The new normal in India-China relations

Welcome back to The India China Newsletter! It's been three months since I last sent out this newsletter. I'm happy to be writing to you again, and particularly happy to be coming to you from Beijing - finally. The move here - and the many complications involved - kept me occupied the last couple of months, which explains my silence.

This issue will look at the state of play in India-China relations after the latest 16th round of talks on the still unresolved Line of Actual Control (LAC) situation, and several interesting developments on the economic front between India and China, and try and make sense of what’s happening. I’ll also share my experience of travelling back to Zero-Covid Beijing and what that’s been like.

This issue is slightly longer than the usual at 4,000 words (there’s lots to catch up on!), so you may wish to click on the headline in your email to read in your browser.

Before we get into the India-China situation, a note on what it's been like coming back to the mainland. It’s been quite surreal entering Zero-Covid China, which has, at times, felt like a parallel universe after being in India. I plan to write more about this soon. What's usually been a painless half-hour train ride across the border to Shenzhen - one I've taken innumerable times - is now a day-long ordeal that involved two of the most painful PCR tests I've ever taken - one on each side of the border, barely a few hours apart. The nasal swab on the Hong Kong side was so deep and invasive it left me with a splitting two hour headache. Entering the Shenzhen side, the first big difference from Hong Kong - which has been caught in some purgatory between an ineffective attempt at Zero-Covid and a partial opening up to the world - was that every worker was in full PPE.

Since we were cloistered together for the better part of the day, I spent some time chatting with my travelling companions, most of whom were Chinese nationals coming home after long and difficult journeys from the UK/Europe to see their families. Many were students, and unable to find/afford flight tickets direct to the mainland. The general reaction was a mix of bemusement - given how normal things have become in the UK and Europe - and resignation, as they were fully aware of what to expect. (Lots of bemusement especially in the waiting hall for our buses to the quarantine hotels, when we were told to periodically vacate our seats to have it sprayed down with disinfectant. The smell of disinfectant is what I’ll remember most from my three week quarantine). Having arrived at the border at 9 am, I finally made it to my Shenzhen hotel at 5.30 pm. The HK side, I have to say, was far worse than the Shenzhen side and the conditions were atrocious. No food or water, and made to wait for a 3 hour PCR test pretty much on the side of the road in the sun, in 35 degree heat, before entering the departure hall. And there were families there with infants. The Shenzhen side at least had a waiting hall and made available bottles of water. The 21 day quarantine in Shenzhen was less painful than I'd imagined and I lucked out with a very nice hotel whose staff went out of the way to help travellers get through it. (The Xiaomi exercise bike in the room was a nice touch, and I probably logged a few hundred kilometers on it, while the view of the bay didn't hurt either.)  

Beijing, this past month, has been entirely normal - the only sign of Zero COVID is the PCR test everyone has to take every 3 days, which is a mild annoyance at most as there are testing centres pretty much every block and the process takes 10-15 minutes door-to-door (the oral swabs are also so light that some of us are wondering how effective the test really is. And if a feather's touch oral swab is effective, why did we have to have our noses rammed on arrival!). An annoyance is how most folks I know in Beijing would probably describe the current measures as life otherwise goes on here unaffected, and most of my friends who live and work here, and have families here, are quite unbothered by it as long as schools remain open and their work remains unaffected. Some friends of mine are even supportive of the current approach as opening up would almost certainly mean thousands of deaths given the size of China’s elderly population. It also dawned on me, as obvious as this is to those who’ve followed developments in China, that this might be one of the few places in the world where most people don’t know a single person who died from Covid. No one I know here has suffered a personal loss from Covid or even knows of someone who has. There are no doubt many in Wuhan who would have, but not in most of the rest of China. Opening up now would change that.

To be sure, there’s no country that’s had a perfect exit strategy from lockdowns, but the high degree of vaccine hesitancy among the elderly here is another big obstacle, and one that has been made a bigger problem by Zero-Covid which not only skews people’s incentives into thinking risks from vaccines are higher than catching Covid, but has diverted medical resources away from the flagging vaccination campaign. I think effectivity of Chinese vaccines, which Hong Kong data has shed useful light on, is less of an issue than many reports suggest as they work pretty well to prevent serious cases with three doses. The lack of an mRNA vaccine is also in my view something of a red herring, as India is among many countries that vaccinated without an mRNA vaccine. So opening up now is pretty much impossible without very high costs, but the main problem is, there is zero planning or forward thinking on how to exit, which would require an intense vaccination campaign that’s now missing, or some form of vaccine mandate (which Beijing briefly considered but abandoned). Until we see a shift in the focus of the narrative towards vaccinations, and some sort of deadline towards opening up, I just don’t see how China can open or consider living with Covid. And as we know, Hong Kong’s terrible fifth wave is a stark example of the risks of an approach with no exit strategy.

