Bloomberg News

Modi Heads to Japan With Billionaires in China Balancing Act

August 28, 2014

Indian Prime Minister Narendra Modi

Narendra Modi, Prime Minister of India. Photographer: Vivek Prakash/Bloomberg

Indian Prime Minister Narendra Modi travels to Japan this weekend to boost ties between Asia’s second- and third-biggest economies, both of which are embroiled in territorial disputes with an increasingly assertive China.

Modi, 63, is leading a delegation of executives, including Mukesh Ambani, India’s richest man, on a four-day visit. Modi will discuss ways to boost economic, defense and energy cooperation with Japanese Prime Minister Shinzo Abe, according to an Indian foreign ministry official who asked not to be identified because he’s not authorized to speak with the media.

“The partnership between Japan and India has the potential to alter Asia’s landscape; it can be as important as China’s rise or the U.S. pivot to Asia,” said Brahma Chellaney, a professor of strategic studies at the Centre for Policy Research in New Delhi who has written a book about the rise of China, Japan and India, and has advised India’s government on security and foreign affairs. “It is a strategic nightmare for Beijing, and they will do everything possible to block it.”

Modi has sought to implement a business-focused diplomacy to bolster India’s economy while also meeting a campaign pledge to take a tougher stance with neighbors China and Pakistan on border disputes. Japan is courting India as it seeks to limit Chinese influence in Asia and deter Beijing’s leaders from using force to assert control over contested territory.

‘Smart Diplomacy’

“With smart diplomacy, Modi’s India should be capable of improving relations with China and Japan at the same time, up to a point,” said Rory Medcalf, Director of the International Security Program at the Lowy Institute for International Policy in Sydney and a former Australian diplomat in India. “Part of Modi’s subliminal message may be that, while India-Japan ties are not directed at China now, their future path will depend on China’s actions.”

China is India’s largest trading partner, accounting for about 9 percent of the country’s total commerce, more than four times that of Japan, according to Indian Commerce Ministry data. Japan is the fourth-largest foreign direct investor in India, while China is not in the top 10, the data show.

The two leaders will reach an agreement on India supplying rare earth metals to Japan, reducing its dependence on China, the Nikkei newspaper reported today.

Abe has boosted ties with India since taking power in 2012 as he seeks to counter Chinese actions in the East China Sea, expanding defense and financial ties while visiting New Delhi in January. That courtship continued after the May election, with Modi one of only three Twitter users followed by Abe.

’Friendly Atmosphere’

Abe is taking the unusual step of traveling to the ancient capital of Kyoto to host a dinner there for Modi and show his guest around ahead of the start of official business on Aug. 31. The two leaders will also take part in a tea ceremony together in Tokyo on Sept. 1 and Modi will give a speech in Tokyo on Sept. 2.

“There’s a friendly atmosphere toward Japan,” said opposition Japan Restoration Party lawmaker Masato Imai, a member of the Japan-India parliamentary friendship league. “It’s easier for us to deal with countries with which we don’t have problems over history.”

Japan’s ties with China have been roiled by differences over Japan’s wartime actions.

India Strategy

India tends to align with the U.S. and Japan on political and security issues, while collaborating with China in economic matters, according to Zhang Guihong, a professor at the Institute of International Studies at Shanghai-based Fudan University, who researches South Asia.

“It can also take advantage of the tensions between China and Japan or China and the U.S to buttress its status as a major power,” Zhang said, referring to India. “Beijing would be upset only because the trip would make bad headlines for China, but the leadership knows India needs China to shore up its economic prospects.”

India and China, home to more than a third of the world’s people, have seen sporadic border clashes over the past five decades, with the latest one leading to a three-week standoff last year. Modi warned China to drop its “territorial mindset” in February and said his country’s weakness had encouraged China’s army to enter Indian territory.

Geopolitical Changes

Modi met last month with Chinese President Xi Jingping, his first one-on-one with a major world leader, while they attended a summit between Brazil, Russia, India, China and South Africa. Leaders from the countries have pledged to resolve a border dispute to unlock what Chinese Foreign Minister Wang Yi has called “a massive buried treasure waiting to be discovered.”

Japanese companies have helped finance some of India’s biggest infrastructure projects, including the western freight corridor, the Delhi-Mumbai Industrial Corridor and Bangalore Metro Rail Project. India is looking for $1 trillion in investment through 2017 to help build more roads and power plants, while Japanese companies are looking to invest abroad amid aging demographics and sluggish growth at home.

During Modi’s trip, India and Japan will seek to complete their first ever defense agreement and a deal on civilian nuclear energy, according to the Indian foreign ministry official, who added that they may not be signed during the visit. Talks will also continue on a possible Indian purchase of amphibious planes.

Billionaire Companions

Modi personally selected 12 of India’s leading industrialists, including Ambani, and fellow billionaires Gautam Adani and Azim Premji to travel with him, the Economic Times reported, citing people it did not identify. Ambani, chairman of Reliance Industries Ltd., doesn’t yet have any separate meetings scheduled and will be visiting only as part of the delegation, according to a company official who asked not to be identified because he’s not authorized to speak to the media.

Japan is currently India’s 16th largest partner, down from 11th a decade, according to Commerce Ministry data. The two countries have set a target of reaching $25 billion in trade by the end up of this year, up from $16 billion last year, according to government data.

“Before the Modi regime, the political landscape in India was a little difficult for Japanese companies to work around,” Kathy Matsui, chief Japan strategist at Goldman Sachs Group Inc. in Tokyo, said in an interview. “Now there is a vision of reform and a growth-orientated strategy.”

To contact the reporters on this story: Andrew MacAskill in New Delhi at amacaskill@bloomberg.net; Isabel Reynolds in Tokyo at ireynolds1@bloomberg.net

To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net Jeanette Rodrigues, Rina Chandran


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