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    South Asia
     Apr 15, '14

New China-India era no shoo-in under Modi
By Chris Stewart

Hopes are rising that by the time results are finally announced on May 16, India's gargantuan six-week election process will have set the stage for a new era in its ties with China. Despite being

touted as this century's most crucial bilateral relationship, the India-China dynamic has underwhelmed so far.

Most of the potential for transformation lies in the realm of trade and investment, with companies on each side eyeing the large market on the other side of the Himalayas.

Indian imports from China have grown faster than Indian exports to China, resulting in a embarrassing trade imbalance which New Delhi finds difficult to control. Chinese manufacturers also have gained significant a market share in India's power and telecom sectors.

At the same time, Chinese investment in India remains far lower than in many other Asian countries. Most Chinese companies consider the Indian regulatory regime opaque at best - and hostile at worst - despite the Indian government's welcoming noises.

During his tenure as chief minister of Gujarat since October 2001, Narendra Modi has already played a key role in the bilateral relationship between India and China. As one of the few state-level politicians in India to have been hosted by the ruling Chinese Communist Party, he has nurtured a mutually beneficial relationship at the highest levels.

The US government's refusal to grant a visa to Modi over the last few years has also played the role of an invisible hand propelling Modi firmly in China's direction.

Not surprisingly, Gujarat and Modi's key constituents have benefited enormously from Chinese investment and loans. Chinese companies big and small have come to view Gujarat as India's answer to Guangdong province, from where a cluster of boom towns catalyzed economic prosperity in the Middle Kingdom couple of decades ago.

In January 2010, when Gujarati diamond traders were arrested in China, the Indian government's efforts at freeing them failed to bear fruit for almost two years. It was only after Modi's visit to China that they were freed in December 2011.

The Indian establishment has been crying hoarse for Chinese investment in infrastructure for several years now, but there has been barely a trickle in response. China's lukewarm response can perhaps be attributed to India's labyrinth of labor and land acquisition laws.

Despite this, after Modi emerged as a prime ministerial candidate in September 2013, the Chinese government immediately upped the ante by offering to meet 30% of the total demand for investment in India's investment sector until 2017. It is difficult to avoid reading between the lines and seeing this as an endorsement of China's faith in Modi to walk the talk should he take the helm after the general elections.

The inherent strength of the Modi-China relationship is underscored by Chinese media's response to Modi. The prime ministerial candidate made an election speech in Arunachal Pradesh in February asking China to back-off from its claim over the province, which it claims as South Tibet, yet Chinese official media quickly downplayed Modi's words as an necessary electioneering tactic.

Such bonhomie can be a crucial ingredient in the concrete that cements India-China ties over the next five years. India could very easily change the trajectory of its economic growth for the better by tapping China's experience in economic development. The opportunity can also be just as easily squandered if Modi chooses to wear a saffron hat and treat China just as another enemy of India like Pakistan, China's best friend in South Asia.

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