It’s also worth keeping in mind that the views in Beijing or in any other city in China that hasn’t had severe lockdowns would change overnight if the city goes through even half of what Shanghai had to deal with. That’s Zero-Covid in a nutshell: it’s fine and dandy for the majority as long as it’s not them making the sacrifice, but when it’s you that’s locked down indefinitely, it’s another story. The economic costs are also mounting, and the difficulties in domestic travel within China, which is far more complicated at the moment than I realised, is terrible for business. When one district in Shenzhen reported a case just as I was finishing quarantine (fortunately not the one I was in, as that would have barred me from going back), overnight every single flight to Beijing was cancelled. So I had to take a train to a third city and then fly to Beijing. And I was lucky: I know of folks who ended up stuck for a month when out of Beijing on a four-day business trip because there was a case in the city they were at. All of this uncertainty, of course, is terrible for business and the general consensus is, at least because of the huge economic impact, that there would have to be a reconsideration of this approach after the Party Congress in October/November (it is unfathomable that the Party would risk opening up and the wave of cases that would follow - and dent its current sense of triumphalism about how it avoided what the rest of the world went through - before Xi’s third term begins). In daily conversations in Beijing, it comes across clearly that most people are very much aware that the world is moving on and the virus is not what it was in 2020 when there were no vaccines, and that China is an outlier and on its own. The consensus - maybe hope?- is that this cannot go on.

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On to the meat of this issue. The latest round of India-China LAC talks, which took place on Sunday (July 17),  went on for some 12 hours. There was unusually no readout until very late on Monday, more than 24 hours after the talks ended - the long wait on Monday left me wondering if there was actually some headway and both sides were possibly wrangling over how to frame it. In the final event, the very brief joint press statement was underwhelming and showed that talks remain deadlocked:

Building on the progress made at the last meeting on 11 March 2022, the two sides continued discussions for the resolution of the relevant issues along the LAC in the Western Sector in a constructive and forward looking manner. They had a frank and in-depth exchange of views in this regard, in keeping with the guidance provided by the State Leaders to work for the resolution of the remaining issues at the earliest. The two sides reaffirmed that the resolution of remaining issues would help in restoration of peace and tranquility along the LAC in the Western Sector and enable progress in bilateral relations. In the interim, the two sides agreed to maintain the security and stability on the ground in the Western Sector. The two sides agreed to stay in close contact and maintain dialogue through military and diplomatic channels and work out a mutually acceptable resolution of the remaining issues at the earliest.

That's as clear as both sides will ever be, to say there was no headway and things are at a stalemate. My colleague Dinakar Peri reported on one reason for the stalemate:

While an agreement for disengagement from Patrolling Point-15 was close by in the last few rounds of talks, China’s refusal to discuss other friction areas, Demchok and Depsang, maintaining that they are not part of the current stand-off, has stalled any progress. India has been insisting on comprehensive disengagement and de-escalation to end the ongoing standoff in eastern Ladakh. Since the stand-off began in May 2020, the two sides have so far held 15 rounds of senior military commander talks with disengagement undertaken from both sides of Pangong Tso in February 2021, and from PP 17 in the Gogra-Hot Springs area in August, in addition to Galwan in 2020 after the violent clash. The 15th round of Corps Commander talks took place on March 11, 2022.

Three things I think are worth noting in the current Chinese approach to the LAC talks:

1. That Beijing is showing little (and declining) interest is clear in that it took four months for the round to be held - the longest gap in the talks. The talks also received little mention in the official media. The day after the talks, the PLA Daily front-paged a story on the Western Theater Command holding air exercises in border areas (more on that later, report in Chinese here: )  That tells you the priority.

2.India and China seem to be playing down recent differences in what seems to be a subtle shift from a few months earlier (publicising Xi Jinping’s congratulatory message to India’s new President Droupadi Murmu on Monday also struck me as interesting)

3.However, note, along with point #1, Beijing is publicly indicating through various channels it will not agree to restoring the status quo (more on that follows).

