which dated
back to 1994. China remains a far cry
from having the sort of labor unions and
collective bargaining that are taken for
granted elsewhere, but, as Steinfeld cor-
rectly argues, Chinese labor practices are
moving away from their revolutionary
roots and are increasingly consonant
with Western standards.
Meanwhile, argues Steinfeld, the role
of the Communist Party within China’s
political system has changed radically in
recent decades. Today, politics are primar-
ily determined not by contests for power
between the party and diªerent segments
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[141]
 Simon Tay
of society but by partnerships between
government forces and reform elements
outside the party. Ordinary Chinese
people, Steinfeld argues, have gone from
being mere subjects to being citizens.
Because of this, the Chinese government
has to proceed cautiously: to preserve the
party’s central role, o⁄cials must find
allies outside the party, including among
activists and civil-society elements, that
could otherwise threaten the party’s
monopoly on o⁄cial power. To Steinfeld,
this means that China is evolving in much
the same way that other modernizing
nations did, including not just South
Korea and Taiwan but also the United
Kingdom and the United States. Increas-
ingly liberal politics are ahead, he argues,
even if the Communist Party will remain
central and there will be ebbs and flows
along the way.
“China today is growing not by writing
its own rules. . . . It is playing our game,”
Steinfeld writes. That game is global-
ization, and its dominant rules are set
predominately by the West. If this is
correct, China will increasingly become
a responsible stakeholder in the existing
global order. The country, then, does not
need to be contained; globalization will
take care of that.
Such analysis may breed complacency.
First, China may not follow established
rules. Beijing has had high-profile di⁄cul-
ties with Google over the past months,
and the ceo of General Electric, Jeªrey
Immelt, recently commented that although
his company had ramped up investments
in China, he was not sure that Chinese
o⁄cials “want any of us to win or any of us
to be successful.” Furthermore, established
rules might be unable to accommodate
some of the unprecedented issues raised
[142] fore ign affairs . Volume 89 No. 5
by Chinese growth. Take monetary policy:
What China has done in accumulating
massive financial reserves is similar to
what other Asian states did during their
development, but those states had far
smaller economies. China’s accumulation of
reserves might threaten the crisis-plagued
global financial system, especially given
the complex matter of whether Beijing
sets policy based on political reasons as
much as economic ones.
The state’s decisive role in the Chinese
economy allowed it to respond bluntly and
eªectively to the recent global financial
crisis. But, as the financier George Soros
and others have rightly warned, there are
substantial dangers that China’s brand of
state capitalism may give too little regard
to the market and to humanistic values.
Steinfeld regards such concerns as throw-
backs to a past era, before China began
acting as an authoritarian liberalizer in
the mold of other East Asian states. He
argues, for example, that the attempt of
the China National Oªshore Oil Corpo-
ration to purchase U.S.-based Unocal in
2005—which some critics in the United
States argued was motivated by a strategic
eªort to secure Chinese access to energy—
was merely a corporate decision aimed at
modernizing a major business. Cnooc,
he points out, was publicly listed in Hong
Kong and had been working with Western
consultants to achieve global scale and
standing.
These insights are useful, but percep-
tions matter, and many U.S. policymakers
viewed cnooc’s actions as a case of Chinese
leaders using corporate cover for their
pursuit of national security goals. This is
one reason why China’s rise continues to
trigger suspicion in Asia, the United
States, and elsewhere.
 Interdependency Theory
THE INDISPENSABLE NATION
Many Americans are concerned that in a
“post-American world,” as the Newsweek
editor Fareed Zakaria put it, a rising Asia
and a worried and weary United States
will ignore each other or interact acrimo-
niously. But, as Steinfeld argues, Asia’s
fate is tied by globalization to the West.
Before the economic crisis, there
seemed a reasonable case to be made that
Asia could decouple from the West—
that increased economic integration among
Asian states could keep the region growing
even if U.S. consumers stopped buying
Asian goods. As the crisis mounted in
2008, however, it became clear that Asia
and the West are not decoupling: when
U.S. demand fell sharply, it immediately
hurt production across Asia, especially
in China.
But some eªorts are already under
way to limit Asian economies’ reliance
on U.S. markets by increasing Asian
states’ own domestic consumption and
developing new financial mechanisms
to keep Asian savings in Asia and away
from the U.S. Treasury. For example,
under the recently enacted Chiang Mai
Initiative, Asian governments (including
the members of asean, plus China, Japan,
and South Korea) pledged over $120 bil-
lion for currency swaps aimed at ensuring
currency stability across the continent.
And as of this year, asean and China
are united in a free-trade zone that is the
world’s largest combined market, with over
1.8 billion people. (In addition, various
bilateral trade agreements have crisscrossed
Asia for years.)
Steinfeld’s book explains why even
such reforms separate Asian economies
from Western ones only marginally. As
fore ign affairs . September / October 2010
China has captured the central role in
global production networks, Steinfeld
points out, its economic growth has
unleashed great innovative capacity in
U.S. companies. To be sure, the economic
crisis has made some U.S. actors, such as
labor unions, increasingly critical of glob-
alization, but major U.S. companies have
long recognized that trade and investment
in Asia are essential to their ability to
innovate and stay ahead.
There are many additional factors
outside the scope of Steinfeld’s book that
also demonstrate the interdependence of
Asia and the West—especially in terms
of regional security. The United States
remains essential to a range of issues in
the region, including the stability of the
Korean Peninsula and the Taiwan Strait,
disputes over control of the South China
Sea and over human rights in countries
such as Myanmar (also known as Burma),
and the future of Afghanistan and Pakistan.
Asia currently has no local substitute for
U.S. influence, and indeed, old and un-
settled Asian rivalries could reignite if
any one power tried to assert itself too
forcefully. The rise of Asia is far from a
truly continental aªair; the region is not
united. Policymakers in Washington
and across Asia, therefore, should continue
to welcome strong U.S. influence in
the region.∂
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