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Two intertwining arrows between China and India's Flags
Is India the new China? Not quite
India recently overtook China as the world’s most populous country – albeit just. This demographic shift inspired a flurry of hot takes suggesting that India will soon replace China to become the world’s leading manufacturing powerhouse.
For now, China remains the world’s largest manufacturing hub, but an aging population and rising labor costs raise questions about whether its position is under threat.
Quick background: China’s growth story
China’s rapid industrialization in recent decades saw tens of millions of agrarian workers migrate to cities in search of better wages and enhanced quality of life.
Mao Zedong’s Great Leap Forward policy of the early 1960s – which drew on Soviet themes of mass collectivization to modernize industry and triggered the worst famine in history – coupled with China’s economic reopening in the 1980s, saw the rapid expansion of manufacturing, construction, and other labor-intensive industries. Those who left the countryside, some under duress, became known as the “floating population.”
Since then, China has transformed from a mostly agrarian society to a manufacturing powerhouse. It now accounts for almost a third of global manufacturing – roughly the same as the US, Japan, and Germany combined.
In the 40 years up to 2022, around 770 million Chinese were lifted out of poverty – representing perhaps the largest reduction in poverty in history. Consider that the country’s average per capita income, which was $89.50 in 1960, had risen to $12,556.30 by 2021.
But several factors have caused China’s economy to stagnate, suggesting it might have reached peak growth.
For decades, the Chinese Communist Party was worried about overpopulation, and in the late 1970s it told Chinese families they could only have one kid to contain the ballooning population size. But after years of restricting the number of births, China's population is now shrinking — fast.
Indeed, this shift hits at the very heart of China's economic model, focused on boosting consumption at home to reduce reliance on exports, as well as increasing the number of workers to support the country's aging population.
In recent years, Beijing has tried to boost the birth rate by limiting access to abortions and encouraging women to have more kids. But many think this strategy could be too little, too late.
India is on the rise. India, for its part, is experiencing the opposite trend: Massive population growth, with a populace that is also getting younger – almost a quarter of Indians are under the age of 14.
What’s more, India has a large workforce, a growing domestic market, and a tech sector that’s booming despite global headwinds. India recently surpassed the UK to become the world’s fifth-largest economy. And it is gaining clout economically and diplomatically, particularly as it seeks to emphasize its non-aligned status amid Russia’s war in Ukraine.
In short, India has yet to meet its economic potential, while China’s fortunes appear to be waning. This is in part due to President Xi Jinping’s reverting back to state-run enterprise and undercutting private entrepreneurs, which is hurting growth.
Still, slowing growth in China does not mean that India, with the world’s largest pool of working-age people, will take up the mantle of the workshop of the world.
“It might happen, but it would require India to get a lot of things right,” says Pramit Chaudhuri, head of the South Asia practice at Eurasia Group.
“It's not the first time people have said India is on the rise and then watched it make a series of major political errors or have political problems at home that stalled that growth,” he says.
So what’s stopping India from replacing China?
India’s social indices still lag way behind China’s and other advanced economies. Only 74% of Indians are literate, compared to 97% of Chinese, and that drops to 62% for Indian women.
Importantly, during the 1950s and 60s, Mao was partly motivated by the belief that education boosts productivity. The CCP sought to end elitism by boosting education among rural populations and standardizing some higher education.
In India, however, poor education systems, particularly in the north, coupled with a massive digital divide, mean that vocation-based jobs lag behind China’s.
“The challenge for India is that demographic dividends mean that people actually have to have the skills,” Chaudhuri says.
“If India does not accomplish that” – by improving education capacity and standards – “we will get old without becoming rich,” he says.
Indeed, it’s for this reason that India does not see its ballooning population as a win. “For India, the size of the population is seen as a failure because they have been trying to do family planning and voluntary population control for a long time,” Chaudhuri says.
India needs the right jobs. It’s one thing to have the world’s largest population – and pool of working-age people – but it’s quite another to provide enough good jobs that boost productivity and growth.
