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    Greater China
     Jun 6, '14

Japan, China vie for Modi's heart
By Santosh Pai

Speaking Freely is an Asia Times Online feature that allows guest writers to have their say. Please click here if you are interested in contributing.

Japanese Prime Minister Shinzo Abe follows only three personalities on Twitter. One is India's newly minted Prime Minister Narendra Modi. So it came as no surprise when Abe dispatched a congratulatory tweet to Modi minutes after it became clear that the latter would occupy the prime minister's official residence at 7 Race Course Road in New Delhi. Modi's tweet in response read, "I am sure we will take India-Japan ties to newer heights." It sounded as though the two politicians were continuing

a previous conversation rather than forging a new relationship.

Much of Shinzo Abe's economic reforms in Japan will not bear fruit without a significant emerging market driving the growth of Japanese industry. Japanese exports to China declined by 18% in the 12 months leading to the Indian elections. The decline was triggered by the controversy over the Senkaku (or Diaoyu, in Chinese) Islands and is unlikely to reverse course in the near future.

Meanwhile, many Japanese companies are well entrenched in India but suffered at the hands of the previous outgoing United Progressive Alliance government. Two major Japanese corporations, Mitsubishi and Honda, were slapped with tax recovery notices to the tune of US$2.6 billion following a retrospective amendment to a tax law in India. All this makes Modi look like a white-bearded Samurai savior in the eyes of Abe's business-minded constituents.

The annulment of tax demands might be on top of Abe's wish-list, but there is much more that he expects from Modi. Japan has cultivated India as an export destination for a long time by funneling investment into big ticket infrastructure projects such as the Delhi-Mumbai corridor. Abe would like this trend to continue. India might consider inviting Japanese investment in its Northeast region as a fitting reply to China's claim over what it calls South Tibet. Modi has already inducted a retired army general to supervise the impending boost to infrastructure in this region.

Abe will also expect Modi to replicate the Gujarat model of governance delivery at the national level. A simplified indirect tax system, time-bound land acquisition schemes and transparency in industrial licensing will be essential ingredients of this model. This will allow Japanese companies to maximize their growth prospects in India and will give Abenomics a new lease of life.

In what appears to be an unintentional Machiavellian twist, Modi has managed to cultivate an equally friendly relationship with China. More surprising is the fact that the Modi-China relationship is now burdened with exactly the same expectations as the relationship between Modi and Abe.

Chinese engineering, procurement and construction contractors are thirsting for a bigger slice of the $1 trillion infrastructure outlay in India over the next five years. Chinese manufactures of mobile phones, transformers and everything else in between have announced plans to enter the Indian market. Low interest loans from Chinese banks that will accompany the activities of Chinese companies in India is also a carrot that India cannot easily ignore.

India too has spruced up its wish list. Last month, the country's first ever service sector delegation to China reached Beijing making a case for Indian information technology and pharmaceutical companies that have been struggling to make headway in the China's domestic market. China's only positive response so far has been an admission that Indian movies are popular among its citizens and cultural co-operation is vital. Everything else is being held back until China gets what it wants from India.

China is rushing its foreign minister to New Delhi on June 8 to ensure that Modi does not overlook its interests as he gets down to business. With the India-China border dispute being tamed by a joint dialogue mechanism over the past several years, the stage appears to be set for a decisive barter where both parties are completely aware of what the other wants in the economic sphere.

This is the first time that the Chinese state media has provided extensive coverage of an Indian general election, so most Chinese are familiar with Modi. It also helps that most Chinese can pronounce Modi's name without much difficulty. Chinese businessmen who have visited Gujarat province, where Modi was chief minister, look at him as a messiah and are relieved that India's democratic process could finally elevate an effective leader.

The courting of Modi by Japan and China certainly resembles a Bollywood plot. But whom will Modi embrace and when? One can only enjoy the songs and drama while waiting for a happy ending.

Speaking Freely is an Asia Times Online feature that allows guest writers to have their say. Please click here if you are interested in contributing. Articles submitted for this section allow our readers to express their opinions and do not necessarily meet the same editorial standards of Asia Times Online's regular contributors.

Santosh Pai is an Indian lawyer based in Beijing. He is the founder and head of the India-China practice group at an Indian law firm. The views expressed are personal.

(Copyright 2914 Santosh Pai)




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