Contents
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Foreword

Agenda

Introduction

Session One: Perceptions and Misperceptions

Session Two: Major Issues in Indo-China Relations: Political/Security

Session Three: Major Issues in Indo-China Relations: Economic

Session Four: Implications for the United States

Project Advisory Committee

Project Members

Attendants

The Woodrow Wilson International Center for Scholars and the Asia Society are pleased to present the report of our conference entitled "The India-China Relationship: What the United States Needs to Know," which took place in Washington, D.C., on November 30, 2001. The conference, engaging experts and policymakers both in and out of government, was one phase in a larger joint project of the two organizations that will result in a scholarly volume.

The Woodrow Wilson International Center for Scholars and the Asia Society developed this project long before the terrorist attacks of September 11. It was inspired by the belief that a paradigm shift is required in the thinking of U.S. policymakers about Asia. Preoccupations in the United States on the India-Pakistan rivalry and a blind spot concerning the Chinese role in South Asian rivalries have long been characteristics of U.S. policy. Indian policymakers, defense analysts, and political leaders have, for virtually the last thirty years, viewed China as a major security threat and one able to marshal substantially more resources than Pakistan. China and India are uncomfortable neighbors who have fought border wars and still have unresolved border issues left unattended but certainly not forgotten. India watches China carefully and keeps close tabs on China's friendly relationship with Pakistan. China also has its own India concerns, for example, India's hosting of the Tibetan government in exile. Both India and China pay careful attention to each other's military developments, whether planned blue-water navies or missile tests or the exercises of troops along their common border.

If the United States is to lead effectively in the emergent post-cold war pattern of shifting loyalties and fuzzy alliances, it must better understand what drives national policies in regions of interaction heretofore on the periphery of our policy vision. How the turns of the kaleidoscope set off in Asia as a result of the September 11 attacks and subsequent war in Afghanistan will ultimately impact the development of the relationship between India and China is hard to judge.

From the outset, Ambassador Winston Lord and Ambassador Frank Wisner, along with a distinguished advisory committee listed in the appendices to this report, have wisely guided this project. The forthcoming scholarly volume is being coedited by Dr. Harry Harding and Dr. Francine Frankel. The contributors to the volume and members of the delegation that traveled to India and China in the summer of 2001 are also listed in the appendices, along with a list of those participating in the conference in Washington, D.C., on November 30h. We are deeply grateful to Ambassadors Lord and Wisner, Dr. Harding, Dr. Frankel, all the project advisors, and contributors to the volume for their hard work on this complex but important project. Marshall M. Bouton, at the time executive vice president of the Asia Society, played a seminal role in developing the project. On the Asia Society's staff, Rob Radtke, Alyssa Ayres, Mike Kulma, Sanjeev Sherchan, and Hee Chung Kim have all made important contributions. We express our gratitude to Robert M. Hathaway and Liang Sun of the Woodrow Wilson International Center for Scholars for their important role throughout the project, and especially for leading the conference in November 2001. We are grateful to Justin Sommers for serving as conference rapporteur and authoring this report. Richard Fumosa and Lai Montesca have overseen the editing and design of the report.

The Asia Society and the Woodrow Wilson International Center for Scholars also want to thank the Shanghai Center for International Studies, the China Institute of International Studies in Beijing, the Institute of Peace and Conflict Studies in New Delhi, and the Confederation of Indian Industries in Bangalore for hosting their delegation during the summer of 2001.

The project could not have been possible without the generous support of the C.V. Starr Foundation, the Rockefeller Brothers Fund, the BGM Kumar Foundation, the GE Fund, and the Irfan Kathwari Foundation.

This report is meant to reflect the range of the debate and the general viewpoint of the conference participants without necessarily implying endorsement of the recommendations by either the advisory committee, the project authors, or the participants.

Nicholas Platt
President
Asia Society

Lee H. Hamilton
Director
Woodrow Wilson International Center for Scholars



Agenda

Friday, November 30

The India-China Relationship: What the United States Needs to Know

Welcoming Comments

Lee H. Hamilton, Director, Wilson Center
Nicholas Platt, President, Asia Society

Panel I: Perceptions and Misperceptions

Chair
Winston Lord, Former U.S. Ambassador to China and Former Assistant Secretary of State, East Asian and Pacific Affairs

Speakers
Susan Shirk, University of California, San Diego
Steven Hoffmann, Skidmore College

Panel II: Major Issues in Indo-China Relations: Political/Security

Chair
Harry Harding, George Washington University

Speakers
George Perkovich, Carnegie Endowment for International Peace
Francine Frankel, University of Pennsylvania (presenting Sumit Ganguly's paper)

Panel III: Major Issues in Indo-China Relations: Economic

Chair
Francine Frankel, University of Pennsylvania

Speakers
T. N. Srinivasan, Yale University
James C. Clad, Georgetown University

Panel IV: Implications for the United States

Chair
Robert M. Hathaway, Wilson Center

Speakers
Harry Harding, George Washington University
Francine Frankel, University of Pennsylvania




Introduction

The subject of India-China relations has become increasingly important to the U.S. policymaking community. The world's two most populous nations have seen their status on the world stage rise in recent years due to the impressive development of their economies and to the growing strategic importance both countries hold in this dynamic and potentially volatile part of the world. The United States must respond by developing coherent policies toward both countries that take account of their influence over Asia, and over each other.

