The recent agreement and meeting between Indian Prime Minister Narendra Modi and Chinese President Xi Jinping signal a tactical shift in China's approach towards its southwestern border. Amid economic difficulties, China appears eager to maintain a quieter border with India. However, this move should be seen as a temporary adjustment rather than a change in China's long-term strategic ambitions.
India's Firm Stance and Diplomatic Efforts
India's refusal to yield ground, combined with the resilience of its armed forces and persistent diplomatic negotiations, has contributed to a peaceful resolution of the recent border tensions with China. India's determination to safeguard its territorial integrity was a crucial factor, but China's economic challenges also played a significant role in its willingness to de-escalate.
Internal Pressures on China's Leadership
Sections of the Chinese Communist Party (CCP) leadership have grown increasingly uncomfortable due to mounting international pressure and regional tensions stemming from China's assertive foreign policy. The inability to arrest the decline of the country's economy, coupled with rising costs of living across its 31 provinces, has fueled widespread public dissatisfaction. The CCP is particularly worried about the potential for economic distress to spark popular protests, which could open up a new domestic front of instability.
Tactical Shifts in Foreign Policy
In response to these challenges, China has made some noticeable adjustments in its foreign policy. Chinese leaders and state media have been emphasizing China's critical role in the global supply chain and expressing willingness to facilitate investments from foreign entities. Since last year, Beijing has also ramped up efforts to access India's large, untapped market by mobilizing its diplomatic missions, business associations, and pro-China lobbyists.
Economic Challenges and Conciliatory Tone
China's export-driven economy has been hit hard by a sharp decline in exports to the U.S. and the European Union, coupled with escalating tensions with these regions. While China continues its aggressive stance towards Japan, the Philippines, and Taiwan, it has adopted a more conciliatory tone towards the U.S. and India. This shift is crucial for China as it navigates its economic dependence on global markets.
Stimulus Measures and Economic Strain
Acknowledging economic distress, President Xi Jinping recently approved a stimulus package after delays since the CCP’s third plenum in July. This package, announced on September 24 by Pan Gongsheng, Governor of the People's Bank of China (PBoC), includes monetary measures, support for the property market, and capital market-strengthening initiatives. The package specifically targets the struggling real estate sector and aims to reduce mortgage interest rates, benefiting around 150 million people.
Mixed Reactions to Economic Stimulus
The announcement of the stimulus package initially led to a rebound in sales of cars and home appliances, with the stock market seeing a 10% rise. However, the Chinese newspaper Economic Observer criticized the stimulus as inadequate, predicting a stock market crash by early 2025. The paper also highlighted that homebuyers in tier-1 cities like Beijing and Shanghai are still burdened with high interest rates, calling for further rate cuts.
Real Estate and Provincial Fiscal Woes
A report by Caixin Global on September 27 revealed severe financial distress in China's construction industry, with rising defaults and bad debts. Two of China's largest real estate firms have already filed for bankruptcy. The ban on land sales has further strained provincial revenues, forcing some to slash government employee wages by 25% and withdraw bonuses. Over half of China’s 31 provinces have missed their fiscal revenue growth targets, exacerbating concerns about local governments' fiscal health.
Government Aid and Public Discontent
In a bid to address the social impact of the economic slowdown, the Chinese government announced a “one-time living allowance” for extremely poor individuals and families, coinciding with the 75th anniversary of the founding of the People's Republic of China. Reports indicate that China plans to issue bonds to provide a monthly allowance of approximately 800 yuan ($114) per child for families with two or more children. Despite these efforts, stringent anti-corruption measures and political repression have contributed to a decline in public confidence, with nearly $254 billion believed to have illicitly left the country by mid-2024.
Strategic Implications of the Border Agreement
While the recent border agreement between India and China, reached on the sidelines of the BRICS summit, appears to reflect Beijing's pragmatic approach, it is mainly a tactical maneuver. Differences in the official readouts of the meeting indicate that China's broader strategic agenda remains unchanged. Leaders of the Tibet Autonomous Region have been actively visiting border counties, urging troops to strengthen defenses and encouraging residents of border villages to establish deeper roots, signaling China's long-term commitment to its territorial claims.
Conclusion
The recent developments in China's economic policy and foreign relations suggest a temporary recalibration rather than a permanent shift in its strategic posture. While the border agreement with India may offer short-term relief, it does not guarantee a long-term change in China's approach to its territorial disputes. India must remain vigilant and continue to strengthen its border defenses, even as it navigates the complexities of its relationship with China
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