On June 15, China and India’s military troopsclashed in hand-to-hand combat along a disputed border in the Himalayan mountains,resulting in deaths from both sides. This was the deadliest confrontation betweenIndia and China along that border in 45 years, marking a dangerous escalation between thetwo nuclear powers. In the 1950s, a term was used to describethe relationship between India and China: “Hindi Chini Bhai Bhai”, which means “India and China are brothers.” However, that was the exception rather than the norm, with a deep-seated mistrust on both sides still felt today.
Two years after India’s independence in 1947, the People’s Republic of China was founded in 1949. Despite attempts to establish a cordial relationship,such as the India-China Friendship Association, cracks were already appearing in their bilateralrelations. For one, China never accepted a border draftedby the British in 1914 demarcating the frontier between Tibet and British India, also knownas the McMahon line. The ambiguity of the 550-mile line, whichIndia recognizes as its official legal border, soon became a source of tension betweenthe two Asian neighbors. It culminated in the Sino-Indian war in 1962.
The battle lasted a month and China made inroadspast the McMahon line while India suffered heavy casualties. Over the next few years, India managed torecover lost ground amid occasional clashes between the two countries, including one in 1975, which brought 45 years of uneasy peace at the border. Despite efforts for détente in the followingyears between the political leadership of both countries, the issue remained unresolved. Between 1993 and 2005, India and China signeda series of border agreements, including a 1996 agreement prohibiting the use of firearms in the volatile area. So what are both sides fighting over exactly,and what is the significance? The McMahon Line forms a part of the longborder between China and India, which extends for more than 3,400 km in the mountainousregion of the Himalayas. This frontier is referred to as the Line ofActual Control, or the LAC, which includes landmarks such as the Pangong lakeand the Galwan Valley.
There are no official records or real-lifemarkings delineating the actual LAC resulting in grey zones betweenthe Chinese and Indian patrols. The LAC fringes mountains, valleys and plateaus,making the flow of goods and activities laborious. As a result, India has been upgrading itsroads and military infrastructure for over a decade, which will allow the rapid deployment of its forces. Galwan river, where the latest fatal confrontationoccurred, has a vantage point of a road being built by India, which makes it a strategicand significant location. China has also been building its own infrastructureand military outposts along the LAC, including a highway connecting China’s sensitive regionsof Xinjiang and Tibet.
The country also has more infrastructure projectswest of the LAC, which connects China to Pakistan as part of its Belt and Road initiative, addingto India’s wariness. But the tension between India and China goesbeyond their land borders. And given their economic might, this willhave broader implications for the region and the rest of the world too. The two countries make up about 36% of theworld’s population. China has the second largest economy in theworld with a GDP of more than $14 trillion while India takes the fifth spot with $2.9 trillion. As their economies grow, both countries havebeen investing heavily in their military arsenals. In 2020, China allocated more than $178 billionfor defense, although many analysts think that the actual figure is much higher. Meanwhile, India’s defense budget standsat around $73 billion. The Stockholm International Peace Researchestimates that China has 320 nuclear warheads, while India has 150. Even before the latest clash, geopolitical tensions between the two juggernauts have been on the rise of late. India’s neighbors — Pakistan, Sri Lankaand Nepal — have forged closer ties to China in the recent years under its Belt and Roadinitiative. To counter the rise of China, India has soughtcloser ties with strategic players such as the United States, Russia, Japan and Australia.
What you will see, I think, is that Indiais trying to find its own way to put pressure on China. India will be trying to improve its relationshipswith Australia, with Japan, with Vietnam, with United Kingdom, with all the countries who are worried about China in order to give itself a little bit of leverage. The pandemic has taken a toll on the economiesof both countries. This means that the dynamics between Beijingand New Delhi have shifted too. As companies evaluate their supply chainsin the wake of the pandemic and the trade war between the U.S. and China, India has been positioning itself to lure more foreign investment. In recent years, Prime Minister Modi’s officehas pushed for India to be self-reliant, and has imposed curbs on Chinese imports and investment.
The latest clash has also led to a boycottof Chinese companies in India, including a ban of nearly 60 Chinese apps such as TikTokand WeChat, while Chinese firms Huawei and ZTE may be excluded fromthe rollout of India’s 5G network. Indian startups – which have been courtingChinese funding in recent years – are also finding themselves in a quandary. Indian food delivery unicorn Zomato raised$150 million from China’s Alibaba group in January 2020, while its competitor Swiggyis backed by Tencent and Meituan-Dianping.
You’re talking about a world in which Chinais going to have curtailed economic relations with the world’s leading superpower, theUnited States, and the world’s most important emerging market, that is India. So I think you’re going to have a very differenteconomic picture as the US-India relationship coheres around this problem, and every corporateofficer and institutional investor needs to be prepared for a world in which you havea confrontation against China by two of the most important democracies in the world. While it is unlikely that the border clashwill lead to a full-blown military conflict between India and China, the saber-rattlinghasn’t ceased. The confrontation may just widen their geopolitical rivalry on other fronts in an increasingly divisive world. So what are your thoughts on the relationship between India and China?