Skip to content

Why India’s ‘Act East’ needs China — And China’s ‘Go West’ needs India

India’s Prime Minster Narendra Modi has lately been talking up foreign investment in India’s impoverished northeast. As part of his Act East strategy for regional development, he has lobbied nearby Southeast Asian countries to invest more in India. It may seem strange for India to be lobbying other developing countries for investment, but India is a vast country harboring massive regional disparities. Parts of India could indeed benefit from ASEAN economic spillovers.

India as a whole has a GDP per capita approaching $2000, but its large northeastern state of Assam is stuck at around $1000, on a level with much of sub-Saharan Africa. Though some of India’s northeastern states are doing better, Assam alone makes up two-thirds of the Northeast’s population of 46 million. The problem for India is that most of the countries it’s asking for money are little better off than India itself.

Wishful thinking aside, minor improvements like a new road connecting India’s northeastern state of Manipur and Myanmar’s backward Sagaing region are hardly likely to spur an ASEAN investment boom. Even if, as planned, the highway does ultimately stretch on another 800 miles (1300 km.) to Bangkok, that won’t make much difference. If Thai industrial groups want to invest in a poor, rural district, they may as well do it in Thailand — or in Myanmar itself.

The problem India faces is that the one country in the region that actually has the technology and the outbound investment capital to help develop India’s northeast is the last country it wants to turn to: China. India and China spent several months last year locked in a high-altitude dispute over Chinese road building on the Doklam Plateau, a dispute that was only resolved after China pulled back from the project. Geopolitical relations remain frosty.

But Northeastern India’s Manipur state is closer to China’s western metropolis of Chengdu than it is to Bangkok , and Chinese firms are much more eager to invest abroad than anyone else in the region. Chinese companies also have the scale to invest in a meaningful way. The political and geographical barriers to greater Chinese investment in India’s northeast are daunting, and unlikely to be cleared any time soon, but the economic rational for closer ties is clear.

The geographical barriers separating India from China are no worse than those between India and Thailand, and maybe not as bad. In World War II, the U.S. Army pushed through a road from Assam to China, known to history as the Stilwell Road after General Joseph Stilwell, the U.S. commander responsible for its construction. The Stilwell Road has reportedly long since returned to mud, but there are regular calls for its reconstruction, some even coming from China. No doubt Chinese road and rail engineers could force the passage if they were allowed to.

The political barriers are more difficult. The Republic of India and the People’s Republic of China have been mired in border disputes and occasional armed clashes ever since their near-simultaneous establishment almost 70 years ago. And both countries have difficult relationships with Myanmar, which sits astride the only topographically practical route between them.

But India could benefit enormously from Chinese investment, and China is aggressively searching for export markets for its overgrown infrastructure and construction industries. China’s One Belt, One Road (1B1R) initiative is widely seen as a way for China to expand these markets, but most of China’s 1B1R neighbors are simply too small and too poor to absorb any meaningful proportion of China’s excess capacity. India’s GDP of nearly $2.5 trillion is equal to that of all ten ASEAN countries combined, and growing faster. And India’s economy positively dwarfs that of the five Central Asian republics.

Just as Narendra Modi has “Act East,” Chinese President Xi Jinping has his own “Go West” strategy to develop western China by spurring exports along the land and sea routes of 1B1R. China has the infrastructure; what it needs are markets. India has Asia’s third largest market (after China and Japan); what it needs is infrastructure investment. So far, politics and geography have prevented Asia’s two continental giants from working together for their own mutual benefit. The geography can be overcome. The politics are more formidable.

Published inAll ArticlesArchive
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: