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When Modi and Xi meet in Wuhan, investment is likely to drive the agenda

Hot on the heels of a European tour, India’s wildly popular Prime Minister Narendra Modi will travel to China this weekend for an informal summit with China’s newly reconfirmed paramount leader President Xi Jinping. With both leaders at the height of their powers, expectations are running high. The two-day get-together in Wuhan is being billed as “unprecedented” and “the most important since 1988” by both the Chinese and the Indian press, even though the agenda (if there is one) is shrouded in secrecy.

Apparently in the works since last September, the summit announcement caught the world by surprise last Sunday. Summit meetings are usually planned months in advance. This one is going forward on just five days’ public notice. The two leaders have apparently agreed to meet privately, without aides. They have also announced in advance that they “will not sign any agreements or issue a joint statement.”

So just what will they do?

In the absence of facts, speculation abounds. The two leaders are variously rumored to be seeking a solution to long-running border disputes, discussing India’s endorsement of China’s Belt and Road Initiative (BRI), or even plotting a pro-globalization alliance against U.S. President Donald Trump.

None of these is likely. The first would require detailed planning involving armies of advisors, the second hardly calls for a meeting, and the third is merely journalistic wishful thinking. So what will the two leaders discuss? Two days with no agenda, no aides, and no agreements is a long time to just talk. There must be something in the works.


Nationalist Street Cred

Modi and Xi lead the two largest countries in the world, but they have more in common than that. Both Modi and Xi are going to Wuhan as popular, one might even say populist, leaders. India may be a robust multi-party democracy and China a one-party state, but Xi is every bit as sensitive to public opinion as his Indian counterpart. And like Modi in India, Xi aggressively leverages Chinese nationalism to reinforce his own popularity.

Competing Indian and Chinese nationalism is often seen as a source of tension when it comes to relations between the two, as was seen during last year’s Doklam Plateau standoff. But like Nixon and Mao in 1972, Modi and Xi have enough nationalist street cred to be able to cut a political deal — if they want to. And the only deal big enough to make it worth their while would be one on investment.

News on the street is that Chinese investment is quietly pouring into India, much of it below the radar screen because it is channeled in via third countries. Much of the Chinese money is going into venture capital and startups, particularly in the tech sector. These kinds of investment may lack the media splash of big agreements like the ones announced during Xi’s 2014 visit to Delhi, but in the long run they are much more transformative — and much more robust.


Complementary Economies

Simply put, India needs Chinese investment, and China needs Indian markets. Nationalists in both countries may not like it, but China and India can only prosper if they work together. India is now the world’s fifth largest economy and growing fast, but it doesn’t yet benefit from its neighbors the way China did a generation ago. Most of India’s neighbors are too poor and growing too slowly to need to move industries offshore to India. All except China.

China has the opposite problem. China’s manufacturing industries are starting to price themselves out of the country just like Japan’s and Korea’s once did. But where can they relocate to continue expanding? Most of China’s neighbors along the BRI are far too small to absorb substantial amounts of Chinese capital. Only India has the scale to be worth the while of potential Chinese investors.

Until now, economic cooperation between China and India has been held back by nationalist tensions. Modi and Xi could cut through all that. It wouldn’t take a resolution of border disputes or a dramatic geopolitical realignment. All it would take is political will not to interfere. To see that, just look at the depth of Japanese investment in China. Nationalists in China and Japan may be perennially at loggerheads, but that doesn’t stop Japanese firms from investing heavily in China. China could potentially play the same game in India.


No Time For Golf

Only one thing is certain this weekend: Modi and Xi won’t be playing golf in Wuhan. Both leaders have cracked down on bureaucrats playing the game as a way to support squeaky-clean reputations for good governance. But they could be playing a much more exciting game, and for much higher stakes. They could give the green light to clear out one of the biggest artificial blockages remaining in the global economy.

India and China will never be major trading partners. The difficult geography of their Himalayan border ensures that. But they could become major economic partners. And the politicians wouldn’t have to do much to make that happen. All they would have to do is agree to let the economy take its natural course. Maybe Modi and Xi should follow the example of Western politicians and take up golf after all. It’s a great way to keep politicians out of the way.

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Sydney-based globalization expert Salvatore Babones is available to speak on the Chinese economy (demographics, growth, technology), the Belt & Road Initiative, global trade networks, and Australia-China relations. Contact: