google.com, pub-4417961591688198, DIRECT, f08c47fec0942fa0 google-site-verification: googledcc23757cdab3c4f.html The Chinese factor...will it harm to our markets? ~ bulls$treet

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The Chinese factor...will it harm to our markets?



For the last few months, there has been a serious stand-off at Doklam between the Indian and Chinese armies. Doklam is a small region of Bhutan, which has friendly relations with China and India over the last many years. While the Indian and Chinese armies have almost come within 100 yards of each other at Doklam, there are no untoward incidents that have been reported from the region. The fear, however,is that this could escalate at the slightest provocation and could deteriorate into a full-fledged war between India and China. The last time the 2 nations had fought a full-fledged war was in 1962. There are a few basic things to understand here…


Doklam is a disputed area between Bhutan and China…

To be fair, Doklam is a disputed area between Bhutan and China. Bhutan is a small nation sandwiched between China in the North and India in the south. Over the last many years, Bhutan has held on to its preferred relationship with India. When the Tibet problem arose in 1959, India had promised to protect Bhutan and the latter had accepted the same. However, over the last few years Bhutan and China have expanded their trade relations substantially. The Doklam standoff started when China decided to extend its paved road closer to the disputed area which India felt was a direct assault on its security and sovereignty. As a result, the Indian army has disrupted the Chinese building of roads in that area. While both China and India have stood their ground, there are 3 reasons why this is unlikely to precipitate into a full-fledged war.

It is not army strength but the theatre of war that matters…

The Chinese army did inflict losses on India in 1962 but that may not be too relevant here. Both the nations have grown their armies, air power and naval prowess substantially over the last few years. Both nations realize that in this war the theatre will matter more than anything else. The border between India and China stretches for more than 4000 km and in most places the borders stretch across highly in hospitable sectors. Any war will be prolonged resulting in losses for both sides and is most likely to be inconclusive. Across the 4000 km Indo-China border, there are areas where India has a positional advantage and there are places where China has the same.

Also,there will be multiple theatres and the war will be fought on land borders, through air and in the sea. For both the nations, war appears to be an impractical situation. China has had two bad experiences when it wrongly chose its theatre of war. China faced an embarrassment against India in 1967 when it was forced to withdraw from the Nathu La Pass and the Chola Pass near Sikkim. Similarly,China’s 1979 invasion of North Vietnam also provided to be a disaster. In both cases, the theatre of war was unfavourable to the Chinese.

China will not want to lose its trade edge with India…

India runs an annual trade deficit of $62 billion with China. In fact,China alone accounts for more than 60% of India’s annual trade deficit and that is an advantage which China will be unwilling to cede. India has already shown resistance in many ways. For example,India has already imposed anti-dumping duties on many Chinese products and that could only heighten if the stand-off continues.China is already under pressure from the US to compress its trade surplus with the US and it will be pointless for China to risk retaliation from India. Also, India is an economy growing at 7-8% per annum on a GDP base of nearly $2.5 trillion. No country in the right frame of mind will want to lose out on such a market.

Any Indo-China war will not remain a regional war any longer…

Any war between India and China is likely to draw in more number of participants. Willingly or unwillingly; major military powers like the US, Russia, Israel and Japan are likely to get involved. China is already hinting at its expansionist tendencies in the South China Sea and most of the countries like Vietnam and Philippines will also get involved. In short, the war will not be limited to India and China alone. In fact, it is more likely that global powers will try and prevail upon both the nations to opt for a more conciliatory approach.

The bottom-line is that for India and for China the economic and strategic stakes are just too high. Both the economies are trying to build a growth model in the aftermath of a prolonged slowdown and war will be an unnecessary distraction. Both the countries realize that it is more important to display strength rather than to fight an actual war. What really began with a bang is most likely to end in a whimper!
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