The changing terms of LAC disengagement, and why India's trade with China is booming
Welcome back to The India China Newsletter!
In this issue, I’ll be looking at the Indian Army Chief General Naravane’s recent interview with the Indian television channel Times Now and his comments on the state of play on the Line of Actual Control (LAC), which I thought were quite interesting but didn’t get much attention — especially on how the disengagement process is unfolding, what are increasingly being spoken of as “legacy” issues not part of the current crisis, and whether this means the terms of disengagement are being reframed as both sides seek an end to the crisis, an important question that could leave a lasting impact on the border.
I’ll also take a look at what’s driving India’s booming trade with China in 2021 that shattered all records, in the midst of the on-going border crisis and general freeze in relations, and what it tells us about where relations are headed.
On January 19, India’s Army Chief General Manoj Naravane gave a lengthy interview to the television channel Times Now. The first 20 minutes or so were about China and the LAC situation, and where things stand after the 14th round of talks which were held on January 12 and ended without any agreement to disengage at Hot Springs (one of the remaining points of difference that was in focus at the 14th round; the others, Depsang and Demchok, were not on the table for discussion).
Subsequent statements from both sides do leave us with a general sense that the talks were “positive” without the acrimony of the 13th round, and unless there’s a major change of heart on the Chinese side, they seem to be willing to work out the details to disengage at Hot Springs, and it’s a question of when and not if. Depsang and Demchok are another matter — more on that later.
To my knowledge, Gen. Naravane’s interview was the most detailed yet, about how things are going at the LAC, that we have had from any top figure in the government or military in some time, at least since the disengagement in February 2021 at Pangong Lake. Gen. Naravane also addressed more recent disputes, such as China’s flag raising at Galwan Valley and bridge construction at Pangong Lake, that last week’s newsletter discussed. I have transcribed key bits of his responses to the interviewer and condensed both the questions and responses for clarity:
Whether the 14th round was a failure because of no breakthrough in disengagement:
We should not be expecting a resolution in every round that we have. But as long we keep talking to each other and keep understanding each other’s viewpoints, and those gaps keep getting narrowed down, we will find a resolution. PP 14 [Patrolling Point 14, in Galwan Valley] was solved in 4th and 5th rounds, Pangong Tso in the 9th round, and it was possibly the 10th or 11th round that PP17 [Gogra] was solved. So it will take a couple of rounds. I am very hopeful that as we keep talking to each other, we will resolve the other issues that are pending. But the overall feedback we got from the talks was quite positive and encouraging.
On China terming General Naravane’s comments (made during his annual press conference on the day of the talks, stating there was a continuing threat from China along the borders) as being “unconstructive”:
All the people in India, right from the people in the know and those dealing in the subject, have been very mature in their remarks and we are genuinely interested in looking for a win-win solution based on the principle of mutual and equal security. If we keep that as the bottom of all our deliberations, we can move forward. Every time we talk to each other, we understand each other’s positions, what differences are there, we dwell on it and then reach a point of convergence. That is what happened at PP14, north bank, south bank; there were issues to start with and finally we reached a solution. When the talks started, there were many ‘doubting Thomases’ who said nothing would happen. But of the 5 or 6 friction points, 5 have been solved. So things have progressed. So why should we not be optimistic, as long as we keep talking to each other.
On the Galwan flag raising video:
That is an old video. Galwan river is a long river. You can sit anywhere on the river and take a photo, so it does not prove anything. We are also on the same river and we have also unfurled our flag there.
Is this all psy-ops by China and why doesn’t India counter it with its own psy-ops:
They feel the need to pre-empt [things]. We don’t feel the need. Maybe they have a point to prove and that’s why they are doing this. We are quietly confident in our own capabilities and what we can do. We don’t see the need to overhype anything.
On China’s bridge construction across Pangong Tso:
Yes, infrastructure development is going on in their side of the LAC. We are watching these very carefully and we will keep monitoring. They have been building a lot of infrastructure including billeting, roads, infrastructure for housing, fuel ammunition…Obviously there has been a build-up on their side. It means they are going to be there in the near future. This kind of build up which has occurred on their side is likely to continue. We are also equally poised on our side and have made similar upgrades to our infrastructure in all these fields. I think we are quite equally poised. It is unlikely that unilateral changes will happen, no matter what they might want to do.
But why did the unilateral changes happen earlier?
They have abrogated — well, I won’t say abrogated — but the agreements that were there were not followed in letter and spirit. As part of the negotiations, confidence-building measures are being put in place. When they are in place, it will obviously lead to a situation where they won’t occur in the future.
Where do you think China’s actions are coming from?