The India-China Project is a long-term initiative of both the Asia Society and the Woodrow Wilson International Center for Scholars that aims to give U.S. policymakers the direction needed to develop their policies toward India and China. The Project commissioned an agenda-setting research volume, in which scholars from political science, history, economics, international relations, and security studies-with regional expertise in both India and China-have drafted individual chapters. Following the submission of these first drafts, the chapters' authors and the co-editors participated in workshops held in Beijing, Shanghai, New Delhi, and Bangalore in order to get feedback from experts in both India and China.

The authors presented their preliminary ideas to India- and China-focused representatives of the American policymaking and analytical communities in Washington, D.C., during a conference held at the Woodrow Wilson Center on November 30, 2001. The conference provided the authors with the opportunity to discuss their findings with and get input from the participants as they prepare the final revisions of their chapters.

The conference featured four main sessions, each of which addressed a particular aspect of the India-China question: first, the ways in which the Indians and Chinese perceive each other; second, the political and security issues of concern to their relationship; third, the implications of the respective economic development and reform processes of the two nations, as well as their growing economic influence in the region; and finally, how the United States should take India-China relations into account when formulating its own policy in Asia. Summaries of each session follow below.

One observation worth noting at the outset is that the audience included a much greater representation of Indians and India-focused scholars than Chinese and China-focused scholars, and in the course of the discussions the India specialists in the audience were much more vocal than the Chinese. These circumstances may or may not have had an impact on the debates as they developed following panelists' presentations, but they should be taken into account as readers sort through the session summaries below.



Session One: Perceptions and Misperceptions

Since the war between China and India in 1962, interaction and exchange between the two countries, positive or otherwise, have been less than would normally be expected between two countries with a common border. In the absence of significant economic cooperation and political discussions, the perceptions each country holds of the other have become a major factor determining India-China relations.

For the most part, participants held the view that India generally thinks about China more seriously than China thinks about India, based on discussions they had with business and policy leaders in Delhi, Bangalore, Beijing, and Shanghai. Indians and Chinese in both countries viewed their own nation as a rising power that should be treated as a central player in a "polycentric" international community. Yet while the Indian officials clearly treated China as such, the Chinese were reluctant to display the same concern for India, giving the impression that they did not have to worry about India becoming a worthy strategic adversary or an economic competitor in the foreseeable future.

India's Perceptions of China

According to one panelist, there are three identifiable perceptions on China within Indian strategic thinking. Most Indians fall into the "mainstream view" that in the near term China does not constitute a military threat , but this is uncertain in the long term, and India needs to guard against future power projection by China in the region. Proponents of these views believe that both sides have worked to improve relations since the late 1980s, through state visits by leaders from each side, various minor agreements, and so forth. They also believe that despite certain hiccups the border dispute stemming from the 1962 conflict has been relegated to minor-irritant status in India-China relations. Of greater concern is the impact that the continued friendship between China and Pakistan will have on India-China relations, even though that issue can be resolved through greater dialogue between India and China.

Yet this mainstream view also holds that this positive turn in India-China relations in recent years could reverse itself in the long term, if China decides to increase its influence in the region. The widespread feeling in India is that China has set a certain time frame for economic development, and will not allow outside distractions to impede its goals during this period. Yet how long this period will last is unclear, and India is not certain if, once China feels comfortable with the economic status it has achieved, its leaders will be ready to assert China's political and military power in the region as well.

This large majority of Indians share similar policy goals with the Chinese, in particular the belief that U. S. domination in the Asia-Pacific region must not continue. They also believe that China's model for gaining respect as a power should be emulated to some extent. This may be one motivation for India choosing to build up a nuclear arsenal-China's buildup since the 1950s has, in Indians' minds, prevented other countries from challenging it, and India must therefore follow that path as well. It was pointed out that although India does not have the means to strike Chinese cities now, Indians have faith-based on their exceptional record in the technology industries (and specifically in missile development)-that they could quickly develop the strategic capability to target Chinese cities if that were their goal. Indian leaders have noted China's ability to keep the international community from interfering in Tibet, and perhaps are drawing lessons they would like to apply to Kashmir.

In addition to this mainstream view, there are two other schools of thought, though neither is held by a large percentage of the Indian people: (1) that China is no threat, even in the long term, and (2) that China is a real and immediate threat. The former contingent believes China is rational, and has no logical reason to threaten India in the future. This group often bases its optimism about China on what the Chinese themselves say publicly: that they are not interested in developing an adversarial relationship.

On the other extreme are the Indian hawks who believe that China has clearly shown animosity toward India through its actions that speak louder than the words of its cautious-sounding leaders. This group also believes that China purposely supports Pakistan with nuclear-technology transfers so that the India-Pakistan conflict will keep India strategically occupied, while China competes for influence throughout the rest of South Asia. Indian mainstream thinkers share this opinion to some extent, but will not state it quite as strongly.

One panelist suggested that a "working consensus" had emerged, which primarily consisted of the mainstream view but was also increasingly being influenced by the pro-China faction Indian strategists now emphasize the positive aspects and overlapping strategic values in the relationship. They believe that China, like India, is trying to recover from strains in its relationship with the United States, and the last thing either country wants to do is anger the United States by threatening its neighbor. This "consensus" can be characterized as lying somewhere in between the mainstream and the pro-China extreme.

China's Perceptions of India

The panelists noted the asymmetry in the way India and China view each other. Though Indian officials have spent quite a bit of effort analyzing a possible military and economic threat from China, the Chinese seem to not take India seriously as a rival (at least not publicly). In their discussions with the project authors, Chinese analysts came across as disinterested when referring to India and focused instead on China's own capabilities in the region. They exhibited pride in their dramatic economic growth of the past two decades and looked down on India for its continuing economic problems and inability to enact similar reforms.

The Chinese were critical of India's democratic process, saying the immature state of India's democracy was hampering its prospects for growth. Senior Chinese interlocutors said the Indian government has to answer to too many factions and special interests on the local level to get substantial work done. The Chinese felt that with the pace of change in India so slow that there was no reason to worry about India rising to China's status in the region.

One panelist noted that, in contrast, the Chinese officials used more confrontational language when referring to Japan, presumably because they see Japan as more of a rival, economically and (historically) militarily. But because the Chinese do not see India as a threat, they feel they can afford to be calmer in their attitude toward their neighbor.

China therefore approaches its interaction with India in the context of a broader worldview. The Chinese analysts with whom the authors spoke pointed out that during the cold war, both the United States and China were hostile toward India and friendly toward Pakistan. When the cold war ended, the Chinese said, they worked to maintain China's relationship with Pakistan, and at the same time took a more balanced approach to India. The Chinese said they had begun to improve relations as far back as 1979, when they realized that in order to concentrate their resources on economic development, they would have to cultivate peaceful and stable relationships with their neighbors. They have always taken the view that the Kashmir issue was a bilateral one, which India and Pakistan should resolve among themselves.

Chinese feelings toward India soured temporarily after India's 1998 nuclear testing, though China insists it was not the tests themselves that they perceived as a threat. Rather, it was Prime Minister A. B. Vajpayee's letter to President Bill Clinton, in which he implied the testing was necessary because China needed to be deterred. That insulted the Chinese and caused a brief rift. Yet it proved to be only a brief hiatus in the general pattern of China's warming feelings toward India. China's military is focused primarily on Taiwan and other potential conflicts in East Asia, and the feeling was that Chinese leaders did not want to have to bother with the distraction of a potential conflict with India.

The Chinese also expressed satisfaction with the way India has stayed out of the Tibet issue, and has even made an effort to quell movements within India that supported religious freedom and independence in Tibet.

A fair amount of debate occurred over whether the Chinese were as unconcerned about India as they appeared. Several participants at the conference opposed the assertion that Vajpayee's letter was the real incendiary act following the 1998 nuclear testing. They argued that the Chinese were really threatened by the tests themselves, which, if true, would show that the Chinese do consider the Indian nuclear buildup as a bigger threat than they are willing to admit.

The point was also made that it was in China's interests to play down India's importance in the region because of Chinese insecurity that a democracy that paid attention to human rights could gain as much influence in the region as China has. Several participants felt that China's willingness to transfer technology to Pakistan and treat that nation as an ally is proof that China considers keeping India bogged down in South Asian conflict a priority. Certainly, the Indians believe the Chinese take them seriously as a potential strategic competitor and look at the China-Pakistan friendship as evidence.

According to the panelists, China's strategic respect for India might increase if the United States decided to use India as a counterweight to China in the region. If India were able to follow through on its reform process and do more to encourage foreign investment, then that might also increase China's concern about economic competition from India. Yet one panelist felt that a nuclear missile buildup by India would fail to gain China's attention, because China would always feel less threatened by Indian strategic capability than by American capability in the region, particularly because the United States has threatened intervention should China try to gain control of Taiwan.

It should be noted that participants and panelists generally agreed on one exception to China's nonchalance toward India: the Information technology sector. One panelist noted that Huawei, a leading Chinese software manufacturer, has set up operations in Bangalore, in part to gain a better understanding of the Bangalore software industry. At the same time, Chinese analysts qualified their praise by noting that Indian software is manufactured for export only, whereas the huge Chinese domestic market for software gives China the advantage over India in the long run.



Session Two: Major Issues in Indo-China Relations: Political/Security

As India and China work to improve their relationship, a variety of geostrategic and security issues may stand in the way. Many of those issues, such as the border dispute of 1962, have been simmering quietly for years, and it remains to be seen whether both sides can continue to put aside their differences and forge long-term strategic cooperation. During this session there was quite a bit of disagreement over the degree to which these security differences can be overcome.

The Nuclear Arms Race

A panelist asserted that neither India nor China has historically been a driver of each other's nuclear arms buildup, although that could conceivably change in the future. China's nuclear program, first envisioned by Zhou Enlai as early as the 1950s, has always been seen by China experts as a deterrent to threats in East Asia, and as a means of gaining leverage in its relations with the United States. China asserts that India is not a major security concern to China today. Nevertheless, China has targeted India since the 1970s, and currently has sixty-six nuclear missiles that can reach all of India's major cities and military areas.

The point was made that this is not as much of a contradiction as it appears. China's India-directed missiles constitute a low-cost insurance policy against the remote possibility of an Indian attack. One panelist noted that Chinese leaders are not at all confrontational toward India in their official language, and more important, if China were concerned at all about a possible India threat, it would be building up its conventional armed forces along the Himalayan border. Overall, there was no foreseeable scenario of China initiating nuclear threats against India, and its priorities, military and otherwise, lie elsewhere.

India also developed its nuclear program for reasons that had very little to do with China. Like China, India was looking for respect on the world stage, and its leaders saw nuclear arms as a shortcut to achieving that prominence, especially in the absence of continued economic reform. Thus India's nuclear testing should be seen not as a military strategy, but as a political one. India has also proven that it is not interested in seriously threatening China with nuclear weapons, as it has not yet developed missiles capable of reaching strategic targets in China. As for Vajpayee's assertion in 1998 that India was testing its nuclear weapons to deter China, that can be seen as an attempt to justify his actions to the United States, which India believed also saw China as a security threat in the region.

Though India is not looking to threaten China directly, it is looking for the same respect from China that China gets from India. Indian officials with whom the panelists spoke in Delhi indicated they want China to recognize that India has rights and interests in the region, and they would especially like China to abandon its nuclear technology transfers to Pakistan. India wants China to show that improving India-China relations is an important priority. Still, panelists questioned whether an Indian nuclear program-rather than substantive economic reforms and development-would be the most effective way to accomplish this goal.

India did have military as well as political motivations for its nuclear testing. Pakistan is India's most obvious threat, and India feels it has to keep pace with Pakistan's own nuclear ambitions. Yet because Pakistan is unlikely to develop nuclear capability without China's help, India has no choice but to see China as an indirect cause of India's military ambitions, and will have to resolve the Pakistan issue with China if India-China relations are really going to improve.

Hope for Warming Relations?

The participants were divided on the extent to which geopolitical security issues would prevent India and China from cooperating in the future. Some asserted that India and China have so many differences that prospects for warming relations anytime soon are dim. These differences include the border dispute, China's unwillingness to accept India's incorporation of Sikkim, the China-Pakistan relationship, and China's growing presence in Burma as its primary military supplier. The differences are so deep-seated, especially from India's perspective, that there cannot be any dramatic improvement. For the United States, this means India and China are therefore quite unlikely to form a common front against American interests in the region.

The importance of the border issue to in the current India-China relationship generated a good deal of debate. Those pessimistic about the situation argued that the border issue permanently changed India's perceptions of China's intentions. The Chinese acted as if they had no choice but to invade at the time, and many Indians believe that China is waiting until its military is strong enough to invade Northeast India once again. Participants holding this view felt other signs of Chinese expansionism in South Asia were part of a threatening trend. Because of recent Chinese efforts to engage Burma and Nepal in military talks, China may be circling India's borders looking for allies in order to gain leverage in any future conflict in the region.

Several of these participants argued that as long as China allies itself with Pakistan, there will be little hope for improved India-China relations. China's long history of collaboration with Pakistan, which continues long after the cold war has ended, indicates to some that in the future China is intent on keeping its loyalties with Pakistan.

Yet many of the panelists and participants at the conference believed this interpretation was too pessimistic. It was argued that 1962 was far enough in the past that today's leaders did not have to be influenced by the bitterness of the dispute at the time-the issue may still be a psychological scar to some Indians but not to the vast majority. The official stance in New Delhi is that the border issue is in the past, and that was the sense the panelists got during their discussions in India. And though China-Pakistan cooperation is clearly an impediment to India-China relations, the events of September 11 and the ensuing global conflict offered nations in the region the opportunity to rework their alliances, particularly if the United States urges them to do so.

Moreover, one panelist felt a little perspective on the whole India-China conflict was needed. Whatever China's intentions, it is India and Pakistan that are currently caught in a cycle of violence, not India and China. And India is still ten to twenty years away from developing a nuclear program actually capable of hitting any major Chinese sites. All indications are that India is moving slowly in its buildup because its priorities are elsewhere, namely Pakistan-thus proving that China is not really considered an immediate threat.

A more likely near-term scenario than an open security conflict between India and China will be a jockeying for economic and political influence in the region. It was noted that China and India both see themselves as dominant players in the same region, culturally and historically. As both try to prove themselves as regional powers, there may be an intensifying of the battle for spheres of influence in countries ranging from Nepal and Bhutan to nations throughout Southeast Asia. In this vein, the panelists agreed that the greatest real threat to India's security vis-à-vis China is India's own economy. If China's reforms and growing economic strength make it more influential in the region, then a nuclear buildup by India would accomplish nothing. It would be a shame if India grows to see nuclear weapons as an effective substitute for economic reform.



Session Three: Major Issues in Indo-China Relations: Economic

The subject of economic competition between India and China drew the greatest disagreement among those present at the conference. The primary source of the debate was over which country was in a better position to sustain long-term economic growth: China, which by entering the WTO has agreed to make difficult reforms, or India, which has a democratic framework that will keep the national social fabric from falling apart as reforms are made.

Economic Competitors

The panelists made it clear that it is as yet not appropriate to talk about India-China "economic relations," because there really have not been significant economic ties between the two countries in recent years. India-China trade currently accounts for just $3 billion a year, although that number has grown exponentially since the late 1970s.

