The

India-China
Relationship:
What the
United States
Needs to Know
Conference Report
November 30, 2001

Justin Sommers, Rapporteur

The Policy and Business Programs Division of the Asia Society pro-
duces programs and publications to increase awareness of key issues
in Asian affairs and to broaden the dialogue between Americans
and Asians.

The views expressed in this publication do not necessarily represent

those of the Asia Society or the Woodrow Wilson International
Center for Scholars.

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Copyright © 2002 by Asia Society

 C o n t e n t s

Foreword 5

Agenda 9

Introduction 11

Session One: Perceptions and Misperceptions 13

Session Two:
Major Issues in Indo-China Relations: Political/Security 18

Session Three:
Major Issues in Indo-China Relations: Economic 22

Session Four: Implications for the United States 27

Project Advisory Committee 32

Project Members 34

Attendants 36
4
 F o r e w o r d

T he Woodrow Wilson International Center for Scholars and

the Asia Society are pleased to present the report of our con-
ference 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 terror-
ist attacks of September 11. It was inspired by the belief that a par-
adigm 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 poli-
cymakers, 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

5
September 11 attacks and subsequent war in Afghanistan will ulti-
mately 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 guid-
ed this project. The forthcoming scholarly volume is being coedit-
ed by Dr. Harry Harding and Dr. Francine Frankel. The contrib-
utors 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 confer-
ence 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 contribu-
tions. 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 gen-
erous support of the C.V. Starr Foundation, the Rockefeller
Brothers Fund, the BGM Kumar Foundation, the GE Fund, and
the Irfan Kathwari Foundation.

6
 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 recommen-
dations by either the advisory committee, the project authors,
or the participants.

Nicholas Platt Lee H. Hamilton

President Director
Asia Society Woodrow Wilson
International Center for Scholars

7
8
 A g e n d a

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)

9
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

10
 I n t r o d u c t i o n

T he 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 develop-
ment 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 com-
missioned 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 submis-
sion 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 pre-
pare 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;

11
third, the implications of the respective economic development and
reform processes of the two nations, as well as their growing eco-
nomic 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 audi-
ence were much more vocal than the Chinese. These circumstances
may or may not have had an impact on the debates as they devel-
oped following panelists’ presentations, but they should be taken
into account as readers sort through the session summaries below.

12
 S e s s i o n O n e :

Perceptions and Misperceptions

S ince the war between China and India in 1962, interaction

and exchange between the two countries, positive or other-
wise, have been less than would normally be expected
between two countries with a common border. In the absence of sig-
nificant economic cooperation and political discussions, the percep-
tions 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 poli-
cy 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” interna-
tional community. Yet while the Indian officials clearly treated
China as such, the Chinese were reluctant to display the same con-
cern 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 con-
stitute 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 this view believe that both sides have
worked to improve relations since the late 1980s, through state vis-
its by leaders from each side, various minor agreements, and so
forth. They also believe that despite certain hiccups the border dis-
pute 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

13
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 dis-
tractions 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 lead-
ers 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 tech-
nology 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 abil-
ity 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 con-
tingent 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

14
actions, which 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 pub-
licly). 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, say-
ing 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, pre-

15
sumably 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 world view. 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 eco-
nomic development, they would have to cultivate peaceful and sta-
ble 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 primari-
ly on Taiwan and other potential conflicts in East Asia, and the feel-
ing 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 partici-
pants 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 them-
selves, which, if true, would show that the Chinese do consider the

16
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 inse-
curity that India, as a democracy that pays attention to human
rights, could 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 seri-
ously 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 atten-
tion, because China would always feel less threatened by Indian
strategic capability than by American capability in the region, par-
ticularly 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.

17
 S e s s i o n T w o :

Major Issues in Indo-China Relations: Political/Security

A s 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 secu-
rity 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 contra-
diction 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 con-
frontational 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, mil-
itary 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

18
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 indi-
cated they want China to recognize that India has rights and inter-
ests 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 dif-
ferences 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 rela-
tionship, and China’s growing presence in Burma as its primary mil-

19
itary 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 the current India-
China relationship generated a good deal of debate. Those pes-
simistic about the situation argued that the border issue perma-
nently 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, indi-
cates to some that in the future China is intent on keeping its loy-
alties 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 dis-
cussions in India. And though China-Pakistan cooperation is clear-
ly 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,

20
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 region-
al 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.

21
 S e s s i o n T h r e e :

Major Issues in Indo-China Relations: Economic

T he 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 frame-
work 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.
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 peri-
odically 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

22
taking place to some degree on the side. There are increasingly con-
vergent 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 technol-
ogy 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 competi-
tion, 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 coun-
tries. 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 sta-
bility in Asia and the Middle East.
Yet these two examples are less indicative of the overarching
economic relationship between India and China. The recent eco-
nomic history of India and China can be seen as two competitors
vying to become the regional economic power, and not as two col-
laborators with similar agendas. Both countries have seen remark-
able 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.

23
 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 commit-
ted 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 sta-
bilize 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 inequali-
ties 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-

24
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 accom-
modate 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 legit-
imacy from its ability to successfully manage the Chinese econo-
my. 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 constituen-
cies.
The difference between India and China, then, is the dif-
ference 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 econom-
ic 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

25
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 dem-
ocratic 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.

26
 S e s s i o n F o u r :

Implications for the United States

O ne 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 neigh-
bors. 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 ensu-
ing 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 ques-
tion 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 sup-
port 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 vulner-
ability to terrorism, India has been extremely outspoken in its sup-
port 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 ter-
rorist 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 con-
cern about this, they also appear cautiously optimistic that the U.S.-
Pakistan alliance will be of short duration and will not become the

27
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 fur-
ther undisclosed agreements made in order to ensure Pakistan’s sup-
port. 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, particu-
larly since the freedom fighters in Kashmir have lost their support
network of foreign freedom fighters in Afghanistan. The panel con-
cluded 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 fun-
damentalist 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 rela-

28
tions, Japan’s military emergence and contribution to the war, and
U.S. troops in Central Asia. China may become increasingly cau-
tious 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 coun-
tries 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 con-
sensus 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

29
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 attrac-
tive 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 hav-
ing an impact on the others. This means the India-China relation-
ship 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

30
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 eco-
nomic matters—though their geographic proximity and similar
growth patterns indicate they will not cooperate much economical-
ly 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 relation-
ship 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.

31
 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

32
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

33
 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

34
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

35
 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

36
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

37
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

38
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

39
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

40