Indeed, the focus from the Chinese side of late has been on improving border infrastructure and on carrying out more exercises closer to the LAC. The SCMP had an important story last week on the infrastructure front:

China plans to build a new highway close to its disputed border areas with India, as part of Beijing’s efforts to strengthen its strategic position and project its power, but the move is expected to draw concern from its South Asian neighbour. The highway, running from Lhunze county in Tibet to Mazha in Xinjiang, is among 345 construction plans proposed in the new national programme, which aims to build a total of 461,000km (286,400 miles) of highway and motorway by 2035, as China seeks to revive its faltering economy and boost consumer spending through infrastructure investment.

Under the plan released last week, the highway known as G695 is expected to run through southern Tibet’s Cona county – which lies immediately north of the disputed India-Tibet border demarcated by the Line of Actual Control (LAC) – Kamba county, host of a noted military camp, and Gyirong county near the border with Nepal. It will also go through Burang county between Tibet, Nepal and India as well as Zanda county in Ngari prefecture, parts of which are held by India. Details of the new construction remain unclear, but the highway, when completed, may also go near hotly contested areas such as the Depsang Plains, Galwan Valley and Hot Springs on the LAC.

It’s hard to overstate the significance of this highway, which will be the first national highway through Aksai Chin since the famous Aksai Chin highway (G219) that was built in the 1950s and triggered tensions leading up to the 1962 war. That this is included in a national highway plan of China at this current moment makes it all the more significant.

This likely route shows just how close it will run to the LAC:

Nature Desai @NatureDesai

#NEW China's planned highway 'G695' will connect Lhunze (New Airport) in the east and the Mazar (Xinjiang) in the west. It will be very close to the Indian frontier in areas near Zursar, Demchok, HotSprings (Kyam), Depsang Plains and will also use the new Pangong Tso bridge.

I was intrigued by the MEA response to this, which I thought did not suit the importance of the development:

Regarding China… you were asking about a new highway, there is a SCMP report….Look, I don't want to get into commenting on media reports. I don't even know accuracy etc., but let me make a broader point, particularly in context of Doklam. Please be assured that government keeps a constant watch on all developments having a bearing on India’s security and takes all necessary measures to safeguard the same. I'll make that as a general comment….

I don't want to comment on this…. I will say this to you as well that please be assured that the Government keeps a constant watch on all developments having a bearing on India’s security and takes all necessary measures to safeguard the same. I don’t want to comment on this any further.

Given India previously objected to a bridge across Pangong Lake on the Chinese side of the LAC because it was in what India considers to be China-occupied Aksai Chin, the response was all the more interesting as this is an even bigger project. I should correct the MEA spokesperson here: it’s not a “media report” but an official highway plan authorised by the central government of China, so there’s no question about the authenticity of it, although it’s clear the MEA was trying to play it down. That was apparent from the rest of the response on India-China relations:

Our point as you know, has been a larger issue, which says that if you can resolve the issues particularly on disengagement and that would help in de-escalation and restoration of peace and tranquillity along the LAC in the Western sector and that would be the right step towards enabling a progress in the bilateral relations. I don't think I would be able to add much more to that in terms of assessment. I think that remains our view, this graded process of having de-escalation, disengagement and then peace and tranquillity on the border which would help in progress in the bilateral relations. If the Chinese side have said that there's a momentum of recovery, which again, I don't know where you're quoting from, I haven't seen that term; good, that would always be, you know, as we said, we would like to make progress, but we would like to see this path go ahead. I think there's also talk of maintaining dialogue and close contact, both through military and diplomatic channels so that a mutual acceptable resolution of the issues can be found. I think that is our focus and we will see how to take that forward.

Last week, we also had the visit of the Dalai Lama to Ladakh. I’d expected the Chinese MFA to say something about it, given they’ve vociferously objected to the Dalai Lama’s visits to Arunachal Pradesh (which of course have a special significance for Beijing because of Tawang) and China has recently been vocal about developments related to Ladakh union territory, the creation of which it vociferously opposed in 2019, but we had complete silence from Beijing on the Dalai Lama’s visit there last week.

And then, as mentioned, on Monday, Xi Jinping sent a congratulatory message to President Murmu. While these messages to new Presidents are routine, I am still pondering the decision to widely publicise his comments on China-India relations, which has been carried prominently across Chinese media outlets (it was also on the main 7 pm news last night and shared on WeChat by, of all accounts, the PLA Western Theater Command).