This is a question that has seized us for the better part of the last year and a half. When all of this was happening and flaring up, we were asking ourselves the same thing. The honest answer is we really don’t have an answer to that. The whys of it we will never come to know unless you are part of the deliberations that have happened. We are ourselves at a loss to understand why when the whole world was grappling with COVID, when economies were devastated, when populations worldwide not only in India and China but worldwide were facing hardships, why this kind of event should have occurred. It was a mystery for us and it will remain so. It only reinforces the fact that we have to be on our guard at all times.
Has the infrastructure gap with China in border areas narrowed?
Infrastructure development has always been a continuous process and we should not link it to particular events. Earlier, everything was linked to Doklam, and now to Galwan. It’s not that we needed an incident to occur and suddenly we start building infrastructure. Infrastructure development was always a part of our planning process and as part of that we have been proceeding quite well. Obviously, being a democratic country we take longer as we have various clearances — environmental, land acquisition. We are well on the path to building as much as we require.
Is India prepared if they throw the kitchen sink at us (note: interviewer’s somewhat bizarre phrasing, not mine!)
I think Army people are the last people who want to go to war. It is always better to have a whole-of-nation approach and have good and stable relations with all our neighbours. If you have stable relations, our country prospers. That is what our aim should be. That has to be done at political and diplomatic levels. You need the army to ensure that if you want peace, be prepared for war.
1. On the Galwan video, I’m not sure the army chief is right in saying it’s an old video, while the interviewer somewhat embarrassingly referred to it in his question as a “fake video” with actors, which as the previous issue of this newsletter pointed out, is complete nonsense. That aside, as the previous issue also pointed out, what the Army Chief said here is indeed correct — that the river (and valley) are long, and as I pointed out, most of it has been under Chinese control since 1962 so the flag raising could have happened anywhere on China’s side of the LAC. So I still think the whole reaction to the video was a storm in a tea cup. Also, the Army Chief (unwittingly?) indicated India’s own flag raising video, which was put out a few days after the Chinese video came to light, was probably done in response to that, after the government came under pressure from the opposition. The point is this: this tells you a lot about the impact of social media today that they were compelled to do so even if, as the Army Chief seemed to suggest (rightly), there was no need to have reacted to something done well within the Chinese side. Safe to say, expect lots more of such mind games…
2. His last answer, that I’ve highlighted, on war and the need for stable relations, is a point sadly that seems to be lost on many over the past two years who have spoken so flippantly about the prospect of going to war with China and having a hostile relationship. I would particularly highlight the reference that it “has to be done at political and diplomatic levels”. This is a statement of fact — and I am pretty sure was not meant as a criticism — but it does bring up the very valid larger question of what exactly is being done at the highest political levels, especially when you keep in mind that Modi and Xi haven’t spoken once in two years, a complete breakdown in communication at the highest levels.
3.But the most important takeaway for me, also highlighted above in bold, was the reference to “5 or 6 friction points” of which “5 have been resolved”. This suggests in the clearest terms we’ve heard from anyone that the Government does not consider Demchok or Depsang as among those friction points, which recent reporting has also indicated. This means the “disengagement” process, as both sides see it, will come to an end after PP15 at Hot Springs, following (i) Galwan (ii) North bank of Pangong (iii) South bank (iv) PP17A, although you can be sure tensions, and the build-up, will remain (de-escalation isn’t anywhere on the horizon).
Snehesh Philip had this to report in The Print:
Tensions between India and China will continue irrespective of whether Wednesday’s talks move forward. This is based on the understanding that while disengagement at Hot Springs — which was first agreed upon in July 2020 — may finally happen, “legacy issues” like Depsang Plains and Demchok will take much longer. The sources also said that given the scale of build-up in infrastructure on both sides of the Line of Actual Control (LAC), practically, it is going to be “tough” to expect any side to go back to April 2020 status — what was being sought initially. The sources, while underlining that the Chinese’ words cannot be trusted, expressed satisfaction over disengagement at four of the five stand-off points in eastern Ladakh since May 2020 — Galwan Valley, northern bank of Pangong Tso, Kailash Range and Gogra — over the past 18 months. The Wednesday talks are set to focus on disengagement from Hot Springs and not the flareup of tensions in the Depsang Plains and Demchok, termed “legacy issues”, which were points of contention during the 13th round of talks held in October last year.
Comment: A number of retired diplomats and military officials that I’ve spoken to in recent weeks are not very comfortable at the definitions of Depsang and Demchok as “legacy issues” and de-linking them from the current crisis. Here’s what Lt. Gen. Rakesh Sharma (retd) had to say a while ago, a piece I’ve previously linked to, about Depsang:
It must categorically be stated that the patrolling had continued, as planned, since April/May 2013 stand-off, except when halted due to face-offs with PLA patrols or terrain conditions. Even post face-offs, commanders on ground would attempt to re-do the task at the earliest, sometimes within a day or two! This would imply that minimum of eight to ten patrols per year from 2013-2019, would have roughed in the most difficult of terrain and weather conditions for five to six days of patrolling of PPs 10-13. Patrols face detailed debriefings, and copious patrols reports are duly vetted up the ITBP/Army Chains. These patrol reports would exist even presently. It implies that cumulatively over 2500 all ranks from ITBP and Army must have touched base at the PPs at Depsang, from 2013 to 2019. In addition ASO/ WASO, some with senior commanders, undertake regular missions, along the Limit of Patrolling (LOP). To now state that we were not able to reach our LOP since 2013 as PLA was blocking our movement, is pure heresy.
