The Hindu Business Line : India-China economic ties

The understanding of the ground reality in China remains shallow in India and there is a strong undercurrent of suspicion in Sino-Indian economic relations. There is need for a paradigm shift in Indian thinking vis-à-vis China, says RAMGOPAL AGARWAL, suggesting specific approaches for the government, the business community, and academia.

China's development performance during the last quarter of a century has been impressive and perhaps the most important event on the world economic stage. Impressive, especially because China has sustained over the last 25 years the highest growth rate of income achieved by any major economy. And it did so by relying on its own resources and with remarkable stability in inflation and growth rate. Significant also because it impacted the lives of 1.3 billion people — far more than that by the rise of all Western nations and many times that affected by the rise of Japan and the Asian Tigers.

China's potential

Today, more than a few years back, there is a much better appreciation in India of the potential of China for trade and investment. Yet, by and large, the understanding of the ground reality of China remains shallow and there is a strong undercurrent of suspicion in India-China economic relations. This attitude does not serve us well for exploiting the opportunities presented by an economy that is likely to become the biggest market for goods and services within a decade, surpassing the US by a long chalk. It is about time, a different paradigm is developed.

One should first recognise that what is happening in India and China is a historical process that is shifting the centre of gravity of the world economy to Asia. This is the inevitable consequence of the working of global market forces, which are bringing about a process of factor price equalisation between the East and the West.

However, though this will be a fulfilment of the Western principles of equality, democracy and markets, there is an understandable resistance to this historic change from those that occupy that privileged position now. China is fully aware of this tension and can be a strong partner of India in ensuring their rise.

Economic equality struggle

If one recognises the reality of the joint struggle for economic equality, trade and investment relations with China can be seen in a different and more positive light. One would realise that the terms imposed on China for its accession to the World Trade Organisation were unfair. China was forced to give concessions in trade in goods and services which no other developing country did. In areas such as financial services and distribution, Beijing was forced to allow concessions more generous than those given even by developed countries, including the US.

Yet, China will not have market economy status until 2016, which means that a country importing from China does not have to follow the normal WTO rules in bringing anti-dumping action but can use a third-country price to justify such action. The Chinese are justly unhappy about the WTO agreement and in a relationship-based society such as China's this feeling of injustice is likely to affect ground-level implementation of the WTO agreement.

It is widely recognised that India is not yet well positioned to exploit the business opportunities in China. India's current exports to China are dominated by iron ore and other raw materials, which do not provide a basis for long-term sustained growth and are subject to fluctuation even in short and medium term. For India excellent opportunities should open up, particularly in the services sector, including finance, education, health, audit and accounting, legal practice and entertainment.

In addition, India can promote exports in a wide range of goods such as pharmaceuticals, auto and auto parts and engineering goods. But Indian businessmen complain of inadequate trade material available in English and non-transparent rules and regulations on trade and investment practices. The authorities seem to be preoccupied with controlling imports than promoting exports (the good old protectionist mindset).

If the paradigm of joint struggle for economic equality is accepted, the approach to trade relations will be entirely different. Three lines of action are suggested for the government, businesses and academic institutions.

Market economy status

First at the government level, unless there is clear evidence that Chinese exports to India or other developing countries are being deliberately under-priced for dumping, India should give market economy status to China. This status is not needed by China to promote its exports: It is doing quite well even with this unfair treatment. Its value is mainly symbolic. But this symbolic move by India will open the doors for other trade and investment negotiations.

Starting with this, India should initiate serious discussions with China for a Comprehensive Economic Partnership Agreement along the lines of what has been done with Singapore keeping in mind the broader economic partnership mentioned above. As discussions proceed, agreements can be signed on specific issues such as information-sharing, mutual recognition of professional qualification, agreement on standards, etc.

The government should make a breakthrough in improving connectivity with China by air, sea and land. Over time, as trade in Asia increases, sea-lanes are going to get congested and land routes may provide the more cost- and time-effective alternative. New Delhi should be more supportive of road and rail links between India and China, including those through Nepal and Myanmar.

Need for export promotion

For the business world, time has come to recognise the need for export promotion, particularly to a country that is destined to be the largest market. In each of the areas in goods and services where India seems to have market potential in China, a mission should be fielded by the industry concerned to visit China and draw up an action plan for the short, medium and long-term. The vision of a shared economic struggle for peaceful rise of both China and India will help in making these missions more productive.

Last but not the least, the academic community in India should make a determined effort to help business-people learn the Chinese language by starting Chinese language and cultural courses in educational institutions.

We are behind in this respect, even in comparison with such English-speaking countries as the US and the UK. With India's experience of relationship-based business operations, it should be realised that we can penetrate the Chinese markets, particularly in people-intensive service sectors, only if we are conversant with the language and culture of our customers.

(The author, formerly a Senior Adviser at the World Bank, is a Senior Adviser at RIS, New Delhi. The views are personal.)

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