China, India see trade as fence mender

New Delhi, November 19:

Chinese president Hu Jintao’s four-day long visit to India from tomorrow has revived an old debate on whether the planet’s two most populous countries could become closer collaborators rather than cut-throat competitors. Can trade and investment help two of the world’s fastest growing economies mend relations marred by decades of mistrust and acrimony?

The Asian giants not only account for nearly 40 per cent of the population of the world but are expected to be among the largest economies together with the US in the foreseeable future.

In recent years, markets in Indian cities have been flooded with inexpensive Chinese products — from light bulbs, toys and garments to even pictures of Hindu gods and goddesses. Many local businessmen feel threatened by these cheap imports and allege that these goods flow from China into India through its porous border with Nepal.

Bureaucrats and defence experts in New Delhi are wary about Beijing’s close economic and military links with India’s neighbour Pakistan. Over the last year, citing national security concerns, Indian government officials have been successful in blocking at least two major investments by Chinese firms in telecommunications and in the development of a sea-port.

The cause of Chinese companies has been taken up by members of the Communist parties that provide crucial ‘outside’ support to the government. Representatives of Chinese organisations, on the other hand, have claimed that they have been unfairly discriminated against despite offering the lowest bids for execution of projects and supply of equipment.

Still, trade between the two countries has increased impressively, often exceeding the expectations of the governments of the two countries. Two-way trade between India and China surged from $260 million in 1980 to nearly eight billion dollars in 2003. The figure of aggregate export-import trade is expected to touch $20 billion during the current financial year and is slated to touch $30 billion by 2009, states a report by the FICCI. If these projections materialise, China would overtake the US as India’s largest trading partner. “With China’s entry into the World Trade Organisation (WTO), immense opportunities have opened up for setting up joint ventures and business collaborations,” the FICCI report stated.

Dozens of major Chinese companies have been permitted to set up offices in India over the last few years. These firms are in a variety of industrial sectors, including mecha-nical machinery, metallurgical equipment, engineering, che-micals, automobiles and silk.

Indian companies too — in sectors such as information technology, pharmaceuticals, automotive components, iron and steel and chemicals — have established a presence for themselves in China from the 1990s. “India has often been compared to an elephant and China with a dragon — at eight per cent per year India’s economic growth rate is coming close to the 10 per cent level achieved by China and I believe that if today’s competitor becomes tomorrow’s collaborator, this will be good for humankind as a whole,” says Rajesh Shukla, senior fellow at the National Council for Applied Economic Research, an autonomous research body based in New Delhi.

Gilbert Etienne, professor emeritus, Institute of International Studies, Geneva said that in rural China, the agricultural practices that are followed are far superior to those in India. At the same time, he pointed out that ‘China ranks among the world’s most wasteful users of natural resources’ and such trends in manufacturing industry should certainly not be emulated by any country.

Economist and international trade expert T K Bhaumik argues that the China has been able to grow faster than India because of a ‘superior economic reforms strategy’. “Unlike Mikhail Gorbachev in the former Soviet Union, Deng Xiaoping did not discourage the public sector while encouraging private enterprises,” he says, adding that this aspect of China’s economic experience was worth following by countries like India.

India has nearly 1.1 billion people, while China has 1.3 billion. Despite the apparent similarities, there are also major differences in the political and economic systems of the two. Foreign direct investment (FDI) has been pouring into China at levels exceeding $150 billion in new agreements. In contrast, over the last ten years, cumulative inflows of FDI to India have aggregated roughly $45 billion.

A major difference between the two economies is that whereas China is a manufacturing powerhouse, India has emerged as an important provider of a range of services, especially those related to computer software and information technology (IT). Much of the rise in India’s exports to China has been fuelled by the latter’s voracious appetite for raw materials such as metal ores and petro-chemicals.

At present, over 70 per cent of Indian exports to China are concentrated in three product categories: ores, slag and ash; iron ore; and plastics. India buys a wider range of products from China including electrical equipment, nuclear reactors, mineral fuels, organic chemicals and silk.