While China excelled at transforming its growing population into a manufacturing powerhouse focused on boosting exports, most of India’s jobs are concentrated in the agriculture sector, with the latter accounting for roughly 60% of the workforce.
Indeed, Prime Minister Narendra Modi has sought to reform an economic system set up by the socialist-leaning governments that held power during the first decades of India's independence. But his efforts to embrace free enterprise in recent years have been sluggish and, at times, faced vigorous opposition. Consider that when Modi tried to make the agriculture sector more market-driven in 2020, farmers paralyzed the capital in some of the biggest protests in the country’s history.
In order to keep the labor market stable, India needs to create 90 million new jobs by 2030 outside of agriculture. That won’t be easy.
Poor connection. Another missing piece in India’s growth story is infrastructure. Crumbling railways, congested roads, and inefficient airports disrupt supply chains, stifling growth and investment. While India isn’t the first emerging economy to be let down by its crumbling infrastructure (hello, South Africa!), Modi is hoping that a massive push for upgrades will turn its $3.5 trillion economy into a $5 trillion one by 2025-26.
But implementation of this policy is a little more complicated. While China’s Communist government called all the shots in directing the country’s economic trajectory, as leader of the world’s largest democracy, Modi has to coordinate with 28 state governments, as well as cities and central-government ministries in a country long marred by civil strife.
For now, China remains the world’s largest production hub, but tit-for-tat trade wars with the US and an awkward zero-COVID rebound are making Beijing nervous.
Still, Chaudhuri says that the future is not in old-school manufacturing but in advanced tech, quantum computing, and in forming strategic tech coalitions. But who will dominate?
“[India] will be one among many players in that field,” he says, adding that “China’s unusual state of dominance will never be replicated again.” Other countries, like Mexico, Brazil, Indonesia, India, Vietnam – and even the United States – “all of us will get a slice of the pie.”
Former Pakistani PM Imran Khan, gestures as he speaks with Reuters during an interview in Lahore.
What We're Watching: Punjab election back on, China-India war of names, Brazil wants peace in Ukraine
Constitutional & political crises in Pakistan
Pakistan’s Supreme Court has ordered that Punjab, the country’s most populous state, can hold elections on May 14, deeming a recent government decision to postpone polls in two states as “unconstitutional.”
Quick recap: This comes after Pakistan’s Tehreek-e-Insaf Party, led by former PM Imran Khan, filed a petition challenging the government’s decision to delay the polls in Punjab and Khyber Pakhtunkhwa from April to October.
The government had attributed the delay to a shortfall in funds due to economic constraints, but the top court ordered the government to release 20 billion rupees ($70 million) to fund the elections.
You’ll likely remember that Khan – who was ousted last April in a no-confidence vote and now faces corruption and terrorism charges that he says are politically motivated – is at loggerheads with the central government that’s trying to sideline him.
What’s more, this comes just days after the government introduced a bill in parliament trying to limit the power of the Supreme Court, which Prime Minister Shehbaz Sharif has long accused of “judicial activism.”
While the tussle between the government and the judiciary continues, there is at least one winner here: Khan, whose primary demand since being ousted has been fresh elections, particularly in his home state of Punjab. The last time Punjab held by-polls, PTI won in a landslide.
India to China: You can't rename what ain't yours
India is pushing back against China's latest attempt to rename 11 places in the northeastern Indian state of Arunachal Pradesh, which Beijing claims as part of southern Tibet. The names China says it is "standardizing" include five Himalayan mountains.
China has tried before to rename areas in the region, triggering angry responses from New Delhi. In 2017, Beijing did it as payback for India allowing the Dalai Lama to visit Arunachal Pradesh. The motive now is unclear, but the stakes are higher: In June 2020, Chinese and Indian troops had their first violent clash along their disputed Himalayan border since the 1960s. (That skirmish was in Ladakh, another chunk of India that China wants to gobble up.)
The fallout from the 2020 border fight saw India come down hard on China, for instance, by banning Chinese-made mobile apps like TikTok. Several rounds of talks had helped calm things down, but not entirely. Last December, soldiers from the two sides had another icy scuffle, this time in Arunachal Pradesh.
