Irrational Indian-Chinese energy security relations?

India and China are the raising giants of the 21st century. Both countries are ancient civilizations with a rich cultural heritage. Their interactions date back more than 2000 years, when Buddhism got introduced to China through various channels of the Sutra-Route, followed by economic interactions during the Silk Road period^[1]. Both countries perceived themselves as the center of their known universe and both countries suffered defeat from European colonial powers.

After independence in 1949 and 1947 respectively China (independence indicating the Communist revolution causing Jiang Kai-shek to flee to Taiwan) and India choose the same approach of autarkic state controlled economic development^[2].

At the Bandung Conference in 1955, China and India called each other brothers^[3]. The Sino-Indian border war of 1962, actually being the aftermath of British dominion over Asia caused a deep-rooted split between the two nations and Asia^[4]. Mistrust remained and the border issue has not been solved.

In 1978 and 1991 respectively China and India turned themselves towards the global economy, leading to a still ongoing integration and reform process^[5].

However, since China’s reform started 13 years earlier than India’s, various asymmetries exist between the two Asian giants. Economic indicators reveal that China is not only more than one decade ahead of India, it is also gaining distance^[6]. Regarding global integration, China has become a core player in the global economic structure, while the same cannot generally be said about India. Another difference between China and India is the way they are governed. India is a democracy^[7], while China is ruled by the Chinese Communist Party (CCP)^[8]. As a result China is considered more pragmatic in its decision making process compared to India^[9]. On the other side India’s system could be considered superior to China’s in terms of exogenous shock resistance, for instance in a period of economic recession, China has not experienced since the beginning of reform.

India hosts many unused resources and has a demographic advantage^[10]. Therefore it is quite likely that in the future India’s role in the world will be equal to China’s.

Sino-Indian relations have been following the pattern of a roller-coaster ride. In 2005 a Strategic Partnership Agreement was signed between India and China^[11]. However since that event mistrust has dominated their relationship again^[12].

Asymmetries in perception are also evident.

India perceives China as a threat that aims to encircle it (string of pearls strategy), regarding China as an equal opponent^[13].

China on the other side fears India, which it considers merely a regional power, being a tool of the USA’s China containment strategy^[14].

Nevertheless it is questionable if this perception is in the best interest of India and China or if a cooperative strategy would yield higher benefits for both countries.

In that regard Sino-Indian energy policy will serve as the key example. Both countries highly depend on imports and it is in both countries best interest to cooperate in that matter^[15].

However, apart from some examples of cooperation, military upgrading especially of the navy^[16], media reports and political statements imply mutual mistrust.

The question is, if this behavior is irrational or if there are rational forces to be identified, gaining from Sino-Indian resentments.

Theory

A theory is a definition, seeking to systemize reality, in order to create insight in cause-effect relations.

It explains what has happened but also provides tools, in order to derive what is going to happen.

However, logic intermediating between cause and effect^[17] is itself imperfect.

According to Gödel^[18] every formalized system created by a human mind eventually reaches a point where it is imperfect or contradictory, leading to a black box which is common to all theory and which must be filled with intuition^[19].

Therefore in order to derive knowledge from reality one can either define an absolute, like fundamental laws, every actor in the system has to oblige or gather information empirically and derive absolute laws from the samples^[20].

Both approaches and any combination of them yield imperfect results.

Theories are only attempts to explain and should be questioned at all time.

On the other side theories are necessary because without them only chaos would persist.

Regarding Sino-Indian energy security relations a rational choice approach will be chosen.

Accordingly it is assumed that the decision makers are following the logic of transitivity, implying that situation A is always preferred to situation B if A leads to greater utility then B^[21].

Utility in the following analysis relates to economic growth since it is a proxy for social stability in the case of China, and a proxy for reelection in the case of India.

Decision makers are optimizing the following problems:

costs of securing energy resources abroad= l(drilling and mining rights, substitution effects,…)

Substitution effects= m(market disruptions, …)

Market disruption= n (influence of interest groups,…)

Costs of securing transport lines= o(expected instability in the region bordering transport lines, terrorism, piracy, declining role of the USA, investments, alternative transport routes, alternative energy sources, mutual suspicion,…)

Mutual suspicion=p (misconception,…)

- Misconception=q (India’s interest blocking the Strait of Malacca, China threatening India, lack of trust, influence of interest groups,…)

Information is assumed to be complete over time, which indicates that the decision makers know the current costs and value of every choice over time.

Rational Choice approach in Sino-Indian energy security relations

Economic growth rates in China and India have been surging over the last decades averaging 10-11% and 8-8.5% respectively^[22]. Economic growth is the key objective for reelection (in the case of India) and social stability (in the case of China).

Because of industrialization, urbanization, and increasing energy intensive consumption, economic growth depends on energy inputs ^[23].

The main source of energy in China is coal (73%) followed by oil (21%)^[24]. In India coal accounts 55% of energy supply followed by oil (34%)^[25].

Consumption of oil and coal has been increasing significantly over the past years. In 2010 China and Indian are ranked 2nd and 4th (regarding oil consumption) and 1st and 3rd (regarding coal consumption) in global comparison^[26].

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^[1] Maddison 2005, 143

^[2] Holslag 2010, 78

^[3] E Zhukov; 1955, 13

^[4] Pokhama 2009; 153

^[5] Bhat, T.P.& Guha, Atulan& Paul, Mahua; 2009; 74;

^[6] http://comtrade.un.org/db/default.aspx

^[7] http://indiacode.nic.in/coiweb/welcome.html

^[8] http://english.peopledaily.com.cn/constitution/constitution.html

^[9] Holslag; 2010; 67

^[10] www.hdr.undp.org

^[11] http://www.chinadaily.com.cn/english/doc/2005-04/12/content_433264.htm

^[12] http://atlanticsentinel.com/2010/09/sino-indian-rivalry-heating-up/

^[13] Holmes, James R.; China’s Naval Ambitions in the Indian Ocean; 370

^[14] Holmes, James R.; China’s Naval Ambitions in the Indian Ocean; 370

^[15] http://www.eia.doe.gov

^[16] www.globalsecurity.org

^[17] Thomas M. Seebohm: Philosophie der Logik, 1984

^[18] Nagel; Gödel’s proof; 2004

^[19] Faris; Shadow if the mind; 1996

^[20] Mäki, I.U. Universals and the Methodenstreit: A reexamination of Carl Menger's conception of economics as an exact science (1997)

^[21] http://wirtschaftslexikon.gabler.de/Definition/transitivitaet-der-praeferenzordnung.html

^[22]data.worldbank.org

^[23] Zhao Hong, China and India- the energy policies, 1

^[24] http://www.eia.doe.gov/cabs/China/Background.html

^[25] http://www.eia.doe.gov/cabs/India/Background.html

^[26] International Energy Agency; Key World Energy Statistics 2010