Containing China?

India has often been described as America's "natural ally." The term was coined by former U.S. Ambassador to India Robert Blackwill in 2001 and has been used to underscore the democratic values and national interests the two nations share.

But Ivan Eland, a senior fellow at the Independent Institute, a research and public policy group in Oakland, California, says that hasn't always been the case.

"Traditionally, India has not been a natural ally to the U.S. because, during the Cold War, while India wasn't formally allied with the Soviet Union, it always tilted toward the Soviet Union and the United States toward Pakistan," says Eland. "Toward the end of the Cold War, it [i.e., India] tilted toward China. Now, of course, we do have - - I wouldn't say a formal alliance - - but definitely a blooming friendship between India and the United States, and the country that's on the other side of that is China. So this is being done for reasons of containing China."

A Ring Around China

According to Eland, India is the biggest player in containing China - - a strategy, he says, that also includes Taiwan, Japan, Thailand, Australia and Russia. Washington, he argues, worries that China's rapidly growing economy could pose a problem in the future.

California-based analyst Conn Hallinan with Foreign Policy in Focus, a research and policy analysis organization, argues that in order to add India to the list of containing states, Washington has been willing to accommodate India's civilian nuclear energy needs and its interests regarding Pakistan, in particular.

"The Indians want to take Pakistan off the board as a potential adversary. I think the U.S. is willing to give the Indians free reign to do that because they need them as part of this ring they're building around China, which runs all the way from Japan into South Asia, then into Central Asia," says Hallinan.

Close U.S.-India Ties Overdue

But some analysts disagree with this assessment, saying that fostering a closer relationship between that the United States and India is long overdue, given that the two nations share common interests, and similar concerns and policies over potential economic and military threats from China.

To that end, Harvard University's Xenia Dormandy, Executive Director for Research at the Belfer Center for Science and International Affairs, says both countries prefer an "engage and hedge" policy toward Beijing to encourage it to reform and democratize. This is why she dismisses the notion that India is being recruited to counterbalance China.

"India has absolutely no interest whatsoever in being a tool or a pawn for the U.S. in resisting China", says Dormandy. "Such a policy is one, not true, and two, even if it were, it would be an unsuccessful one. I don't think that's the U.S. approach at all."

Washington, Dormandy says, is wary of Beijing and would rather create a favorable balance of power in Asia by strengthening India.

"[The U.S. wants to bolster] a country, economically powerful and growing with a large population, [one] that's a democracy in Asia and continues to develop in the way that it is doing [so it] will act as a counterbalance, a second axis within Asia," says Dormandy. "A lot of small Asian countries applaud India's more active foreign policy within the region. So having another country that is increasingly powerful in Asia is a good thing, but it is not as a counter to China."

Economic Ties That Bind

In an era of globalization, a country like the United States can pursue friendly relations with both India and its rival Pakistan, and India can nurture a friendship with the United States while courting China.

A situation like this, says Ivan Eland of the Independent Institute, may also produce unintended results.

"India could end up being like South Korea vis-à-vis North Korea in that the U.S. would like to take a harder line position. But for so many links of culture, economics, etc., with the North, the South Koreans keep taking a softer position," says Eland. "So it could be that, in the future, India and China will have a rapprochement, which will fly in the face of any hard line containment policy."

And today, some experts argue that economic ties are much stronger than political considerations as a basis for friendship among nations.

That is why author Thomas Barnett, who served as a strategic planner in the U.S. Defense Department between 2001 and 2003, says it is unrealistic to consider India a viable long-term counterweight to China.

"The Chinese-India relationship is going to resemble 15-20 years from now the same sort of centerpiece position that the French-German relationship represents in the European Union," says Barnett. "So the notion of getting India to choose the United States over China is passé. The supposition that somehow we're going to get India to do things against China over time are just optimistic and a bit naïve."

That mindset, says Barnett, is a relic of the Cold War that will give way within a decade to a new school of American strategic thought. Just as globalization has enabled India and China to realize their collective economic power in world markets, Thomas Barnett predicts that America will inch closer in its strategic outlook toward India and China and toward countries like Russia and Brazil than toward its traditional European allies or Japan. He calls it "a weird historical shift."

"China was the representation of a trigger to the notion of the domino theory [i.e., the country that would start the communist domino effect] in the 1960s when so many people went communist and that was going to trigger a big tidal wave of communism. That was part of the larger strategic rational for our involvement in Vietnam. Now we face the exact opposite," says Barnett.