The panelists gave two explanations for the low level of trade. First, although the two countries are geographic neighbors, the border they share is in the Himalayas, and thus quite difficult to cross, especially with cargo. In fact, 80 percent of Indian exports to China travel by ship to Shanghai, making China a de-facto overseas trading partner of India. Although China's growth has been faster than India's and is still higher overall, it has also slowed down to a greater extent than India's, which has held consistently near 5 percent in recent years.

A larger, more political trade barrier exists. India has recently accused China of dumping, or subsidizing its exports to India so Chinese products can be sold at a lower price, in order to give Chinese companies an unfair advantage in Indian markets. This accusation has created a significant rift between the two countries, preventing any serious trade agreements from materializing. It was pointed out that the Indians may just be imitating the United States, which has periodically accused Asian countries of dumping in its own market.

One of the panelists held the belief that although talks between India and China in recent years have focused on security issues and not matters of trade, there was still economic cooperation taking place to some degree on the side. There are increasingly convergent views on the need for increased trade, even if the public message seems dominated by talks of dumping. Both governments see their participation in WTO as an important part of their reform process, although India is probably more realistic about it not being a cure-all for its economic problems.

One area of increased cooperation is in the information technology industries. China is looking to emulate India's technology hubs such as Bangalore and Hyderabad, and China's software companies have looked to Indian IT firms, inviting them to Shanghai in order to get a better appreciation for their business models. Still, this cooperation is increasingly turning to competition, as China tries to displace India as Asia's software center.

One panelist also pointed out that the energy industry might represent another area of cooperation between the two countries. India and China are both net energy importers that depend heavily on Middle East oil for supply, and both must confront the pollution that has resulted from decades of burning coal. Both nations are increasingly interested in liquefied natural gas (LNG) as a solution to their energy needs. Because of their common energy needs, both countries have an interest in maintaining political stability in Asia and the Middle East.

Yet these two examples are less indicative of the overarching economic relationship between India and China. The recent economic history of India and China can be seen as two competitors vying to become the regional economic power, and not as two collaborators with similar agendas. Both countries have seen remarkable economic growth in the past two decades, with more people pulled out of poverty than at any other time in world history. In both cases, economic growth was spurred by a reform process and opening up of their economies. China's reforms began in 1978, and Beijing has consistently sped the pace of reforms ever since. India began a gradual reform process in the early 1980s, though it really did not begin to open up the economy until 1991. Since that year, the Indian economic reform process has been more inconsistent than China's, with stops and starts. China has come much further than India in poverty reduction, and is well ahead in a comparison of average life expectancy and literacy.

It was suggested that China's growth has been faster than India, in part, because the democratic process does not lend itself to consistent policies over such a prolonged period, especially if those policies produce economic pain. China's government has committed itself to reform, but has never needed a public consensus on it. The panel pointed to other external factors in China's favor, such as the much larger domestic savings pool that could only be invested into the domestic economy. (There is also the suspicion that China overestimates its GDP growth by as much as 1 percent a year.)

Although China's growth has been faster than India's and is still higher overall, it has also slowed down to a greater extent than India's, which has held consistently near 5% in recent years. This leads to the question of whether Indian growth will eventually pass China's, if China's continues to decline.

This will depend on whether India "gets its act together," as one panelist put it. India's privatization effort has failed to a much greater extent than China's. It was pointed out that India does not even have the right terminology for privatization yet, calling it the negative-sounding "disinvestment" process. Moreover, India will not be able to catch up to China in the crucial manufacturing sector until it does more to encourage the growth of small private firms, and until it improves its national infrastructure and roads network.

One panelist felt that China's growth rate will probably stabilize at roughly 7 percent, but there are some major questions about future growth, such as whether China will be able to sustain its 30 percent savings rate, particularly as layoffs in the public sector increase. Perhaps the most important question is whether China will be able to continue to accommodate its growing economic inequalities without social unrest thwarting future growth prospects.

The Economic Debate: Mandated Economic Reforms versus the Democratic Process

A disagreement emerged among the participants over just how important WTO entry was for China in predicting future growth. China has promised a slew of important economic reforms that will open up previously protected industries to private and foreign investment. Some of the participants argued that this will inevitably lead to the displacement of millions of workers at inefficient state-owned factories. The Chinese economy therefore must grow at a rate that will absorb all of the unemployed workers, and find new jobs for them. Though most economists predict strong growth in coming years, few believe growth will be strong enough to accommodate the increasing number of unemployed workers. There is concern that social unrest may result, and may be serious enough to wreak havoc on the Chinese leadership, which derives its legitimacy from its ability to successfully manage the Chinese economy.. If this happens, confidence in China's stability and prospects for continued reforms will erode, and economic growth will not be able to continue at the current pace.

In contrast, many other participants believe that China's government is in no danger of rebellion in the near or medium term, and that while inequality will grow as a result of the reforms, enough wealth will be created so as to keep China stable.

India, on the other hand, has had a bumpier and more inconsistent reform process, and probably will continue to. This is largely because Indian democracy is set up to require broad alliances among special interest groups in order to accomplish anything. In this kind of system, progress is much slower. Yet when reform does happen in this system, it comes with a broad public mandate and the support of a diverse group of constituencies.