Comment: The situation in Depsang is indeed complicated as there was mutual blocking of patrols, but as far as I can tell, the situation did change significantly sometime in early 2020 after which there has been complete denial to 4 patrolling points. So that situates it very much within the current LAC crisis. And it certainly wasn’t a legacy issue going as far back as 2013, as has recently been suggested by some.
Demchok is also a ‘legacy issue’ in the sense that there had been disagreements in the past, but there has also been an on-the-ground change here since 2020. And by the yardstick of having problems in the past, every spot on the LAC is a ‘legacy issue’. Disengagement is no doubt a welcome step and the current situation is certainly unsustainable for many reasons — including having soldiers spend the winter in brutal conditions — but a little bit of clarity would be welcome on these two issues if the terms of disengagement are being reframed, especially as doing so may leave a lasting impact on two key areas along the LAC. Not that I expect that clarity anytime soon…
A last point on the border. Highly recommend reading in full Shivshankar Menon’s new paper that’s out, on the internal drivers of China's external behaviour.
From the paper, relevant to the LAC situation:
In the case of the India-China border crisis since 2020, China’s actions of changing the situation on the ground, shifting the LAC, and preventing Indian patrols on territory hitherto controlled by India were a fundamental and consequential shift in behaviour- a successful salami-slicing manoeuvre. Because the initial response was non-strategic, India was forced to cede ground, and now faces a fait accompli. By occupying territory on the Indian side, China put the onus of escalation on India if it wishes to restore the status quo. India considerably increased her deployment along the LAC in response to the Chinese military moves. In a partial response on August 29-30, 2020 India occupied some heights south of Pangong Tso on its own side of the line. This led to a subsequent disengagement in the Pangong Tso area. The government of India, for good reasons, seems unwilling to risk the wider war entailed by either vertical escalation (mounting major operations to evict the PLA) or horizontal escalation (to other sectors or to the maritime domain, for instance). This has resulted in the prospect of around 100,00 troops from both sides spending another brutal winter confronting each other along the LAC. The decision to change the status quo on the India-China border in 2020 has to have been a decision taken at the highest level in China for larger strategic reasons, not just tactical military convenience.
Since the immediate trigger for the crisis was a change in Chinese behaviour, it seems logical to look for explanations in China itself, and in its perception of the outside world. One way in which China’s domestic considerations have worked to complicate the settlement of the India-China border crisis has already been mentioned. Unlike past confrontations and face-offs, the framing of the crisis by China as a sovereignty dispute — rather than as a border dispute which would be solved by give and take — makes it harder to settle. It also suggests that for China the issue is not just about the LAC or its clarification but is part of an attempt to exercise control up to its claimed boundary, and also serves larger political goals. The other issue is the role of the PLA in the decision to heighten India-China border tensions and undertake escalating attempts to change the status quo since 2013. Ultimately, this is a question that needs further study and material that is unlikely to be available in the public domain.
In the midst of all this, 2021 broke all records as far as India-China trade is concerned. I reported for The Hindu (partial paywall):
India’s trade with China in 2021 crossed $125 billion, with imports from China nearing a record $100 billion, underlining continued demand for a range of Chinese goods, particularly machinery.
In the past 12 months, the value of goods imported by India from China exceeded the total bilateral trade in 2019, data from China’s General Administration of Customs (GAC) released on Friday showed.
Trade fell from $92.8 billion in 2019 to $87.6 billion in 2020 on account of the pandemic. Trade has boomed in 2021 thanks to a recovery in demand as well as rising imports of new categories of goods such as medical supplies.
Bilateral trade reached $125.6 billion in 2021, with India’s imports from China accounting for $97.5 billion. Imports were higher by 30% from 2019 while India’s exports to China, amounting to $28.1 billion, were up by as much as 56% from two years earlier. The trade deficit last year reached $69.4 billion, up by 22% from the pre-pandemic figure in 2019.
