In the past several months it has become fashionable to talk up the theme of China’s economic demise and the ascendancy of India as the main growth engine of the Global South. Mass media, academic gurus, fund managers and corporates are starting to argue in favor of re-directing financial flows away from China to India. India’s successful G20 chairmanship further added fuel to discussions about the possibility of a grand shift in the Global South universe, with India leading not only in growth, but also in addressing global issues. A rise for India’s economy would surely be a welcome result for the fortunes of the Global South, but could this scenario be further improved upon? In a world that is so vainly led by ”zero-sum” impulses, is there any scope for “win-win” patterns to become more prevalent? In particular, could there be the possibility of an amelioration in the China-India economic relationship that takes the global wealth creation to a whole different level?
In fact, there may be reasons why an expansion in the economic cooperation between China and India could become the best-case scenario in the dynamics of Global South economic growth. First and foremost, both countries account for nearly a third of the global population and the welfare dynamics in these two countries have the greatest global impact in terms of poverty reduction, environment and other global issues. I would even go so far as to state that in terms of “allocative efficiency” it would be more optimal from the point of view of global welfare dynamics, if more of the economic growth was concentrated in high population areas with sizeable scope for catch-up growth – as is the case with China and India. Furthermore, for all the rhetoric about the differences and tensions between China and India, the two developing giants share a lot in common in terms of the stance on the global arena. Many of these common projects that may potentially boost bilateral economic cooperation between China and India are concentrated in the BRICS platform:
- A common development bank – the BRICS New Development Bank
- A common platform for alliances with third parties: BRICS+
- A common platform for coordinating macroeconomic policy and anti-crisis measures: BRICS CRA
- Joint BRICS coordination in international economic organizations, such as the IMF
The mutual trade dynamics between China and India exhibited a rising trend in the past several years, with the 2022 trade turnover reaching an all-time high of more than USD 135 bn. But that trade figure could well become far more ambitious if the indications of a gravity model were anything to go by. In particular, China’s mutual trade with Russia is on course to exceed USD200 bn in 2023, even though India in terms of the size of GDP is notably greater than Russia. At the same time, the US trade turnover with China is several times higher than with India, despite the common border and geographical proximity between India and China. The potential for expanding China-India trade is further magnified by notable complementarity in the trade patterns: while China exports mostly manufactured goods, India’s trade flows to China are concentrated in primary and semi-finished products, with scope to also make gains in services exports.
In the investment sphere, recent statements from India’s Rajeev Chandrasekhar, minister of state for electronics and information technology, suggests that the country is open to greater capital flows from China. A key dimension to the India-China investment partnership is the connectivity track – aligning mutual economic trade with greater transportation connectivity would benefit both economies as well as the in-between economies such as Nepal, Bhutan, Burma, Central Asian economies. These are mostly landlocked economies that would greatly benefit from greater connectivity with their neighboring partners. As with trade, there is a significant element of complementarity between the connectivity frameworks of China and India – in the case of the former it is mostly about the East-West transportation corridors in Eurasia, while in the case of India there is more emphasis on the North-South axis. The China-India border at nearly 3,500 kilometers is the second longest land border segment for India, which is further magnified by the scope for connectivity with neighboring economies such as Nepal and Bangladesh. The China-India economic partnership could then set up a fast-track for catch-up growth in the developing world, for the reduction in poverty levels and expanding the potential for connectivity projects.
The India-China partnership could also transform the pattern of global economic alliances. At the global level, along with the regional Indo-Pacific QUAD economic partnership there could be a more global QUAD that brings together the US and the EU from the North and China and India from the South. Apart from the greater scope for a more active advancement of the BRICSBRICS+ partnership there may be more latitude for pan-Asian integration initiatives as well as the consolidation of Global South platforms in key international fora (such as G20). In view of the criticality of the China-India relations for the future of the Global South economic prosperity targeted mechanisms need to be created that would perpetuate and reinforce the China-India economic linkages within the broader framework of cooperation among developing economies. Importantly, as with trade and investment there is substantial degree of complementarity in the economic alliances that may be forged by China and India together on the international arena – India may become a key gateway for the Global South in the outreach to the developed economies, while China may forge ahead with its BRICS+ platforms that expand the possibilities for South-South economic cooperation.
An upgrade in bilateral economic cooperation between China and India could thus result in a notable improvement in the economic performance of the global economy and the Global South:
- a more inclusive and open paradigm of North-South relations compared to a scenario of China and India acting separately
- a major boost for BRICS that essentially deals away with the single most important barrier to its development
- a BRICS++ paradigm supported by both India and China that includes cooperation with advanced economies and their development institutions can provide a basis for a more sustainable globalization effort
- a re-direction of mutual investment flows to the Global South
But how would all this cooperation framework in China-India economic relations emerge in view of the geopolitical frictions between the two giants of the developing world? One possibility is that the Global South continues to ascend economically and politically on the global arena, with the growing economic potential from mutual cooperation starting to modify the “prisoner’s dilemma” payoff matrix in which China and India are currently locked. The pros of economic cooperation will start to outweigh the illusory benefits of wrangling in bilateral relations.
In view of the above considerations, some of the priority initiatives that could be launched by China and India in the near term include:
- China and India aligning economic development strategies vis-à-vis the Global South, including with respect to SDGs
- an ambitious target for increasing bilateral trade
- a co-integration of China’s BRI and India’s connectivity projects
- a roadmap of joint trade liberalization
- a formation of a bilateral portfolio of “priority investment projects” that may be overseen by NDB
- joint support initiatives for the least developed economies, including with respect to Africa
- contingency plans for common stabilization/anti-crisis/stimulus/trade liberalization measures targeting the Global South and the global economy
Overall, the emergence of a strong China-India economic partnership could be the single most powerful wealth-enhancing transformation in the global economy. Within the Global South space such a partnership would represent the best-case scenario of generating greater South-South trade and investment flows, with developing economies likely accelerating their catch-up growth vis-à-vis developed economies. The high degree of complementarity between China and India in trade, investment and economic alliances provides ample scope for such a partnership to benefit the Global South. And while many will quickly dismiss the possibility of a China-Indian partnership as utterly unrealistic due to geopolitics, nothing is impossible in the world of alliances – in a matter of years earlier foes turned into pragmatic allies. And when economic considerations become a priority, the case for a higher level of India-China economic cooperation is too strong to dismiss.
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