The difference between India and China, then, is the difference between politics driving economics and economics driving politics. If one believes that a democratic political framework is needed in order to achieve lasting (albeit gradual) economic reforms, then India is in better shape to compete in the long run. If one believes that economic reforms can mobilize a country behind its leadership, then China's economic sacrifices to enter WTO under such strict terms will pay off with higher rates of growth, along with a displaced but muted minority.

The question was then raised that if even India's economic leaders are slow in pushing for economic reform, then where will the impetus for reform come from? One panelist answered that the impetus must come from the Indian people, although that does not bode well for the pace of reform. It was acknowledged that short-term considerations were driving the reform process in India, and that must change if India intends to compete with China for foreign investment and rise in status as an economic power.

In sum, the conference was evenly divided between China bulls and India bulls. Those who favored China's prospects believe that in the long term, China's difficult economic decisions would pay off, leading the Chinese economy to outpace India's. Those who were more optimistic about India believe that without a democratic system in place, China's economic sacrifices could lead to some sort of a social explosion, which will cause it to be outpaced by a more democratically-driven economy such as India's. Those who were more optimistic about India believed that without a democratic system in place, China's economic sacrifices could lead to some sort of a social explosion, which will cause it to be outpaced by a more democratically-driven economy such as India's. Still, even those who were more bullish on India conceded that unless the Indian people begin to take a long-term view to the economic reform process, India will certainly be left behind.



Session Four: Implications for the United States

One of the goals of the India-China project was to articulate a coherent foreign policy for the Bush administration with respect to India and China, one which takes into account the countries' relationship with each other and their other neighbors. The final panel outlined a set of goals for the United States to pursue, and looked at how the events of September 11 and the ensuing global conflict may permanently alter U.S.-India and U.S.-China relations.

The Impact of September 11

An important part of U.S. policy in the region will be to understand the impact of its war on terrorism on both India and China. A question was raised as to whether either India or China has anything substantial to offer the United States in its war effort. Still, the war does have subtle implications for the U.S.-India-China dynamic, which should be understood.

To begin with, India and China both support the United States, to varying degrees, in its fight against terrorism. China's support is a more general one, more from a distance, although its tacit acceptance of the United States setting up military bases in Central Asia is noteworthy.

India's support is more complex; because of its own vulnerability to terrorism, India has been extremely outspoken in its support and generous in offering the use of Indian territory should the United States have a need for it. Yet India is also wary of the U.S.-Pakistan relationship that has developed out of the necessity of the war, and is eager to see the United States become as critical of terrorist organizations based in Pakistan (and operating in Kashmir as well as other parts of India) as it has been of terrorist organizations based in Afghanistan. Although Indian officials have expressed concern about this, they also appear cautiously optimistic that the U.S.-Pakistan alliance will be of short duration and will not become the kind of alliance that existed during the Cold War days of the 1950s or the 1960s. Still, prospects for improved U.S.-India relations may largely depend on how the U.S.-Pakistan partnership plays out.

The United States does have an opportunity here, because for the first time in decades U.S. and Indian strategic priorities have converged in the form of antiterrorism. An opportunity exists for the United States to lend support to India without offending China, because any U.S.-Indian alliance in the war against terrorism will probably involve the Indian Ocean and West Asia, an area in which China has less of an interest.

Yet once U.S.-Indian cooperation involves Pakistan and Kashmir, the scenarios become hazier. Uncertainties loom over the extent to which the United States needs to make payments to Pakistan (financial or otherwise), and whether there were any further undisclosed agreements made in order to ensure Pakistan's support. Still, it was argued that the United States's routing of the Taliban could serve as a wake-up call to Pakistan. Once the war in Afghanistan ends and the United States is not as dependent on Pakistan, Washington may be in a better position to exert pressure on Musharraf to throw the foreign jihadis out of Kashmir, particularly since the freedom fighters in Kashmir have lost their support network of foreign freedom fighters in Afghanistan. The panel concluded that although it is in U.S. interests to continue a positive relationship with Pakistan, it would be a tragic mistake to form a long-term formal alliance with Pakistan, which will result in an alienated India.

The point was made that the United States could use its newfound cooperation from China to help deal with the quagmire in Kashmir. The Chinese could be quite pleased with the way events in Afghanistan are shaping up, for they had nothing to gain from an unstable Afghan regime that promoted terrorism, especially in Xinjiang. It was proposed that the United States should sit down with Chinese leaders when Phase One is over to see if they can lend their strong relationship with Pakistan to U.S. efforts to drive fundamentalist factions from Pakistan and Kashmir.

Still, the counterpoint was made that several developments have served as setbacks to China's interests in the region. These include improved U.S.-Russia relations, improved U.S.-India relations, Japan's military emergence and contribution to the war, and U.S. troops in Central Asia. China may become increasingly cautious about supporting U.S. goals in the region, out of concern that the United States is trying to reassert its dominance.

One concern that was raised was that the war on terrorism might make it difficult to pursue a more subtle policy in the region, since the United States has taken the "you're with us or you're against us" attitude. It almost creates a danger of reverting back to cold-war diplomacy, in which the United States was unable to pursue other aspects of foreign policy, such as economic cooperation, with countries that were not firmly rooted on its side in the war. Whether the war on terrorism creates more of an opportunity or more of a noose on U.S. policy with India and China was left unresolved.

