India China Economy, Indo-china trade relation

Among the most encouraging recent developments in India China Economy and India-China ties is the rapid increase in bilateral trade. A few years ago, India Inc had a fear of being swamped by Chinese imports. Today, India enjoys a positive balance of trade with China.In 2004, India's total trade to China crossed US $13.6 billion, with Indian exports to China touching $ 7677.43 million and imports from china at US $ 5926.67 million. But major industry players in India feel there is no need to give the Chinese a free ride into the domestic market so early. This is particularly, when India and China have been directly competing across several product categories. And that too, when both the applied and bound import tariffs are higher in India compared with China. Indian industry's ambivalence over the proposed Indo-China FTA stems from concerns over previous FTAs signed by the government. There's a feeling that some of these FTAs were signed in haste, and without adequate homework. Result: There has been confusion about the country of origin issue as well as the items to be put in the early harvest lists. China and India established diplomatic relations on April 1, 1950. India was the second country to establish diplomatic relations with China among the non-socialist countries. In 1954, Chinese Premier Zhou Enlai and Indian Prime Minister Nehru exchanged visits and jointly initiated the famous Five Principles of Peaceful Coexistence. Indian Prime Minister, Rajiv Gandhi's visit to China in December 1988, facilitated a warming trend in relations. The two sides issued a joint statement that stressed the need to restore friendly relations on the basis of the Panch Sheel and noted the importance of the first visit by an Indian prime minister to China since Nehru's 1954 visit. India China Economy agreed to broaden bilateral ties in various areas, working to achieve a "fair and reasonable settlement while seeking a mutually acceptable solution" to the border dispute.

 

Rajiv Gandhi signed bilateral agreements on science and technology cooperation, on civil aviation to establish direct air links, and on cultural exchanges. The two sides also agreed to hold annual diplomatic consultations between foreign ministers, and to set up a joint ministerial committee on economic and scientific cooperation and a joint working group on the boundary issue. The latter group was to be led by the Indian foreign secretary and the Chinese vice minister of foreign affairs. As the mid-1990s approached, slow but steady improvement in relations with China was visible. Top-level dialogue continued with the December 1991 visit of Chinese premier Li Peng to India and the May 1992 visit to China of Indian president Ramaswami Venkataraman.

Border trade resumed in July 1992 after a hiatus of more than thirty years, consulates reopened in Bombay (or Mumbai in the Marathi language) and Shanghai in December 1992, and, in June 1993, the two sides agreed to open an additional border trading post. Though, Rajiv Gandhi's visit to China in December 1988 is usually identified as a turning point and break-through in India-China relations, it should also be noted that many years of previous effort had a contribution to it.. In 1976, the two countries decided to restore ambassadorial-level diplomatic ties after a gap of 15 years. The next major step was foreign minister Vajpayee's visit to China in February 1979 -

The first high-level visit between the two countries since 1960. In 1984 India & China signed a Trade Agreement, providing for Most Favoured Nation Treatment. In 1994 the two countries signed the agreements on avoiding double taxation. Agreements for cooperation on health and medical science, MOUs on simplifying the procedure for visa application and on banking cooperation between the two countries have also been signed.

The Chinese economy was decentralized in 1978 and major economic reforms were introduced which created conditions for rapid economic growth and structural changes in China. In 1980, China's share in world trade was less than one percent, and it started permitting foreign direct investment (FDI). In 1999, China had grown to become the world's second largest economy after US in terms of GDP. The high growth rate of China is attributed to high levels of trade and greater investment effort. Strong exports growth from China has helped push China's economy to 9.1% growth rate in 2003-2004. China is the world's second largest recipient for FDI with total FDI inflows crossing US $ 53 billion in 2003. Growth in Special Economic Zones (SEZ) has also helped China increase its productivity.

Recently Chinese premier Wen Jiabao visited India, where he said that India and China must take their trade to $30 billion level by 2010. Seeing the whopping growth in Sino-Indian trade, China outlined a five-point agenda, including reducing rade barriers and enhancing multilateral cooperation to boost bilateral trade.

Chinese Premier Wen Jiabao said "We have set an objective (in the joint statement) to increase the two-way trade volume from 13.6 billion dollar at present to 20 billion dollar by 2008.....we plan to take it to 30 billion dollar by 2010." Addressing Indian business leaders at New Delhi on April 11, he said that the two countries agreed for a joint feasibility study for a bilateral Free Trade Agreement.

India China Economy have also agreed to work together in energy security and at the multilateral level at the WTO to support an "open, fair, equitable and transparent rule-based multilateral trade system", the joint statement signed by Prime Minister Manmohan Singh and Wen said. Wen also offered to cooperate with New Delhi in its infrastructure programme.

Indian Commerce Minister Kamal Nath said China was poised to become India's largest trade partner in the next two-three years, next only to the US and Singapore.

TRADE PATTERN (value in USD millions)

Year China's Exports to India China's Imports from India 

2000 1560.75 1353.48 

2001 1896.27 1699.97 Percent Growth 21.5 25.6 

2002 2617.73 2274.18 Percent Growth 40.9 33.8 

2003 3343.59 4251.49 Percent Growth 22.2 87 

2004 5926.67 7677.43 Percent Growth 77.3 80.6

According to a CII study, special focus on investments and trade in services and knowledge-based sectors, besides traditional manufacturing, must be given, in view of the dynamic comparative advantage of India. Indian companies could enter the $615 billion Chinese domestic market by using it as a production base.

Presently, Iron ore constitutes about 53% of India's total exports to China. Among the potential exports to China, marine products, oil seeds, salt, inorganic chemicals, plastic, rubber, optical and medical equipment and dairy products are the important ones. The study said that services and knowledge trade between India and China have significant potential for growth in areas like biotechnology, IT and ITES, health, education, tourism and financial sector.

Value added items dominate Chinese exports to India, especially machinery, including electrical machinery, which together constitute about 36% of exports from that country. The top 15 Chinese exports to India have recorded growth between 29% (organic chemicals) and 219.89% (iron and steel).