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Eight years later, the Soviets made a foolish and disastrous move by invading Afghanistan. By 1991, the Soviet Union had collapsed. For U.S.-China relations, the period from 1972 to 1985 was the most important. During that period the United States gave China an economic advantage, which began China’s economic transformation.
Today, China has become an economic and military power that even the United States feels threatened by. In return for all the economic advantages it gave China, the United States got China’s export earnings, which it uses to finance the Iraq war, fund mortgages and meet other internal and foreign policy goals.
In contrast, India came into existence 60 years ago after a traumatic territorial division, and within a few years, adopted the Soviet model of economic planning and progress. The model had pulled Stalinist Russia out of oblivion, allowed it to beat Germany into submission during World War II and confront the United States, Britain and France in Europe. Indian leaders were thoroughly impressed with it.
India, from 1950 until 1999, adopted the Soviet model of planning. It beat Pakistan, a U.S. ally, in the wars of 1965 and 1971 and was always supported by the Soviets diplomatically and politically in international forums. All this did not go well with the United States, and after India’s nuclear detonation in 1974, Washington tailored new rules to punish India economically and diplomatically. The new rules, enacted in 1978, denied India economic aid and nuclear technology.
Until around 1975, India’s and China’s per capita gross domestic products were almost identical. However, China had 20 percent more people than India, making its GDP 20 percent greater. Also, proximity to Hong Kong gave China an economic advantage which India did not have. Hong Kong was China’s economic, political and social window to the world, and its free market structure and capitalist status was fully exploited by the communists.
India, with no export cash and little monetary aid from the West, had restricted economic development – although the West blamed that on adopting the Soviet model.
The United States allowed China to occupy a permanent seat in the U.N. Security Council in 1971, which was followed by Nixon’s triumphant visit to China in 1972. The formal process of negotiations and normalization of relations thus began. Several U.S. officials including Henry Kissinger negotiated with China, but did not offer more than what had already been given.
After U.S. President Jimmy Carter took office in 1976, he sent anti-Soviet advisor Zbigniew Brzezinski to China to further enhance relations and negotiations. Brzezinski rewrote the rules of China-U.S. rapprochement and offered all advantages to China in return for its promise to confront the Soviets in the east. The stage was set for a complete U.S.-China reconciliation, while the Korean War was forgotten.
During the early days of negotiations, China acted ignorant of U.S. politics and culture, although that was a clever ploy. The Chinese played on U.S. vanity and fears, which turned officials into faithful advocates of Chinese positions in Washington. It was during these talks that the Taiwan issue and its independence were discussed and a policy hammered out. By the end of the Carter era, China and the United States were close allies.
President Ronald Reagan’s administration was less enthusiastic about China, although it did not backtrack on Carter’s diplomacy. Reagan’s foreign secretary George Shultz and advisor Paul Wolfowitz put China on the margins of their policy. They were busy defeating the Soviets in Afghanistan. Despite their posture, U.S.–China rapprochement moved forward and American businesses were salivating at the prospects of greater economic co-operation.
Here began the massive U.S. investments in China, termed as foreign direct investment or FDI. This was coupled with the opening up of U.S. markets to Chinese goods. In short the United States was steering China’s economic reforms toward convergence with its business interests.
U.S. officials carefully advised China on how to end its ideological mismatch between communism and capitalism. In response, China straightened out its policies and rolled out a red carpet to incoming investments and technical advice.
In the early 1990s, when President Bill Clinton took over, he encouraged more investments in China. FDI flows increased from about US$5 billion a year in 1989 to US$20 billion by the late 1990’s. The uncontrolled tsunami of FDI converted China into a manufacturing giant and in the early part of the current decade FDI flow had doubled to US$45 billion.
The high point in the U.S.-China relationship was the signing of a nuclear deal in 1997. It was Clinton’s welcome gift to Chinese President Jiang Zemin. Clinton justified the deal on the basis that it would open China’s market to the U.S. high technology industry. This agreement further strengthened a 1985 U.S.-China nuclear cooperation agreement, which allowed exports worth billions of dollars of nuclear technology into China without hindrance. Today China, as an original member of the Nuclear-5 or “nuclear weapons states,” can import everything for the commercial exploitation of nuclear technology.
India was denied almost everything till 1998. When India tested its nuclear capabilities by exploding five nuclear bombs without letting the United States know about it, the Clinton administration began probing India’s aspirations. Two years of parley between Strobe Talbott, then U.S. deputy secretary of state, and Jaswant Singh, India’s minister for external affairs, concluded that India would never give up its nuclear option as a deterrent to the combined power of China and Pakistan.
Clinton’s visit to India in 2000 was a first by a U.S. president in 25 years. His visit obliquely confirmed that India could keep its nuclear weapons as long as it did not proliferate the technology. Another advantage that India reaped from that visit was more business process outsourcing or BPO opportunities from U.S. companies.
While China’s FDI flow in 2002 was US$40 billion, India’s was only US$5 billion. In addition, India was unable to buy nuclear reactors and nuclear fuel to power its industry and agriculture. China had no such restrictions.
Against this backdrop, India’s current Prime Minister Manmohan Singh approached the United States for help in 2005. The United States had already concluded that China was overgrown and had to be countered by building up India as a strategic balance, which led to an agreement between Bush and Singh on a deal to remove all restrictions on exports of civilian nuclear technology to India. It was also agreed that Bush would work to get the deal approved by the U.S. Congress, the International Atomic Energy Agency and the Nuclear Suppliers Group, while India would not test nuclear weapons and would allow international inspections except on a few military nuclear sites. This was a big concession to India.
Now it is possible that the flow of economic and other military aid to India will increase. FDI in India has touched about US$20 billion already in the current year and U.S. military hardware has also started to flow in.
In a nutshell, India as a favored country is about 10 to 15 years behind China in obtaining economic, military and nuclear assistance. China managed to work out a nuclear deal in 1985 and later in 1997, whereas India achieved it only in 2008. China raked up US$20 billion in FDI in 1996 while India achieved the same in 2008. China is already building its U.S.-supplied nuclear reactors whereas India will begin building theirs next year.
The comparison list is unending. However, India is expected to bridge the gap at a faster rate now and the Indo-U.S. nuclear deal is one such way forward.
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(Hari Sud is a retired vice president of C-I-L Inc., a former investment strategies analyst and international relations manager. A graduate of Punjab University and the University of Missouri, he has lived in Canada for the past 34 years. ©Copyright Hari Sud.)
