India security jitters rattle growing China ties

In a sign of how seriously India takes the matter, Prime Minister Manmohan Singh reprimanded his environment minister this week for accusing the interior ministry of being alarmist and paranoid about Chinese investments in India.

Surging bilateral trade and shared interests on matters ranging from climate change to the role of emerging economies in global institutions mean the two rising giants do not want to let their frequent disputes jeopardise broader mutual interests.

India's decision to bar Indian mobile phone operators from placing orders with China's Huawei Technologies and ZTE Corp because of security concerns, according to industry sources, threatens to blow a hole in recent warming ties and bilateral trade approaching USD 60 billion.

"The most likely scenario is that the Chinese will go into dialogue with India to try to resolve this," said Bhaskar Roy, a New Delhi-based analyst on China.

China's ambassador to India and Chinese executives have been paying visits to the home secretary, who is in charge of security, to allay fears their gear can be used for spying.

If India sticks to its guns it would shut the Chinese firms out of the world's fastest growing telecoms market and drive up costs for Indian operators.

Capital spending by Indian mobile firms will approach USD 15 billion this year, from about USD 10 billion in 2009, said Shiv Putcha, managing analyst at Ovum India.

In a sign Beijing has little interest in escalating the dispute, both firms proposed building factories in India and Chinese executives of Huawei in India have gone so far as adopting Indian names.

"ZTE may win approval but it will be hard for Huawei to convince us because of the company's past links to China's Peoples Liberation Army. Don't forget we are not the only country worried about Huawei," a senior government source, who declined to be named, told Reuters.

Huawei, founded by a former PLA officer, says it is entirely owned by its employees but has long been shrouded in secrecy.

Srikanth Kondapalli, a professor of Chinese studies at Jawaharlal Nehru University, said while the row might rumble along, it will be at a low level and will not disrupt the broader relationship.

"Because both of them are rational actors, I think they will divide issues of cooperation, competition, or conflict," he said.

While the barring of Chinese telecoms gear has been front-page news in India, China's state media has made little mention of the dispute and has covered it as a corporate story, not as a potential source of bilateral tensions.