London: Despite the Russo-Ukrainian War intensifying and no political solution to the conflict imminent, the world’s focus in 2023 will likely pivot from Europe toward Asia. With the Indo-Pacific comprising half of the world’s population and 60% of global gross domestic product (GDP), the region’s engine of economic growth is needed to help revitalize a sluggish global economy. However, the People’s Republic of China’s (PRC) hegemonic ambitions in the Indo-Pacific, including its coercive economic policies, threaten regional stability. With Washington creating a power vacuum in the Indo-Pacific due to US commitments in Europe, strong coalitions and regional multilateral institutions will be increasingly relied upon to counterbalance nefarious PRC policies. India’s increasing economic clout, with a GDP expected to double by 2031, will allow Prime Minister Narendra Modi’s government to shape these partnerships in the region’s best interests, including enhancing regional defence cooperation and ensuring the Chinese Communist Party’s (CCP’s) actions do not imperil a free and open Indo-Pacific (FOIP).
If the end to 2022 is any indication, the PRC’s economic slowdown will not curtail CCP ambitions for regional hegemony in 2023 and beyond. On Christmas Day, China’s People’s Liberation Army (PLA) conducted its largest ever strike drill into the Taiwanese air defence identification zone (ADIZ), sending 47 aircraft across the Taiwan Strait’s median line.Earlier in December 2022, PLA troops clashed with Indian forces in Arunachal Pradesh, injuring at least 34 Indian soldiers in the latest clash in the Himalayas.Beijing’s attempts to disrupt the status quo vis-a-vis Taiwan and the Line of Actual Control (LAC) between India and China is likely a test of Washington’s waning attention in the region, as America, traditionally the guarantor of a rules-based system in the Indo-Pacific, has instead prioritized Europe’s defence in the wake of Russia’s aggression toward Ukraine.As the Biden Administration remains distracted by war in Europe, India and its partners should aim to deter the CCP from pursuing destabilizing regional policies which may further disrupt an already fragile world economy.
India, as the Group of 20 (G-20) president and a member of the Quadrilateral Security Dialogue (Quad) with the United States, Australia, and Japan, has a national interest in helping to counter Beijing’s destabilizing actions.As G-20 head, India will lead an economic agenda for 85% of the world’s GDP, making policies aimed at counterbalancing the PRC essential for helping the global economy rebound.Should the CCP force reunification with Taiwan, it would lead to regional sea and air trade route closures, including disruptions to the world’s supply of semiconductors and other manufactured goods.Supply shortages would exacerbate world-wide inflation and delay global economic recovery.Further PRC provocations at the LAC would escalate tensions between two nuclear powers, likely stymieing western investment into the region for infrastructure projects.In addition, the PRC’s continued mercantilist-communist market distortions and “Dual Circulation” economic strategy lessen mutually beneficial commercial ties in the region and worsen supply chain security.
India, the Quad, and other partners which share similar economic and security interests should prioritize two objectives in 2023.First, India and its partners should mitigate economic dependence on China by diversifying critical supply chains, just as Beijing has minimized the PRC’s dependence on foreign markets through the “internal circulation” component of its economic model.
Prime Minister Modi has stated New Delhi’s G-20 presidency will focus on efforts to “depoliticize the global supply of food, fertilizers, and medical products.”G-20 efforts should not only aim to create resilience in key agricultural and pharmaceutical supply chains, but curtail PRC policies which disrupt other key sectors including rare earths, energy, technology, and other “high-value” manufacturing.India should deepen commercial ties with the United Kingdom and Australia, as well as other large Commonwealth economies including Singapore, Malaysia, and New Zealand, to lessen over dependence on the PRC for trade. Total decoupling from China is not only unrealistic, but unnecessary. Mitigating economic dependence on the PRC, however, through targeted decoupling is critical for lessening the impact of China’s coercive economic policies on the region.India can help differentiate its economic model from China’s and spur increased reciprocal trade with other regional partners by encouraging greater market access and the pursuit of anti-inflationary policies aimed at long-term growth, employment, de-regulation, and energy security.
New Delhi maintains an increasingly one-sided, dependent commercial relationship with Beijing, with India importing a record $89.66 billion of goods from China through September 2022. During the same period, India’s exports to China were $19.7 billion, a year-on-year decline of 36%.India’s dependence on China for imports has led to a worrisome $76 billion trade deficit and a trade model which could adversely impact the Indian economy if PRC-controlled supply chains are disrupted due to regional conflict or other CCP behaviour. Disruptions to supply chains during the Covid-19 pandemic and war in Ukraine would pale in comparison to shutdowns of Indo-Pacific air and trade routes if China’s aggression precipitates a regional conflict.
The G-20 task force on “global financial order” also presents India with an opportunity to further shape international infrastructure development finance options and compete with China’s Belt and Road Initiative (BRI).The India-led G-20 should encourage private sector finance options for such regional projects, as opposed to the government-financed BRI model which drains government coffers.As some G-20 economies struggle to rebound from recession, it is not realistic to compete with a government-funded BRI model which worsens deficits when private funding or investments from public pension funds remain options.
The second objective for Indo-Pacific security is better coordination of defence capabilities between India and its Quad partners to deter PLA aggression which may disrupt the regional economy.
The Quad should increase joint training exercises and freedom of navigation exercises through the Taiwan Strait and other open seas, to counter growing PLA naval dominance and deny the PRC any ability to use air and sea trade route closures as leverage.In addition, India and its Quad partners should work cooperatively with the Australia-United Kingdom-United States (AUKUS) trilateral defence pact on export control and investment restriction policies to prevent Beijing from acquiring technology or dual-use materials for surveillance or furthering PLA capabilities.
The Pacific Rim trade ecosystem has powered innovation and growth for decades and will be relied upon to help reverse the troubling trend toward global recession in 2023.While UScommitments in Europe will give the PRC a window of opportunity to dominate the Indo-Pacific and dictate terms to large regional economies, India and its partners have the wherewithal to reshape the region’s trade policies to no longer overwhelmingly favour the state-controlled Chinese market, and maintain peace and prosperity throughout the Indo-Pacific.
Darren Spinck is an Associate Fellow at the Henry Jackson Society, managing partner of Washington Consulting Solutions, and co-author of “A New Era for UK Policymaking: An Economic Denial Strategy in the Indo-Pacific”.