One of the panelists put the uncertainty of the post-September 11 world into perspective. The fact is that even the most knowledgeable foreign-policy experts have very little idea what the real impact of the war will be in Asia, because the war is only in Phase One. Since no one knows whether there will be a Phase Two, or what it will entail, no one can say how U.S.-Asia partnerships will re-align if the United States expands its war. It may very well be that when this war is over, observers will look back on the general consensus supporting the United States during its fight in Afghanistan as a short-lived phenomenon. This uncertainty must include U.S. relations with India and China, for they will both be watching America's war closely. Participants shared the feeling that the U.S.-China-India dynamic could evolve a good deal in the near future, depending on the place that the struggle against terrorism retains on the international agenda, and the strategy that the U.S. decides to employ in that struggle.

Conclusion: Outlining a Coherent Policy for the United States

Panelists and participants agreed that power relations in Asia are undergoing a significant realignment. India and China (and Russia, for that matter) are seeking a "polycentric" Asia in which they have autonomy from the United States in making foreign policy. With resistance to American hegemony in the region rising, the United States must adjust its policies accordingly. Specifically, it must be careful that it does not misrepresent its intentions, since the Asian regional powers can potentially interpret U.S. activity in Asia as an attempt to reassert its dominance, and spark tensions as a result. It was noted that this sensitivity applies to the academic community as well, which must be careful during its studies not to appear to be stirring up trouble when there is none-for example, a few Indians and many Chinese viewed this India-China project with suspicion, thinking this might be an attempt by the American government to pit one power against the other in order to weaken them both.

One panelist issued a set of five policy recommendations for the Bush administration, which taken together summarize much of the findings of this project and could serve as a broad plan for Washington to follow. This five-point set of recommendations may be seen as an end product of the discussions held in India and China. Although the U.S. government will undoubtedly need to take into account unfolding events in the war on terrorism as well as other international developments, U.S. officials are invited to let these suggestions guide them as they develop their foreign-policy agenda for the region in the years to come.

First, both India and China should be regarded as rising powers, each of a size and prominence to exercise influence on a regional and even global level. Their economies are increasingly influential, and their domestic markets will be increasingly attractive to foreign investors. Both nations are gradually acquiring status, and the United States needs to recognize that. Historically, the United States has tended to respect (and maybe even overestimate) China and underestimate India, putting India on a par with Pakistan. That approach will not work-both countries should be treated equally as rising powers.

Second, the map of Asia is being redrawn to include India as well as China. Historically, U.S. policymakers have seen Asia as three isolated regions-East Asia, Southeast Asia, and South Asia-but there is now a sense of a single region, with each country having an impact on the others. This means the India-China relationship will be one of the key relationships in the region. India is expanding its relations to include Southeast Asia as well as Japan, while China is also expanding its interests in Southeast Asia (witness China's proposal for a free trade pact with ASEAN) and South Asia. This development will have an impact on matters involving the India-China relationship, including nuclear proliferation. To a degree, India and China will be competing for influence in various countries, including Burma, Vietnam, Nepal, and so on.

Third, the Sino-Indian relationship will be complicated. The possibility for direct conflict does exist. There is a possibility of cooperation-they share common perspectives on political and economic matters-though their geographic proximity and similar growth patterns indicate they will not cooperate much economically and will grow to see each other as competitors. The implication for the United States is to appreciate the complexity of Sino-Indian relations. The United States must see that the most likely scenario in India-China relations is a competitive relationship, with little likelihood of a buffer in the form of economic cooperation, but also with very little likelihood of armed conflict.

Fourth, the U.S. approach should be to develop its relationship with each country on its own merits, not in zero-sum terms, and not with the India-China-Pakistan triangle as the determining factor. The United States should not assume a hostile relationship with China, with whom many common interests do exist, such as the importance of WTO and condemnation of September 11.

Finally, the United States should encourage India and China to develop closer relations with each other, and to maintain and expand ties. The chances of Sino-Indian ties leading to an opposing force against the United States in the region is remote, because our relationship with each will still be better than each country's relations with the other.




Woodrow Wilson International Center for Scholars and Asia Society's India-China Project Advisory Committee

Co-Chairmen

Winston Lord
Former U.S. Ambassador to China;
Former Assistant Secretary of State for
East Asian and Pacific Affairs

Frank G. Wisner
Vice Chairman, External Affairs
American International Group, Inc.;
Former U.S. Ambassador to India

Members

Harry G. Barnes, Jr.
Senior Advisor, Asia Society;
Former U.S. Ambassador to India

Jan C. Berris
Vice President
National Committee on United States- China Relations

Marshall M. Bouton
President
Chicago Council on Foreign Relations

Rohit Desai
President
Desai Capital Management Inc.