Santosh Pai, an honorary fellow at the Institute of Chinese Studies (and someone who follows trade and investment on the India-China front perhaps more closely than anyone else) spoke to me about what was driving the imports. The interesting point he made was there was a surge in both finished products (not good) and intermediates (not bad — because it means India is manufacturing and exporting more so needs those inputs). Worth keeping that in mind amid the hyperventilating about the figures, also that diversifying can’t happen overnight. In The Hindu (partial paywall):
India is sourcing both finished goods for the Indian market, such as electronics, in record numbers, while also relying on China for a range of intermediate industrial products, many of which cannot be sourced from elsewhere and are not made in India in sufficient quantities.
If dependencies on China had overall increased substantially in the past year, Mr. Pai observed that there was a need to differentiate between the different categories.
“If the growth in imports of finished items such as toys, electronics, or furniture, which we could be manufacturing in India, is not a good dependency, the fact that we are acquiring new intermediate goods, for instance, is probably a good development in the broader picture as it means we are emerging as a manufacturing hub and need new inputs to match the global demand for a finished Indian product,” Mr. Pai observed.
“The other question is which of these are short-term changes because of disruption during the pandemic, and which are longer-term trends that we need to consider and deal with, and ask whether we can start manufacturing in India rather than still buying from China,” he added.
This also does not mean its business as usual on the India-China trade and investment front. Far from it, as we were reminded by recent raids on Chinese companies in India. This got quite a lot of attention in the Chinese press (Chinese language and English language) and even elicited a statement from China’s Ministry of Commerce this week. The Global Times reported:
China expressed concern over the business environment in India as Indian authorities conduct irregular tax audits, urging India to provide a fair, transparent and non-discriminatory environment for Chinese enterprises.
Gao Feng, spokesperson of Ministry of Commerce made the comment during a routine press conference in Beijing on Thursday. "China has contributed to Indian economic development, and created a large number of local jobs, and we hope India can provide a fair, transparent and non-discriminatory environment for Chinese businesses", Gao said.
India's Ministry of Finance issued a statement on January 5, saying that Chinese smartphone manufacturer Xiaomi's local company in India had engaged in "tax evasion" and demanded that it pay a total of 6.53 billion rupees ($88 million) between April 2017 and June 2020 in taxes owed.
Xiaomi said in a statement sent to the Global Times on January 5 that the Indian authorities are asking Xiaomi to pay back the import taxes on the royalty and license fees that are not related to Xiaomi's current business, adding that the official statement from the Indian authorities is not a final decision.
Indian tax authorities launched a broad investigation into Chinese companies operating in India on tax and income issues in December last year, including Chinese mobile companies Oppo, Xiaomi and OnePlus. Chinese mobile phone brands are highly popular in the Indian market, and their market share far exceeds that of local Indian brands.
Xiaomi led the Indian smartphone market shipments in the third quarter of 2021 holding a 22 percent share, per Counterpoint's latest research. The total Indian smartphone shipments cross 52 million units in the third quarter, and while Xiaomi is on top, according to gadgets.ndtv.com. Counterpoint's latest report on Indian smartphone shipments in the third quarter of 2021 shows that Xiaomi, Samsung, Vivo, Realme, and Oppo were the top performing brands, in that order.
Yang Yishuang, a deputy professor from Yunnan University of Finance and Economics told the Global Times earlier that such "unjustifiable" suppression for the purpose of protecting domestic industries in India, may affect the confidence of Chinese companies to further expand investment in the Indian market.
Investments from China are still being put through additional scrutiny, thus slowing them down (but not necessarily rejecting all outright). There has been some talk of loosening the rules (but with qualifiers and not returning to how things were). It is definitely a marked change from the policy pre-2020 that openly embraced Chinese money. 5G, where Chinese companies have been kept out of trials so far, is another useful barometer that’s worth keeping an eye on, in terms of how Delhi views where the relationship is going.
Two interesting, albeit very different, pieces to leave you with.
A point to ponder from Gideon Rachman’s latest piece in the Financial Times on what the new world order being envisaged by Russia and China may look like:
For Russia and China, the making of a new world order is not simply a matter of raw power. It is also a battle of ideas. While the western liberal tradition promotes the idea of universal human rights, Russian and Chinese thinkers make the argument that different cultural traditions and “civilisations” should be allowed to develop in different ways.
Comment: What’s so striking about this paragraph is it’s pretty clear which of the two worldviews New Delhi is currently more aligned with. And it’s not even close!
And, a brilliant piece of reporting from Viola Zhou on the fate that’s befallen many reporters in Hong Kong, who have given up journalism and are now driving taxis or serving fried chicken.
If the sad state of journalism on the mainland will surprise no one, what is really striking about what’s happening in Hong Kong, which it could be argued boasted a freer press than in many democracies until a couple of years ago, is the speed of the decline. All it took was a couple of raids and one piece of national security legislation. All this would have been unthinkable just a couple of years ago. A warning, for us all, that take these freedoms for granted at your peril.
Thank you for reading! Wish all readers a great weekend, and see you next week.