(Xinhua) -- Chinese President Xi Jinping on Monday sent a congratulatory message to Droupadi Murmu on her assuming office as the president of the Republic of India.

In his message, Xi pointed out that China and India are important neighbors of each other, and that a healthy and stable China-India relationship is in line with the fundamental interests of the two countries and their people, as well as conducive to peace, stability and development in the region and across the world.

Xi also said that he attaches great importance to China-India relations, and stands ready to work with Murmu to enhance political mutual trust, deepen practical cooperation, properly handle differences and push bilateral ties forward on the right track.

Does this raise the likelihood of a Xi-Modi meeting in September if both attend the SCO Summit in Samarkand, as the Uzbekistan government expects? (A new outbreak/variant could, however, scupper the summit.)

At the same time, it’s important to note Beijing’s analysts have also been publicly ruling out a restoration of the status quo on the LAC - which India has demanded as a prerequisite to complete full disengagement, and then deescalation, before considering relations to be back on track or “normalcy” (a rather nebulous concept that, as we will see below, leaves a lot of wiggle room for both sides).

Hu Shisheng of CICIR put it to me thus in an interview:

Q: On bilateral relations, India has said normal relations are not possible unless there is peace on the border. China has said the border should be kept in an appropriate place. These seem like two very contradictory positions. Do you see a way to bridge these two positions?  

A: It sounds very contradictory. However, there is something which can bridge these two positions: both sides advocate we have to face the issue, not shelve it. Besides, the two have to do more efforts like maintaining dialogue, managing differences, making progress in disengagement, having some tolerance for managing the existing stand-offs along the LAC…

Q: But isn’t India’s stand similar to what China is arguing with the U.S., that you cannot have confrontation in some areas and expect to cooperate in others?

A: However, China has to deal with the U.S. anyway, and is grasping any opportunity to engage with the U.S., while New Delhi does not seem that flexible.

Q: What do you see as the big obstacle for LAC disengagement? Why, in your view, is China not willing for a return to status quo, which would seem to be in the interests of both sides?

A: What is the status quo? According to the Chinese understanding, the status quo had better be the November 7, 1959, status quo. However, obviously, India will not accept it. So, in this case, the so-called status quo is a much blurred concept. My personal view is that if there exist not a few grey areas between the two respectively claimed LACs, such a status quo would be very difficult to define.

It wasn’t just Hu Shisheng. Here’s what former Global Times editor Hu Xijin wrote in his column last week:

According to the Indian media, India has been requesting that China should "return to their April 2020 positions," which is the most favorable state for India after repeated encroachment and infiltration in the border area, and China will certainly not accept such a request.

And Lin Minwang told the SCMP:

Lin said it is unrealistic for India to push for full disengagement and China did not intend to restore the early 2020 status quo in East Ladakh because India had been encroaching on border areas for several years before the stand-off began in April that year.

The redefining of ‘status quo’, coupled with China’s continuing infrastructure build up that would allow it to permanently deploy more troops closer to the LAC, might suggest Beijing is already preparing for a longer term new normal on the LAC.

Reports last week suggested as much, with new Chinese air drills of the kind that we, as far as I know, haven’t seen before along the LAC, where both sides have largely adhered to protocols of not deploying aircraft within certain limits. Manu Pubby reports in Economic Times:

India has intensified fighter operations in Ladakh, with frontline jets carrying out increased sorties including night operations, as the Chinese air force has embarked on an aggressive defence exercise across the border in Tibet.

On the Indian side, night flying is being undertaken with enhanced frequency, as there have been instances of Chinese fighter jets probing areas close to the contested zones in eastern Ladakh. In an instance, Chinese fighter jets flew close to a contested area at around 4 am in late June, triggering a response from the Indian side. The incident did not escalate into a bigger crisis as the Chinese combat jet did not breach the border, but a formal protest was lodged by India as per the established border talks mechanism.

Rajat Pandit reported in Times of India:

India’s capability to detect and destroy hostile fighters, strategic bombers, missiles and drones at long ranges will get another major boost when a new squadron of the S-400 Triumf surface to air missile systems becomes operational along the northern borders with China in the next two to three months…

The new S-400 deliveries come at a time when China has cranked up its air activity across Eastern Ladakh, with Chinese fighters often flying close to the LAC in violation of the 10 km no-fly zone confidence building measure between the two sides.