Elizabeth C. Economy
Senior Fellow for China
Deputy Director, Asia Studies
Council on Foreign Relations

Peter F. Geithner
Advisor, Asia Center
Harvard University

Harry Harding
Dean, Elliott School of International Affairs
George Washington University

Robert Hathaway
Director, Asia Program
Woodrow Wilson International Center for Scholars

Steven A. Hoffmann
Professor, Department of Government
Skidmore College

Birendra Kumar
BGM Kumar Foundation

Roderick MacFarquhar
Leroy B. Williams Professor of History and Political Science
Harvard University

Philip Oldenberg
Associate Director, Southern Asian Institute
Columbia University

Robert B. Oxnam
Senior Adviser
Bessemer Securities Group

Nicholas Platt
President
Asia Society

Robert W. Radtke
Vice President, Policy and Business Programs
Asia Society

Teresita C. Schaffer
Director, South Asia Program
Center for Strategic and International Studies




Woodrow Wilson International Center for Scholars and Asia Society's India-China Project Members

Alyssa Ayres*
Assistant Director
South and Central Asia Policy Programs
Asia Society

James C. Clad*
Research Professor
Georgetown University

Francine Frankel*
Professor, Center for the Advanced Study of India
University of Pennsylvania

Mark Frazier*
Assistant Professor, Government and
Luce Assistant Professor in Political Economy of East Asia Lawrence University

Sumit Ganguly*
Professor, Center for Asian Studies
University of Texas at Austin

Harry Harding*
Dean, Elliott School of International Affairs
George Washington University

Robert M. Hathaway*
Director, Asia Program
Woodrow Wilson Center for International Scholars

Steven A. Hoffmann*
Professor, Department of Government
Skidmore College

Michael G. Kulma*
Program Officer, Northeast Asia
Asia Society

George Perkovich
Senior Associate
Carnegie Endowment for
International Peace

Robert W. Radtke*
Vice President, Policy and Business Programs
Asia Society

Susan Shirk*
Professor, U.S.-China Relations/Chinese Politics/
Pacific International Affairs
University of California, San Diego

T. N. Srinivasan*
Professor, Economic Growth Center
Yale University

Ashley Tellis
Senior Policy Analyst
RAND

*Participated in India-China Mission




Attendants

The India-China Relationship: What the United States Needs to Know

Woodrow Wilson International Center for Scholars

November 30, 2001

Rajendra Abhyankar
Ministry of External Affairs, New Delhi

Gautam Adhikari
National Endowment for Democracy

Asif Ali
Atlantic Council of the United States

Walter Andersen
U.S. Department of State

Granville Austin

Harry Barnes
Asia Society

Tsedendamba Batbayar
Woodrow Wilson International Center for Scholars

Shikha Bhatnagar
U.S. Department of Commerce

Pieter Bottelier

Eric Brown
New America Foundation

Dean Carver
CENTRA Technology, Inc.

Jie Chen
Woodrow Wilson International Center for Scholars

Jae-Jin Choi
Korea Foundation

Ian Chong
Center for Strategic and International Studies

Anxia Du
Voice of America

Ela Dutt
News India-Times

Trude Feldman
International Press Syndicate

Benedict FitzGerald
C & O Resources, Inc.

Michael Gadbaw
General Electric Company

Peter Geithner
Harvard University

Vladislav Golovin
Embassy of Russia

Aziz Haniffa
India Abroad

Justin Harris
General Electric Company

Selig Harrison
Woodrow Wilson Center

Jee See Heng
Embassy of Singapore

Murray Hiebert
Far Eastern Economic Review

Frederic Hill
U.S. Department of State

Karl Inderfurth
George Washington University

Rajesh Kadian

Feroz Khan
Woodrow Wilson Center

Greg Knight
U.S. Department of State

Heinrich Kreft
Henry L. Stimson Center

Mike Kulma
Asia Society

Birendra Kumar
BGM Kumar Foundation

Krishna Kumar
U.S. Agency for International Development

Dennis Kux
Woodrow Wilson International Center for Scholars

Rollie Lal
School of Advanced International Studies
The Johns Hopkins Unievrsity

Nicole E. Lewis

Gang Lin
Woodrow Wilson International Center for Scholars

Ning Lu
Department of Commerce

Michael Marti
National Defense University

Theresa McNiel

Cheryl McQueen
U.S. Department of Commerce

Roderick MacFarquhar
Harvard University

Doug Makeig

Geneve Menscher
Atlantic Council

Derek Mitchell
Center for Strategic and International Studies

Jim Moriarty
National Security Council

Diane Oh
Asahi Shimbun

Marvin Ott
National War College

Matthew Palmer
U.S. Department of State

T. V. Parasuram
Press Trust of India

Alexander Pfennig
Yale University

Xiao Qian
Embassy of China

Venu Rajamony
Center for Strategic and International Studies

Robin Raphel
National Defense University

Caroline Russell
U.S. Department of State

V.K. Sazawal
Indo-American Kashmir Forum

Howard B. Schaffer
Georgetown University

Teresita Schaffer
Center for Strategic and International Studies

Jonathan Schlesinger
Radio Free Asia

Grant Smith
School of Advanced International Studies
The Johns Hopkins University

Justin Sommers
Asia Society

Sveta Srinivasan
New America Foundation

Niraj Srivastava
Georgetown University

Har Swarup Singh

Shakti Sinha
World Bank

Judy Sloan
Asia Society

Liang Sun
Woodrow Wilson International Center for Scholars

William Wise
The Sorrento Group

Shu Guang Zhang
University of Maryland at College Park

Max Zins
Centre National de la Recherche Scientifique