Neighbourly act

China and India’s influence on its poorer neighbours is a microcosm of how they conduct their economic diplomacy on the world stage.

China has become a twenty-first century mercantilist. It coordinates aid, government loans, foreign direct investment, and to some extent trade to help its own companies and keep its economy growing. Chinese diplomats and businessmen work hand in hand in an unprecedented way: they build roads and ports in exchange for lucrative oil contracts, and promise to lay railroad tracks across the Andes and Africa, thus challenging US influence on these continents. In China, investment is part of a government-encouraged industrial strategy to secure natural resources, create opportunities for state-owned enterprises as China’s internal boom slows, invest China’s massive currency reserves, and expand its political influence all at once. Its huge infrastructure investments are also upending the clubby world of international economic institutions like the World Bank and the IMF. China is making its economic presence felt around the world in spectacular fashion. As scholar Steve Levine put it, China is “quickly growing into history’s most extensive global commercial empire….It views almost no place as uncontested.”

India has no such comprehensive strategy. While it is gaining on China in many other areas discussed in this book, its economic sway beyond its borders is still relatively minor. China’s rapidly expanding influence in India’s region, however, is slowly spurring it into action. In the past year, India has made a renewed effort to negotiate regional trade agreements (although it is too soon to tell if its notoriously difficult trade bureaucrats will agree to anything). It is also working harder to influence its neighbours with aid and political pressure as a way to push back on what it sees as China’s encroachment in its neighborhood. Even with these new initiatives, India is punching under its economic weight.

India likes to emphasise that is it a gentle power. “We don’t like to throw our weight around,” is how Ronen Sen, India’s long-time ambassador to the United States, explained it to me. Since independence, no unified policy has determined the aid India gives, how it trades with other countries, and how the foreign direct investment of its companies can help India prosper.

In many ways it is stunning to talk about India’s economic influence on the rest of the world at all. For decades after independence, painfully poor India was the world’s largest recipient of development aid. The government had no extra funds to give away. Nehru and his successors kept trade barriers high to support India’s fledgling industries, so trade was minimal, and partly as a result, few Indian companies grew large or powerful enough to invest directly in other countries.

This has all changed drastically in the last decade or so. India now gives more development aid to other countries than it receives. In 2015, it gave an impressive $1.6 billion in aid grants, almost the same as China with its much larger economy. The vast majority of this money goes to help India’s immediate neighbourhood, to build the Parliament building in Afghanistan, give humanitarian aid to Nepal after the recent earthquake, and give health and education funds to Bhutan and Sri Lanka... 

...The tsunami that rocked Asia in December 2004 demostrated India’s unselfish approach to aid.