Modi Sends Warning Shot to China, Pakistan on Territory Spat
Comment of the Day

August 17 2016

Commentary by David Fuller

Modi Sends Warning Shot to China, Pakistan on Territory Spat

From the sandstone walls of the 17th-century Red Fort in India’s capital, Prime Minister Narendra Modi sent a warning shot this week to his counterparts in Islamabad and Beijing.

Modi’s reference to disputed territories on Monday during his annual Independence Day speech -- his most high-profile appearance of the year -- signaled that India would become more aggressive in asserting its claims to Pakistan-controlled areas of Kashmir. The region is a key transit point in the $45 billion China-Pakistan Economic Corridor known as CPEC that will give Beijing access to the Arabian Sea through the port of Gwadar.

"This is a recalibration" after Modi’s overtures to Pakistan and China failed to yield results, says Harsh V. Pant, a professor of international relations at King’s College London. It’s also a message to China: "You may be investing a lot in Pakistan, and think that CPEC is a done deal, but without India’s approval you might find it difficult to follow through."

A more vocal India threatens to raise tensions in a region rife with deep-seated historical animosity that has made South Asia one of the world’s least economically interconnected regions. Various insurgents and militant groups threaten both China’s investments in Pakistan and progress in India-controlled Kashmir, where recent violence has killed about 60 people.

While India is more likely to redouble efforts on developing transport links with Iran and Afghanistan than sabotage China-Pakistan projects, the saber-rattling may deal a setback to investor confidence in the region, according to Michael Kugelman, senior associate at the Woodrow Wilson Center in Washington.

“The bottom line is that in a volatile region like South Asia, you don’t need actual aggressive actions to cause economic consequences," he said. “Mere threats can have a very real effect on the economic state of play as well."

In a bold rhetorical move on Monday, Modi overtly referred to the region of Balochistan, a resource-rich, insurgency-riven Pakistani province that is home to the strategic deep-water port of Gwadar. He also mentioned Gilgit, a Pakistan-administered region that borders China and Afghanistan -- the northernmost edge of the planned economic corridor.

David Fuller's view

Unlike China’s rhetoric over its territorial expansion in the South China Sea, Narendra Modi’s remarks do not amount to sabre rattling, in my opinion.  Nevertheless, the rapid economic growth of large nations such as India and particularly China over a number of years also encourages military build-ups, enabling leaders to project their interests with greater confidence.  When big nuclear powers are involved, even a whiff of territorial disputes can unsettle investors. 

India’s Mumbai Sensex Index signalled that demand had regained the upper hand with that big upside weekly key reversal off the reaction low in late February.  Three further upward dynamics were evident in the staircase upward trend of equal-sized steps which followed.  Previous resistance in the 28,000 to 30,000 range may now slow upward progress but a clear downward dynamic would be required to signal that supply was regaining the upper hand at these levels. 

China’s Shanghai Composite Index pushed above this year’s lateral resistance near 3100 earlier this week, breaking back above the 200-day (40-week) MA in the process.  A close back beneath 2900 would now be necessary to delay further recovery scope beyond a near-term pause.   

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