"China has become so market-oriented, so capitalistic that [it is] turning other countries in Southeast Asia, specifically Vietnam, Cambodia, Laos [into capitalists.] The very same countries we worried about in the 1960s are becoming more capitalistic and market-oriented out of the fear that China's shift is going to leave them behind."

Whether New Delhi is a natural ally of Washington or a deterrent to Beijing, some observers say that, based on the size of its economy and population, its military capabilities and soft power, India is poised to become China's most potent competitor in Southeast Asia.

Can Australia get smart in India?

Australia has been both blessed and cursed by its natural resources. For the past few decades, we have relied on growth and industrialisation in Japan, Korea, China, and just recently, India to pay for our high-value imports.

Without those big mineral resource deposits - particularly coal and iron ore - our per capita standard of living would be more like New Zealand’s. On the other hand, our over-reliance on commodities has been partly responsible for our average incomes falling behind those in many other developed countries in Europe and North America.

Given our strong historical ties and cultural affinities with it, India would seem to offer Australia its best chance yet to move beyond commodity supplier into a genuinely broad-based integration with an emerging economic powerhouse: Something that might finally break the pattern of our economic past.

Currently, China is Australia's No.3 trading partner, No.2 export market and No.3 source of imports. India is our 6th largest merchandise export market and 13th largest trading partner. To keep it all in perspective, Japan's imports from Australia are still worth double that bought annually by China.

India may not exceed the growth rates recorded by China in recent years but India is likely to experience higher growth in the next 20 years while China will struggle to maintain its high growth rates.

Between 1980 and 2003, China's economy grew at an average rate of 9.5 per cent a year, against 5.7 per cent in India. China's real GDP per head (in constant domestic prices) rose faster than that of any other economy, while India's was ninth-fastest. At common international prices, China's real income per head rose by 300 per cent over this period, while India's increased by 125 per cent.

One major constraint facing China is its workforce which, due to the one-child policy, will start to diminish and age while India’s workforce will expand and retain a younger profile, as well as overtaking the Chinese population in sheer size. Currently, over half of India's population is under 25.

According to the UN's latest World Population Prospects, there will be 1,395 million people in India in 2025 and 1,593 million in 2050. In China the population will grow to 1,441 million by 2025, before dropping to 1,392 million in 2050.

India's well-entrenched democratic institutions may also help it assimilate the aspirations of a growing middle-class far more readily than China, which is yet to show that it can make a successful transition from communism. An India Times editorial in February put it neatly: “It is almost certain that India's economic numbers will catch up with China's soon. It is far less certain whether China will ever catch up with our open society.” Finally, India is already a world leader in some knowledge-intensive industries like information technology and its pattern of development will be very different to China’s.

So far, however, our trade with India seems to be replicating our experiences with other Asian growth miracles.

Australian exports to India grew by 62 per cent in 2004 (and over 400 per cent in the past decade), reaching A$5.42 billion. Much of this growth, however, has come from India's demand for raw materials, such as gold, coal, copper, wool, and more recently, fresh fruit and vegetables.

Education, now one of Australia's largest industries, would seem to be our best hope of developing a truly substantial non-commodity export sector. Trade in education services now earns Australia $5 billion annually, more than wool and close to wheat. In addition, Australia is the third-largest supplier of education services to the Indian market, and India is the second-largest market for Australian education. Over 13,000 Indians trained and received education in Australia last year - a 32 per cent increase on 2002. For post-graduate studies, students from India are the biggest group among foreign students in Australia.

India's growing middle-class, already well over 100 million people, means the potential for growth in education trade should be enormous. Yet, Australia cannot afford to be complacent in education, which in recent years has become a huge, fiercely competitive international business and also fiercely competitive. According to a recent issue of the Economist magazine, “since the late 1990s, the global higher-education market has been growing by 7 per cent a year. Annual fee income alone is now an estimated $30 billion”.

Despite the potential for our education sector in India, and the certainty of increased competition for the business, our national policy seems to consist of little more than the usual bilateral agreements professing co-operation, low-level promotional campaigns and the occasional fine-sounding speech.

While Wayne Swan, and his federal colleagues, are working on ways to convince Australian electors that they are worthy bearers of the Hawke - Keating legacy they could do a lot worse than develop big vision policies for our education export industries, particularly in relation to the burgeoning Indian market.