ASIA: China, India See Trade as Fence Mender

By Paranjoy Guha Thakurta

NEW DELHI, Nov 19 (IPS) - Chinese President Hu Jintao's four-day visit to India from Monday 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 percent of the population of the world but are expected to be among the largest economies (together with the United States) in the foreseeable future. After a brief but bloody border war in 1962, ties between India and China started a slow thaw only from the late-1980s onwards. There is no dearth of people in both countries who are suspicious of the other's intentions to 'dominate' the continent and claim territory.

China's Ambassador to India Sun Yuxi stirred a major controversy on Nov. 13 when he told a television interviewer that the north-eastern province of Arunachal Pradesh was Chinese territory. His remarks elicited angry denials from Indian officials led by External Affairs Minister Pranab Mukherjee. In the past, China has expressed its unhappiness with Indian assistance to those supporting independent nationhood for Tibet.

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. It is further claimed that counterfeit products with fake labels of well-known brands are manufactured in China for Indian consumers and these products hurt the interests of legitimate manufacturers.

Bureaucrats and defence experts in New Delhi are wary about Beijing's close economic and military links with India's neighbour Pakistan with which the country has a long history of animosity. 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 centre-left United Progressive Alliance coalition led by the Congress party that is currently in power in New Delhi.

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. These allegations are denied by Indian officials. Both countries claim the other is on occasions less than willing to issue visas to visiting businesspersons.

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 U.S. dollars in 1980 to nearly eight billion dollars in 2003.

The figure of aggregate export-import trade is expected to touch 20 billion dollars during the current financial year (ending in March 2007) and is slated to touch 30 billion dollars by 2009, states a report prepared by the Federation of Indian Chambers of Commerce and Industry (FICCI). If these projections materialise, China would overtake the U.S. as India's largest trading partner.

"With China's entry into the World Trade Organization, immense opportunities have àopened up for setting up joint ventures and business collaborations," the FICCI report said.

A bureaucrat from India's Commerce and Industry Ministry, speaking to IPS on condition of anonymity, pointed out that despite claims of discrimination, 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 mechanical machinery, metallurgical equipment, engineering, chemicals, 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 8 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, who has travelled extensively in both India and China since the 1950s, told IPS in an interview that the two countries have a lot to learn from each other's development experiences. He points out that "in the early 1950s, thanks to Pax Britannica, India's roads, railways and power networks were superior and more extensive that those of China but, thanks to large public investments, the situation had completely reversed by the end of the 1970s."

Etienne adds 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. Chinese companies are also less equipped than Indian firms in expanding abroad, says he. Analysts argue that one reason for this could be that Indians have better command over the English language.

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. India prides itself as being the world's largest democracy. But its economy is smaller and growing at a slightly slower pace in comparison to that of China.

Foreign direct investment (FDI) has been pouring into China at levels exceeding 150 billion dollars in new agreements. In contrast, over the last ten years, cumulative inflows of FDI to India have aggregated roughly 45 billion dollars. These figures are, however, not strictly comparable.

A study conducted by the International Monetary Fund concluded that if India and China defined FDI in an identical manner, the differences in the FDI inflows claimed by the governments of the two countries would narrow considerably and if FDI as a proportion of GDP is compared, the difference would be negligible -- 2 per cent in the case of China against 1.7 per cent for India.

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.The FICCI report says India has opportunities to expand exports of a wide range of items to China such as cotton yarn, fabrics, automotive parts, electronic components, IT products and services, pharmaceuticals, handicrafts, marine food, fruits, vegetables and construction materials. (END/2006)