The Hindu Business Line : India-China ties

While the political and economic relations between the two Asian giants, marred by decades of distrust, now appear to have been put on a new footing, it is certainly not a `great leap' yet. Efforts are, therefore, needed from both India and China to overcome the negative emotions and be guided by economic pragmatism, says S. D. NAIK.

THE PRIME MINISTER, Dr Manmohan Singh (right), and the Chinese President, Mr Hu Jintao... For the partnership to grow, there must be enhanced political sensitivity, trust, and enthusiasm on both sides.

The Chinese President, Mr Hu Jintao's recent four-day visit to India is expected to facilitate further improvement in trade and investment between the two countries. Hopefully, the closer economic engagement will help them exploit the synergies and work together for the realisation of broader regional economic integration in Asia. However, while the political and economic relations between the two Asian giants, marred by decades of distrust, now appear to have been put on a new footing, it is certainly not a `great leap' yet.

The highlight of the Chinese President's visit was the adoption of a ten-prong strategy that envisages comprehensive economic and commercial engagement between the two countries and giving `greater content' to their strategic partnership. The two countries inked 13 agreements including MoUs to set up Consulates General at Guangzhou and Kolkata.

BILATERAL TRADE

Growth in trade and investment has been mainly instrumental in strengthening the economic ties between India and China over the past decade. The bilateral trade between the two countries has grown from $1.4 billion in 1996 to $18.7 billion last year. It is set to cross the $20-billion mark this year. The two countries have now fixed a target for doubling the bilateral trade flows to $40 billion by 2010.

While the two-way trade has been growing at a healthy rate, there is a major imbalance in that India's exports to China are dominated by iron ore and other raw materials and imports from China consist of high-value manufactured products. Hence, there is a need for diversification of India's export basket to China with the addition of more value-added products. Otherwise, it would be quite difficult to sustain the growth momentum of bilateral trade between the two countries for long.

The Chinese leadership also recognises the prevailing imbalance between the trade baskets. Hence, the Chinese President has stressed the need to work towards improving the trade structure, increasing technology content in commodities and adding value to them as also increasing the share of new and hi-tech products. "In areas where conditions are ripe, we should promote border trade to widen bilateral trading channels," he said.

MUTUAL INVESTMENT

Apart from trade, the investment between the two countries is also growing, though at a relatively slow pace. A number of Indian companies have set up shop in China over the past decade; Ranbaxy entered into a joint venture in China in 1993. Today, the company's sales and marketing force covers over 25 provinces and 2,000 hospitals there.

Some of the major Indian companies that have set up base in China in recent years include the Aditya Birla group, Sundram Fasteners, Essel Packaging and Reliance Industries. Also, companies such as Videocon, Onida, Tube Investments, Nitco, Apollo Tyres, JK Tyres, Aegis Safety, TVS Motors, United Phosphorous, Hero Cycles, and Bajaj Electricals, source from China.

In the automotive segment, the country's major tractor manufacturer, Mahindra and Mahindra, has set up a joint venture in China, Mahindra (China) Tractor Co Ltd, to assemble tractors for the domestic and export markets. Now, the company is also eyeing the Chinese auto-component market. A number of Indian pharma companies are also looking up to China as a major manufacturing destination. The Chinese manufacturing expertise in a number of other industries, particularly consumer durables, is being sought by India Inc.

China is also seeking Indian expertise in the IT sector. In the last three years, most of the leading Indian IT companies such as TCS, Infosys, Wipro, and Satyam have set up their offices in China. Of late, some smaller Indian IT companies have also entered China. Apart from Chinese clients, all these companies are also getting business from MNCs based in that country; in fact, their business growth from MNCs is much higher than from Chinese companies so far.

The investments by Chinese companies in India, on the other hand, are as yet much smaller, largely because of the procedural delays from the Indian side. Some of the FDI proposals in Indian ports were reportedly held back citing security concerns. Even so, Chinese companies are already involved in Indian infrastructure projects worth about $2 billion. More is in the pipeline as the two countries have reportedly signed economic and technical contracts worth $6.1 billion.

STRATEGIC PARTNERSHIP

Of late, there is a growing realisation that China and India need to work together for moving towards a broader regional economic integration in Asia . As Mr K. Subramanyam, a noted expert on strategic issues, has pointed out, China used to regard India as a regional player and hyphenated it with Pakistan. This attitude changed in 2005 when the Chinese Prime Minister, Mr Wen Jiabao, visited India in the wake of the US announcing its goal to help India become a major world power. Now, China seems to be willing for a strategic partnership with this country.

The booming demand for energy and the dependence of the two countries on large-scale imports of oil and gas have pushed them to secure oil equity abroad and, very often, Chinese and Indian companies have competed to obtain a stake in the same overseas field. A strategy based on co-operation rather than competition could help them secure better terms and spread the risks.

As the Chinese President, Mr Hu said, India and China must strengthen co-operation at a multilateral level and improve the environment for bilateral investment and combine the respective strengths of the two countries in specific areas such as information technology, software, energy resources, infrastructure, science and technology and agriculture.

BELOW POTENTIAL

It must be admitted, however, that what has been achieved so far in promoting economic ties between the two countries is much below the potential in the area of mutual investments and even bilateral trade. As Mr Hu pointed out, while addressing the India-China Economic, Trade and Investment Co-operation Summit, jointly organised by Ficci, CII and Assocham in Mumbai on November 23, India-China trade took up a mere 7.8 per cent and 1.3 per cent of the countries' respective overall trade. "This is incompatible with the size of our economies," he said.

As the expert commentators in this area have rightly pointed out, for the strategic co-operation and partnership to grow and become truly irreversible, there must be enhanced political sensitivity, trust, and enthusiasm on both sides. While the pending border dispute between the two countries is a continuing irritant, New Delhi is also suspicious about China's relationship with Pakistan. Efforts are, therefore, needed from both sides to overcome the negative emotions and be guided by economic pragmatism.

It also needs to be stressed here that India is still a junior partner and has to make special efforts to catch up in a number of areas such as building world-class infrastructure, attracting more FDI and promoting labour-intensive manufacturing exports. To match China's growth rates, India needs a second wave of radical reforms.

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