Delhi divided over Chinese 'threat'
By Siddharth Srivastava
NEW DELHI - Ahead of Chinese President Hu Jintao's visit to New Delhi this
month, security concerns about firms from his country investing in India is
turning into a touchy issue.
It has resulted in a clear division within the Indian government, with the
Ministry of Finance, Ministry of Commerce, Ministry of Home Affairs and the
Prime Minister's Office (but not the prime
minister) taking different sides on the matter. Crucially, key coalition
partners, the leftist parties, are keen to see the controversy resolved before
Hu's visit.
India's perhaps overcautious approach is in contrast to Beijing's eagerness to
take economic engagement with New Delhi to new levels. China has urged India to
consider signing a free-trade agreement (FTA) between the two countries, which
means granting "market economy" status to China, a move that has not been
endorsed by most developed countries. The issue is likely to be discussed
during Hu's visit to India, which begins on November 20.
"Following the reopening of the trade post on the Indian-Chinese border [at
Nathu La in Sikkim], our government is considering FTA talks with India,"
Chinese assistant minister of commerce Fu Ziying said at a recent meeting of
the 2007 China Industrial Development Forum in Beijing.
Sino-Indian trade has expanded rapidly in recent years. Bilateral trade surged
37.5% to reach US$18.73 billion in 2005 and is expected to hit $20 billion this
year. As a symbol of closer trade ties, India and China reopened cross-border
trade at the Himalayan Nathu La Pass in July, 44 years after trade ended in the
wake of a short border war.
However, Indian misgivings over giving Chinese firms a freer rein in the
country remain. The differences arise over the formulation of a comprehensive
law that will seek to label all Chinese firms a potential threat to national
security. The legislation will require every investment proposal to be
scrutinized.
The Ministry of Finance and Ministry of Commerce (led by P Chidambaram and
Kamal Nath respectively) oppose any obstacle to investment from any particular
nation and insist that individual scrutiny of investment proposals should
ensure that they do not pose a security threat.
Both Nath and Chidambaram, who are pro-reform and in favor of foreign direct
investment (FDI), are against the singling out of any country as a security
threat. Currently, only Bangladesh and Pakistan are categorized as "security
risk" countries.
Recently, the Securities and Exchange Board of India, which reports to the
Ministry of Finance, signed a "landmark" memorandum of understanding with the
China Securities Regulatory Commission on the enhancement of regulatory
coordination between the securities watchdogs of the two Asian giants.
However, National Security Adviser M K Narayanan, who reports directly to the
prime minister and is considered by many to be responsible for all internal
security matters, is in favor of full scrutiny of all FDI proposals on the
basis of origin. The Ministry of Home Affairs has also been lobbying hard to
introduce such measures.
An extension of this debate has been the issue of worker visas. Recently,
Reliance Industries Ltd chairman Mukesh Ambani called on Home Affairs Minister
Shivraj Patil to request that visa and immigration clearance be accelerated for
nearly 2,000 Chinese technical executives whom the company had hired for a
gas-pipeline project.
Because of the minister's intervention, doubts about the Chinese presence in
telecoms have extended to ports, which has derailed the India expansion plans
of Hong Kong-based Hutchison Port Holdings, a unit of Hutchison Whampoa. In the
past, Chinese telecom firms Huawei Technologies and its rival ZTE Corp have
been refused permission by the Foreign Investment Promotion Board to invest in
India.
India has rejected a bid by China Harbor Engineering Co for the Vizhinjam port
near Thiruvananthapuram as the company in question is also developing
Pakistan's Gwadar port, which opens the possibility of a Chinese naval presence
next to Indian borders.
The issue of security concerns relating to FDI first arose after the presence
of Egypt's Orascom Telecom in Hutchison-Essar came under severe criticism from
the national security adviser in his review of potential threats to national
security from FDI.
Prime Minister Manmohan Singh has so far not put a lid on the debate, though he
does not appear to be in favor of imposing obstacles to foreign investment and
wants Indian policymakers to wake up to new challenges. Manmohan said recently,
"The world is large enough to accommodate the growth aspirations of India and
China."
He said that in a rapidly changing global environment, Indian policymakers have
to act fast to seize opportunities. "I do believe that there are today no
binding external constraints on India's economic growth. Most constraints we
face are inherently internal," he said.
While at one level India welcomes economic ties with China, in many spheres the
two countries are fierce competitors for markets and resources, including
energy. India will be hit worst among other Asian countries if China makes a
preemptive entry into the Association of Southeast Asian Nations (ASEAN)
because of trade diversion, a study by the Indian Council for Research on
International Economic Relations recently stated.
According to the report, it is therefore very important that India work to
speed up India-ASEAN FTA negotiations. China is bound to enter the ASEAN
grouping - considering that the Early Harvest Program is already in effect and
the FTA would be the first to be implemented, the study said.
Chidambaram, unlike the more diplomatic Manmohan, however, has been more
forthcoming with his views. The finance minister recently said he would never
allow the reforms process, economic growth and more foreign investments to be
derailed.
Indeed, the statements by Chidambaram and Manmohan are being seen as attempts
to set the right tone before Hu's visit. However, it is also true that there
exist deep-seated suspicions in the bureaucracy about China that go back to the
1962 Sino-Indian War, which are reinforced by Beijing's perceived clandestine
support of Pakistan's defense program.
However, there are still large numbers of people on both sides of the border
who want to engage in business.
In this context, some observers have talked about location and sector-specific
restrictions - instead of country-linked curbs - to address any perceived
threat to national security arising from Chinese investment.
On a more positive note, Beijing has expressed happiness over its upgraded
strategic ties with New Delhi and has said there has been "progress" on the
boundary issue. "Boundary negotiations have made progress and border areas have
remained peaceful and tranquil," the Chinese Foreign Ministry said in its
latest issue of China's Foreign Affairs 2006. "Frequent high-level interactions
and deepening mutual trust underscored the good momentum of political
relations," the report said.
India is likely to use the Hu visit to urge China to step back from its demand
for Tawang in Arunachal Pradesh as part of the boundary settlement. China has
sought a new border trading post to be opened at Bumla, which may be approved
during Hu's visit. India had also proposed opening another border post in
Indian Kashmir, but there has been no response from China yet.
Siddharth Srivastava is a New Delhi-based journalist.