If it seems China wants India to accept this new normal, normalcy, as I said, is a nebulous concept. India seems to be adhering to some red lines — a hard stand on Chinese investment, as well as a crackdown on the financial practices of Chinese companies in India, most notably smartphone companies which have long been, according to Indian authorities, avoiding taxes by basically writing off profits as royalties to their parent companies. India has also closed the door on 5G.

At the same time, recent developments show India is discovering the hard realities of its commerce with China and the limits/impracticalities of the kind of hard decoupling that many were advocating for in the immediate aftermath of the 2020 crisis. Slowly, Chinese investments are coming back - important to add though, that these are individual deals and it’s still a trickle and nowhere near the flood of the 2014-2019 period.

Other restrictions are also being eased for economic reasons. A few examples:

Renewables: Central Public Sector Enterprises involved in renewable energy projects will soon be permitted to import components from China, overriding restrictions imposed on them in 2020 to procure items from countries which share a land border with India. ET gathers that the Centre has agreed in principle to relax curbs for CPSEs like NTPC engaged in commercial renewable energy projects to get them on a ‘level playing field’ with private sector companies that do not face import restrictions. (Economic Times)

Railways: The Railways has placed a purchase order for 39,000 wheels for LHB coaches from Chinese manufacturer Taiyuan as supplies under ongoing contracts were affected due to the ongoing crisis between Russia and Ukraine, the government said on Wednesday. The purchase of these wheels was earlier planned to be done from a Ukrainian firm at 1.68% lesser price compared to the current order. In a written reply to a question in the Lok Sabha, Railway Minister Ashwini Vaishnaw said the purchase order for 39,000 wheels for LHB coaches has been placed by the Indian Railways with Taiyuan, China against a global tender. “Due to the present war crisis between Russia and Ukraine, the supplies against the ongoing contracts on the firms from Russia and Ukraine were affected,” the Minister said, adding that earlier, Letter of Acceptance (LoA) for 30,000 wheels for LHB coaches was issued on M/s KLW with manufacturer based in Ukraine. (The Hindu)

Another curious fall-out from the Ukraine crisis, as this fascinating Reuters report noted, was “an Indian cement maker’s recent purchase of Russian coal using yuan” which “involved India’s biggest private lender, HDFC Bank.”

Smartphone sales (undimmed by the recent raids): Chinese smartphone brands shipped three out of four handsets sold in India in the second quarter despite a government crackdown targeting Chinese firms, although the Indian market experienced a sequential decline due to weak demand, a Canalys report showed. India’s smartphone market grew 12 per cent in the June quarter compared to the same period last year, on a lower baseline as the industry was suffering from the effects of a second wave of Covid-19 in 2021, according to a Canalys report on Wednesday. Chinese smartphone makers accounted for four of the top 5 players in the country, led by Xiaomi Corp with 7 million units shipped. Collectively, Chinese players shipped 76 per cent of all smartphones in the market in the past quarter, according to Canalys. (SCMP)

Even in 5G, regulators are realizing that blanket bans on Chinese equipment may not be feasible: Telecom operators and non-Chinese network equipment vendors are in a fix as the National Security Council Secretariat (NSCS) has not extended its waiver that had allowed OEMs to import network equipment manufactured in its Chinese factories. The waiver was given last year and expired on June 15. While the industry is seeking another extension for a few years, the rollout of 5G is likely to face major headwinds if the NSCS does not extend the waiver, said an industry representative. Top European and US vendors will not be able to import certain network equipment from China, which will be essential for the deployment of 5G network. (Business Line)

Investments, though, as I said, still remain highly regulated and many Chinese companies are pulling out. One prominent example is Great Wall Motor Co., which this month “shelved plans to invest $1 billion in India and laid off all employees at its operations after failing to obtain regulatory approvals”, as Reuters reported.

Are these somewhat contradictory trends pointing us in the direction of what a new normal in ties might look like? A meeting in September between Modi and Xi, should it happen, will perhaps shed more light on where things are headed. It’s been an interesting few months, that’s for sure.

That’s it for this issue. Thank you as always for reading, and for your patience during my radio silence these past three months. The newsletter will be back soon, and more regularly I hope, as I settle back down in Beijing.

Have a good rest of the week!