THE CHANGING FOREIGN POLICY OF CHINA AND INDIA:-THE ROLE OF

AIIB
By: Dheeraj Kumar
Tiwari
Siddhartha Law College, Dehradun
Research Intern,
LexQuest

The world gestations about Asia is changing now and the power business
political policies for the Asian countries have changed a lot due to some
drastic recent activities that led to a chain of bilateral trade relations makeup
which would directly affect their sustained and developing economies. The
AIIB (Asian Infrastructure Investment Bank) is the new giant financial
institution for the Asian countries which has resulted in the altered scheme of
self-financing for the developing countries and led to weaken the domination
of IMF (international Monitory fund) and World Bank. The new bank is
expected to meet the regional need of development and growth.
This multilateral body (AIIB) to finance Asia is challenging the long held
dominance of the Bretton Woods system. The need felt for the establishment
of this financial institution was basically due to following reasons:

The Asias regional industrial and infrastructure growth is to be

increased whose objectives are not able to be achieved with the

present financial institutions.

As per the Asian Development Banks (ADB) assessment, Asia needs
on an average $800 billion of investment in infrastructure annually
between now and 2020. Against this, the ADB, dominated by Japan
which is also a founding member, lends no more than $10 billion a
year for infrastructure.

With the establishment of this institution for credit to the Asian countries
headquartered at Shanghai in China with 47 countries as founding members
including Israel, Taiwan and India as the second largest investor in it with a
25% investment to total for non-Asian countries as members. 1 The world will
now see two regional powers competing with each other and making their
bilateral relations more and more effective to ensure long run efficient and
rapid growth for the one and development for other. The two countries china
and India hence will try to maintain their foreign relations ensuring stability
of trade and investment between the two. 2 Growth and development are two
different terms often used for same purpose, the current situations prevailing
will lead to growth of China and development of India.
The Development of India
The present Indian government is an emerging power with global desires,
which has emphasized foreign policy as an urgency from the beginning in
order to evolve as a new economic power but first must be suitable for a
regional power. The present Foreign policies have a wider plan and objective
for transforming the economy of India from its grassroots level. Indias stock
market has risen by 30%, GDP growth is tracking nearly 6%, and Standard
and Poor has raised Indias credit outlook to stable, 3 now government is free
to indulge in international relations.
1

Dragon
power
on
display
Available
at:
http://www.thehindu.com/opinion/oped/dragonpowerondisplay/article7074432.ece.
visited on Apr 14, 2015.

Last

2 IndiaChina defence dialogue focuses on fresh steps to stabilize border. The Hindu,
Available at:
http://www.thehindu.com/news/national/indiachinadefencedialoguefocusesonfreshstepstosta
biliseborder/article7088511.ece

3 Indian economy returns to growth path Available at:http://economicoutlook.cmie.com/kommon/bin/sr.php?

kall=wshreport&nvdt=20150127171841520&nvpc=035000000000&nvtype=ANALY
SIS+%26+OUTLOOK

The two main foreign policy goals:

To consolidate Indias status as regional hegemon in South Asia.

To attract the foreign direct investments (FDI) critical for Indias
growth.

Economic transformation at home will govern Indias foreign policy slope,

and those with superfluous cash will be prioritised. Government may push at
the boundaries of Indias long-held non-aligned policy, but the significant
structure of its foreign policy will be corporate-style geo-economics. The
present government has political stability and has took many strong
decisions which has converted India into an Opportunity rather than
Threat for the neighboring countries. Focusing on Bhutan in the early first
and visiting Nepal breaking the 17 years trend, clearly shows that it is all
about recalculating its geostrategic approach. Relations with Japan, China,
Russia and Australia are gaining importance in relation to those with the US
and the EU, traditionally considered priority strategic partners. Indias foreign
policy focused on investment will certainly improve its goodwill for credit in
the international market.4
Growth of China
With a change in the Indias foreign policy and strenghting the domestic
powers and technology with making strong relations with the neighbours first
and then heading for West and the European negotiations and trade. This
provided a vacant space in the international market and also an opportunity
to

capture

and

nourish

their

economy

by

capturing

the

European

manufacturing market.5 However it is notable that the products and services

4 In Hannover, Modi paints India as attractive investment destination Available at :http://economictimes.indiatimes.com/news/economy/foreigntrade/inhannovermodip
aintsindiaasattractiveinvesmentdestination/articleshow/46904319.cms?prtpage=1
5 China wants to buy Europe: Chinese investors have powerful attraction to EU
companies,The Economic Times, Available at:
http://economictimes.indiatimes.com/news/international/worldnews/chinawantstobuyeurope
chineseinvestorshavepowerfulattractiontoeucompanies

offered by china are not durable for long run and lacks a long life
sustainability.6
The one belt, one road project is Chinas most ambitious regional initiative.
The Silk Road Economic Belt (SREB) and the 21st Century Maritime Silk Road
(MSR) are the two major components of this strategy. There is also the China
Pakistan Economic Corridor, which also touches the Afghan border. China has
pledged $40 billion for the Silk Road fund and Xi stated that this fund aims to
break the bottleneck in Asian connectivity by building a financing platform7
The AIIB is poised to focus on development of major infrastructure projects
and gels well with China and the Asia Pacific Economic Cooperation (APEC)s
plans to improve regional connectivity in Asia. China wants to lead and guide
the next wave of Asian regionalism. Which is the founding block of the AIIB
and the one belt, one road strategy. Chinas willingness to increase
economic integration also comes from the fact that China is facing a real
economic slowdown and is also seeking a qualitative leap in the structure of
its economy. Thus, AIIB and the twin Silk Road strategies will lead the way in
creating contracts for large Chinese companies in the field of infrastructure
and also create direct as well as indirect employment opportunities for the
Chinese citizens. This process will be something like what has already been
happening in countries like Sri Lanka where banks from China supported the
large projects being built and operated by Chinese companies. These major
trends in the Chinas foreign policy will lead it to growth rather than
development.
Conclusion
6 'Made in China' tops European Union list of unsafe products,The Economic Times, Available
at:http://economictimes.indiatimes.com/news/international/business/madeinchinatopseuropean
unionlistofunsafeproducts/articleshow/46667034.cms

7 Xinhua, China Pledges 40 Bln USD for Silk Road Fund, Xinhuanet, November 8,
2014, at http://news.xinhuanet.com/english/china/2014-11/08/c_133774993.htm

The chinas foreign policy is basically concentric in nature focusing a

unilateral growth with the aim of silk route and the AIIB establishment
which is likely to take longer than the estimated time and will be fruit full
only in the long run. India the largest economy by 2030 throughout Asia 8 is
in the path of development by promoting the Make in India and endorsing
the world Brand India. By promoting the regional trade and investment
India is expected to grow at 7.8 per cent in 2015-16 as per the Asian
Development Bank.9 The transformed business and trade policies are going
to provide the world the biggest demographic segmented market to ensure
rapid growth and investment10 to surpass China very quickly.

8 India may be third biggest economy by 2030: Report, The Economic Times, 13 Apr, 2015.
9 India to grow at 7.8 per cent in 201516 Surpass China: ADB, The Economic Times,
25 Mar, 2015.
10 Investing in India yields highest returns in world, says Prime Minister Narendra
Modi,The Economic Times, Available At:
http://economictimes.indiatimes.com/news/economy/policy/investing%C2%ADin
%C2%ADindia%C2%ADyields%C2%ADhighest%C2%ADreturns%C2%ADin
%C2%ADworld%C2%ADsays%C2%ADprime%C2%ADminister%C2%ADnarendra
%C2%ADmodi/articleshow%E2%80%A6