With the militaries of two nuclear-armed regional rival powers on high alert in the world's highest battlefield, what could go wrong?
Brazil visits Russia
On Monday, Brazil’s President Luiz Inácio Lula da Silva revealed that he had dispatched his top foreign policy adviser, Celso Amorim, to Moscow for talks with Vladimir Putin on how to stop the war in Ukraine.
It’s easy to dismiss the importance of this trip. Putin can stop the war anytime he wants, and a cynic will say Lula simply wants to raise Brazil’s international profile with a peace initiative that will make no difference to the conduct of the war.
But this visit reminds us that many developing countries, now struggling with inflation and debt exacerbated by the war, are far more interested in seeing the conflict end as soon as possible than in Western lectures on its importance for the international order.
There’s also this comment from Amorim: “There will come a time when, on one side or the other, a realization will emerge that the cost of war – not just the political cost, but the human and economic cost – will be greater than the cost of the concessions needed for peace." He’s surely right about that, and if Brazil can play any role at all in helping to shape the eventual peace, the world will become a safer place.
Indian army officers and troops at a forward base in eastern Ladakh.
In the world’s highest battlefield, China has the advantage over India
Fresh clashes in a culturally and strategically important area in the Himalayas between the world’s two largest militaries are triggering questions about India’s capacity to confront China.
The point of contention is the Line of Actual Control, a 2,150-mile British-era border militarized in 1962 in the wake of a brief war after which China gained 14,700 square miles of what India still considers its territory. Sixty years later, a more muscular Beijing has returned to reclaim what it still contends as its own: vast swaths of northern India’s Ladakh region and most of Arunachal Pradesh state. Meanwhile, India is still pushing to take back China’s Aksai Chin region.
For decades, this sparsely populated area remained a quiet frontier, until in June 2020 a rare bloody skirmish left 20 Indian soldiers and 4 People’s Liberation Army troops dead. Dozens of rounds of negotiations resulted in China getting a buffer zone and India losing a foothold in areas it previously controlled.
The optics indicated that India lost and China won.
Now, the latest clashes have rung three alarms. First, the front has shifted to the east, near Tibet, which means that the tensions are spreading. Second, India hasn’t matched China’s massive buildup of military and civilian infrastructure in the remote area, which means it has to play catch-up.
Third, and most importantly, none of India’s moves to counter China since 2020 — to punish Beijing economically by banning certain imports and apps, to align its diplomacy with the Western-led anti-China bloc, or balancing with China’s friend Russia – have worked.
Prime Minister Narendra Modi is under fire at home. Though the opposition is weak, it smells blood in the water and is questioning Modi’s capacity to deter China. The PM, who is gearing up for a third term, has swatted off irritants like Pakistan and gained popular support for his strongman confidence.
But the PLA is not the Pakistani army. And despite New Delhi’s decades-old policy of non-alignment aka strategic autonomy — where it tells the West that it’s a friend, not a lover, always a partner, and not an ally — the Chinese don’t seem convinced that the Indians can be dealt with without boots on the ground.
So far, India is putting up a brave face. On Thursday, it went ahead with a pre-scheduled missile test termed a “China Killer” by Indian media. And last month, Indian troops held joint exercises with the US near the border with China, despite objections from Beijing.
Michael Kugelman, director of the South Asia Institute at the Wilson Center, thinks that India presently has limited if any capacity to deter China’s border provocations. What’s more, the Indians can’t really count on outside help beyond public messages of support and at the most some intelligence from Washington.
“At the end of the day, India is on its own,” he explains, “though that’s partly by design, as India prefers that its Western partners not say so much publicly during these clashes so as not to further provoke Beijing.”
But New Delhi urgently needs to do some military housekeeping. Kugelman thinks that India will need to play a long game and continue to focus on military modernization efforts and reforms within its massive but lethargic defense industry, so that it can develop a stronger deterrent capacity further down the road.
Of course, that won’t accomplish much now with China literally on India’s doorstep, he assesses.
China-India tensions also pose an awkward challenge for Washington. For decades, New Delhi has looked to Moscow as a key source of weaponry meant to deter Beijing. India’s Russian-made arsenal missile systems could trigger American sanctions over Ukraine.
“If the US wants India to wean itself off Russian arms, that could undercut both Indian and US interests,” Kugelman explains. But there is a middle ground. America, along with allies that are also Indian suppliers like France or Israel, “will need to step up their game and offer more of their weaponry to replace what India has long received from Russia.”
On the economic front, shutting off China isn’t going to be easy. While tensions have forced the Indians into fresh trade deals with Western powers in lieu of China, “if you look at India’s recent trade figures, you’ll find that China continues to be a top Indian trade partner,” Kugelman says.
“Commercial cooperation with Beijing dies hard.”
Indian soldiers deployed in the Ladakh region bordering China.
The hedge edge: India’s savvy but selfish non-aligned diplomacy
After facing off in the western Himalayas for over two years, with more than 100,000 troops deployed in what is considered the world’s highest battlefield, the Chinese and Indian militaries are finally disengaging.
The latest breakthrough, announced Thursday, comes after 16 rounds of negotiations conducted since June 2020, when some 20 Indian soldiers and at least four Chinese troops were killed in a rare bloody skirmish. This was the worst fighting between the two sides there since a 1962 border war won by China and strained ties between Beijing and Delhi.
But while the Indians continue to negotiate with the Chinese, what does this mean for India’s perceived position as a natural “counterweight” to China? Indeed, since Russia’s invasion of Ukraine, Delhi has bolstered its relationship with Moscow, Beijing’s new partner “without limits.” Are the Indians in fact trying to play all sides by moving closer to the China-Russia axis while staying a US strategic partner?
Not so fast. It ain’t over yet as far as military tensions go.
According to the Indians, the latest development involves the Chinese backing off from Gorga-Hotsprings, their least invasive “encroachment” that Delhi claims Beijing’s troops made in 2020. Larger tracts of territory — including the Depsang Plateau, which India claims — still have Chinese boots on the ground. Both sides have enough personnel and military hardware in the region to still argue they’re on war footing.
“I won’t say that the standoff is resolved yet,” says Akriti Vasudeva, a fellow at the Stimson Center’s South Asia Program. “Disengagement is just removing the frontline troops from their eyeball-to-eyeball-positions with each other to an agreed-upon distance back.”
What’s more, neither the Chinese nor the Indians have actually left the area or packed up their gear. And not a word yet on when the troops will return to their peacetime positions along the Actual Line of Control, the region's de-facto but disputed border.
For Derek Grossman, a senior defense analyst at the RAND Corporation, the peace is unlikely to hold given that China fundamentally disagrees with the Indian position on the border. Moreover, he expects incursions to continue because it’s essentially been written out: in October 2021 Beijing passed a new border law encouraging both the military and civilians to assert Chinese sovereignty in disputed areas.
So, what triggered the latest thaw? For one thing, events that are around the corner. China’s President Xi Jinping and India’s PM Narendra Modi are scheduled to meet this week in Uzbekistan, where both will be attending the Shanghai Cooperation Organization summit, a multilateral franchise of decades of diplomatic coordination between Moscow and Beijing, which India joined in 2017.
As the relationship between Beijing and Delhi hasn’t exactly been warm for a while, Xi and Modi probably “want to demonstrate that they are able to resolve issues,” says Raffaelo Pantucci, a senior associate fellow at the Royal United Services Institute.
For another, perhaps they’ve just gotten weary of the harshness of mountain warfare.
The agreement could well “just be the natural outcome of a long negotiation period at a time where India and China were both finding it hard to sustain their troop deployments in the Ladakh area, especially with winter approaching soon,” Vasudeva explains.
More importantly, the Himalayan deal is the most recent example of India’s fluid approach to diplomacy. Delhi’s policy of “strategic autonomy” – which follows decades of official non-alignment – allows India to adopt a pick-and-choose framework of diplomacy, hopping in and out of understandings with partners and friends depending on India’s evolving interests.
For instance, as it continued an advanced maritime security dialogue with the US last week, Indian troops joined the Russian and Chinese military in exercises in Russia’s far east, despite American concerns. The same week, while Delhi pulled out of the US-led Indo-Pacific Economy Framework, it planned its own bilateral trade-policy forum with the Americans.
This “your thing, our way” code of doing business cuts across the board. While India is a member of the Quad dialogue alongside Australia, Japan and the US, it remains engaged with Russia and China on the diplomatic, trade, and even defense fronts.
Modi buys Russian oil, yet hangs out regularly with the G7 gang. Even now that they've reached the disengagement agreement with Beijing, the Indians are planning on conducting joint drills with US forces near the disputed Himalayan territory.
For India, the policy works because it keeps competitors on their toes, and entices partners to keep courting India and even fighting for its business. But for those who are counting on India to be a dependable partner, even an ally, and a counterweight to China, the gates of New Delhi aren’t exactly wide open.
Pantucci sees two major holes in the argument that India is a natural counterweight to China.
First, “they have lots of problems at home that cause issues with the Western powers. These are pressures of democracy.” Second, he says, “the truth is that the Indians always wanted to hedge and put themselves in a more non-aligned space than any kind of bloc against somebody else.”
But the recent disengagement doesn’t change the fundamental reality that Delhi considers China as a strategic threat. In fact, Vasudeva points out, “the 2020 standoff further reinforced the thinking in Delhi that whatever India has done in the last few years to accommodate China … has not helped and China has continued to undermine Indian interests.”
India, she adds, no longer believes it can improve its relationship with China for the better. As far as Delhi is concerned, all that can be done is to manage the relationship so it doesn’t get worse.
What We're Watching: Iran plays hard to get, China gets up in India's grid, Dominicans build a wall
Iran rules out nuclear talks… for now: Iran has reportedly rejected an offer to join direct talks with the US and EU over its nuclear program, saying it won't start the conversation until sanctions on Iran's economy are eased. To be clear, this does NOT mean that prospects for reviving the Iran nuclear deal are dead. Europeans and the Biden administration want a return to the 2015 nuclear agreement, and Iran certainly needs the economic boost that would come from a removal of sanctions. But Tehran is going to try to maximize its leverage before any talks begin, especially since this is a sensitive election year in in the country. Iran's leaders are going to play hard to get for a while longer before edging their way back to the bargaining table. Still, it's high stakes diplomacy here between parties that have almost no mutual trust — and one misstep could throw things off track quickly.
Is China inside India's electrical grid? A newly published study from intelligence analytics firm Recorded Future suggests that China may have retaliated against India following border skirmishes in the Himalayas last year by using malware to attack India's power grid, triggering a blackout last October that left 20 million residents of Mumbai in the dark. The study's authors acknowledge that these conclusions are still speculative, but recent comments by Indian officials add to their credibility. The findings are all the more striking because conventional wisdom holds that while governments regularly use cyber-attacks to steal the secrets of other countries, they generally don't tend to sabotage other governments for fear of dangerous retaliation. If there is truth in this story, it's possible that China believes its cyber advantage over India is strong enough to deter retaliation. That's a powerful warning for every government.
Dominican Republic to "build the wall:" Ok, they are calling it a fence, but whatever you call it, recently-elected Dominican president Luis Abinader says that a new 230 mile hi-tech barrier is meant to stop drug trafficking, illegal immigration, and cross-border crime between his country and Haiti. The two countries, which share the Caribbean Island of Hispañola, have long had testy relations, in particular over the presence in the DR of hundreds of thousands of Haitian migrants who have fled their own country — the poorest in the Western Hemisphere — in search of opportunity next door. About five percent of the DR's population is of Haitian origin, according to government estimates, and many lack formal papers. At the same time, the porousness of the border has facilitated trafficking of human beings and contraband, according to a US State Department report. The Dominican government has deported Haitians en masse on several occasions over the past several decades, and there is a history of anti-Haitian violence in the country that runs back more than a century. Construction of the new fence is set to begin later this year.