China and India Aren't Afraid to Use Money as a Weapon

Chinese yuan. Wikimedia Commons/Creative Commons/@Junjiewu99

While India and China publicly disapprove of economic coercion, both have used it as an instrument of statecraft.

“Major powers have to work with each other even if their interests diverge on some issues,” India’s Foreign Secretary S. Jaishankar stressed at the recently concluded India China Think-Tanks Forum in New Delhi. However, within the next few days, two articles in significant Indian and Chinese dailies seemed to have dampened the spirit of cooperation. Talking about a Chinese consignment worth $2.8 million dispatched to Nepal, a widely circulated Indian newspaper said that the shipment “will severely hit Indian businesses.” A reporter at the Chinese state-run Global Times was quick to respond, insisting the move did not mean that “Chinese goods will push Indian products out of the country.” Impassioned media debates ensued.

While reports of competition between the two rising states is common, such discussions have been frequent since September of last year. Accusing India of imposing an unofficial economic blockade shortly after the promulgation of the Nepali constitution, then prime minister of Nepal K. P. Sharma Oli stepped up his country’s engagement with China. While India denied its involvement, its support of the Madhesis—the minority group protesting against the constitution and leading an economic blockade—was widely acknowledged.

As both states expand their economic ties with other states, it should be remembered that while India and China may have disapproved of economic coercion at international forums, much like great powers in the West, both have used it as an instrument of statecraft. By employing economically coercive measures, like economic blockades, embargoes, financial sanctions, import bans and suspension of aid, India and China have sought to promote their interests and support issues they believe in. Yet, compared to the West, both have often remained reticent about their economically coercive policies.

India’s Use of Economic Statecraft

In 1946, India became the first state to impose economic restrictions on South Africa, to protest against the discrimination of the Indian community living there. After India attained independence from the British rule, the measures continued.

Policies employed to integrate the princely states into the Indian union were also at times economically coercive. The Indian provinces of Hyderabad and Goa faced such measures in 1948 and 1954. In 1987, following a coup d’état in Fiji, India imposed economic sanctions on that country. Like in South Africa, the decision was made to protect the interests of people of Indian origin. The coup had instated Lt. Col. Sitiveni Rabuka as head of state, whose policies were detrimental to Fijians of Indian origin. Proximity to China seems to have invited economic penalization when India imposed a nearly fifteen-month-long trade embargo on Nepal, which partially closed India’s borders with its neighbor in 1989. The action was believed to be India’s response to Nepal’s import of antiaircraft guns from China.

Although India granted Pakistan Most Favored Nation status in 2006, some of New Delhi’s policies have directly or indirectly had an adverse effect on Pakistan’s economy. In 2001, after an attack on the Indian parliament, Delhi imposed sanctions against Pakistan, responding to Islamabad’s lax attitude about the terrorist groups accused of the suicide attack. As External Affairs Minister Jaswant Singh announced, the strength of the High Commissions was reduced, Pakistan High Commission officials were confined to Delhi and overflight was banned. Bus and train services between Lahore and New Delhi were also suspended.