At the recent East Asia summit in Thailand, China and India announced that they will pursue negotiations for a free-trade agreement. Just a few weeks before, they signed an agreement to resist binding cuts and caps to their greenhouse gas emissions. The latest flowering of an ancient relationship which goes back almost 3,000 years, augurs well for the entire region. But there are issues which need to be sorted out with tact, patience and diplomacy.
Sino-Indian Border Dispute
Low level hostilities may surface over the disputed border regions. China claims about 90,000 sq km of the region as part of its territory. The two countries fought a short border war in 1962. The reports of Chinese incursions along the border have been shrugged off by both governments. Also last month New Delhi protested against a Chinese embassy policy of issuing different visas to residents of disputed Kashmir.
Tibet and Dalai Lama
Issues like Tibet, whose spiritual leader, the Nobel Peace Prize-winning monk, the Dalai Lama, is reviled by Beijing and is considered as a dangerous scheming separatist. It has protested against his week-long visit to the Indian state of Arunachal Pradesh which borders China. But India, which has been home to the exiled Dalai Lama since he fled a failed Tibetan uprising against Chinese rule in 1959, has cleared the visit.
China India Trade Gap
The trade between the two countries for the fiscal 2008-09 was USD 41.60 billion. Chinese exports to India were USD 31.33 billion. But India's exports were far less at USD 9.27 billion. This trade gap is a cause for concern for Indian firms. They believe that Chinese goods were dumped in the Indian market, as it faced a slump in the west. The Indian Government, has initiated the maximum number of anti-dumping investigations against Chinese imports.
Iron ore constitutes about 53% of India's total exports to China. Indian companies have eyed the $615 billion Chinese domestic market by using it as a production base. But with little scope for boosting merchandise exports to China, India’s services exporters have stepped in, and some of the leading IT companies have set up operations in China. Value-added items dominate Chinese exports to India, especially machinery, and constitute about 36% of exports from that country.
Indian Companies in China
India's technology and services-oriented companies complement Chinese manufacturing and infrastructure strong points. Already two-way relations have been established. Pharmaceutical firms such as Ranbaxy and Dr. Reddy's Laboratories, and Indian IT companies like Infosys, TCS, Wipro, NIIT and 3i Infotech have operations in China. But Indian companies have not grown as fast as expected in China. This could be due to not employing Chinese in management roles and cultural differences.
Chinese Investment in India
A Chinese business delegation was in Bangalore recently to promote Chengdu as an investment hub. The choice of Bangalore is significant. The most cited success story of Chinese ventures in India is Huawei Technologies which has a $100 million research and development facility in Bangalore, producing cutting-edge optical networks for India's telecommunications infrastructure. Lenovo production network, with both Chinese and Indian factories will do improve supply chain management to both the countries.
Chinese investment in India’s infrastructure has risen in recent years, as a way to reorient the trade relationship between the two countries that is now skewed in China’s favor. It is not just bilateral trade that is increasing; India is becoming an important investment market for Chinese companies. In the first half of this year alone, Chinese engineering companies had secured $4 billion worth of contracts.
Indeed, investments by cash-rich Chinese companies can benefit India. But problems in securing visas and a perception that Chinese companies have restricted market access, have made companies wary. India’s recent moves to increase regulation on telecom equipment suppliers due to security concerns made news in China. These irritants must be addressed soon. A trade agreement at this juncture can improve the understanding and bilateral trade can rise above $60 billion by 2010.
China and India are an ideal match. Both cooperate in global forums such as WTO and G-20. The coming years could see better synergies and more synchronized actions by them. What is needed is a concerted political effort to remove existing barriers between the two nations.
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