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Indo-China Economic Relations

Indo-China Economic Relations

By Guriya Rai (Edited by Dikshita Pemmaraju, Assistant Editor at The Indian Economist)

Madeleine Albright, the first woman to become US Secretary of State, quoted, “A lot of people think international relation as a game of chess. But it’s not a game of chess where people sit quietly, thinking out their strategy; taking their time between moves. It’s more like a game of billiards, with a bunch of balls clustered together.”

India and China, two of the world’s leading economies, have economic relations which are both mutual and predatory. On one hand, the two economies are trying to promote trade and commerce among themselves so that both parties can benefit and on the other hand, the same two economies are battling over Depsang Valley in Ladakh. India and China once had great relations with one another, links from Buddhism to Panchsheel to visit of Prime Minister Rajiv Gandhi to China in 1988 for the Graduated Reciprocation in Tension Reduction (GRIT) to Mr. Vajpayee’s visit in 2003 for Declaration on Principles for Relations and Comprehensive Cooperation between India and China. All the events took place to build a bridge between the two countries and the Chinese economy reciprocated them in 2005 when Chinese Prime Minister Wen Jiabao visited India to sign Strategic and Cooperative Partnership.  Despite all these efforts, the countries never had relations the way they should have. In 1962, when China stormed the McMohan Line and the Ladakh Line, that single event was enough to magnify the differences between the two countries and though after this event, time and again the two countries attempted to pacify their relations, the scar from the past battle was always conspicuous.

India, the largest democratic country, has always been envious of the growth of China. Of late China has become the fastest growing economy and is anticipated to be the economic superpower in the coming years. India mocks China for not being democratic and that is the only consolation for India regarding China’s swift growth. China and India, are economies divergent from one another, reasons for which might be the past instances but the validity of rift due to past instances is questioned on many grounds. Presently, there are negligible trade flows between the two countries. There are still no direct flights between Shanghai and Mumbai, the two commercial nerve centres. Thus, it is quite evident that the communication between the two countries have been neglected by both the countries. There is a communication gap between the two countries and thus, the linkage for trade and commerce is weakened there itself.

In the context of trade, India does not produce much to be exported to China. Today, India mainly exports raw materials such as minerals and cotton to China. In the past, the Indian sales of Huawei – a telecom firm – fell by half when it was hit by Anti-Dumping duties and the Chinese firms complained about troubles related to visas. At the G20 Summit, India struck a deal to export more rice to China as increased export to China would be beneficial to India. Tata Sons, which basically sells Range Rover, made in Britain, and IT services, has the large number of Chinese employees. Thus, both countries have a bilateral trade system with a number of potholes including competition, import duties, international relations. India has been facing trade deficit and China could be of substantial help to India. Loans from Chinese banks would be good to India. India’s inability to pay its import payments could be resolved through Foreign Exchange from China. As China is a lucrative entity in terms of trade and commerce to India, partnership between the two states could be beneficial for India and China. As China will be able to expand its market into India, which is a massive share and India’s improved relations with China could help it to export its commodities to China. Wei Wei, Chinese Ambassador to India, while addressing Bangalore’s Chamber of Commerce mentioned that according to statistical data, as in April 2013, the accumulated bilateral investment was less than $ 1.3 billion. Hence, a favourable investment environment is necessary for the two economies to flourish. Recently, Industrial and Commercial Bank of China (ICBC), the largest bank in terms of market capitalisation, opened its branch in Mumbai. The banks plans to focus on bilateral trade between India and China.

Despite the differences between the two countries, boundary issues, trade competition, we cannot deny that the leaders of both nations have made attempts to bridge the gap. On the 19th of May, 2013, the Chinese Premier Li Keqiang made a visit to India with a motive of strengthening bilateral relations between the two countries. Here, I would like to quote Han Hua, director of the Centre for Arms Control and Disarmament at the School of International Studies, “As emerging powers, the two countries have pressure from the West, and will have to cooperate on a wide range of global issues. They both want stability and prioritise economic development, so they don’t want clash with one another”. During the Chinese Premier’s visit to India, a Chinese daily insulted the US by making a statement that US should not be “jealous” of Sino-Indian ties. It is quite evident that globally the two countries have been recognised as “quarrelling” friends but the day the two amalgamate in terms of trade, economic system, political standpoint, they will emerge as the strongest “bilateral ties” in years to come. In 2011, Narendra Modi visited China with a view to drum up investment. Such an economic relation would gradually take place once the efforts from both sides become effective and then the world would presumably witness the emergence of new powerhouse of Asian economic productivity sitting at the horizon. Indo China relations with resolved boundary disputes, undisputed trade and market mechanism and cooperation will lead to a new paradigm of cooperation.

In “BRICS”, Brazil, Russia, India, China and South Africa, among all the members, China’s economy has been one which is being looked forward to by the other nations, the simple reason being the growth rate at which the country’s moving but there have been statements that the growth of China will face a downturn because of an unstable growth and development mechanism. Additionally, India is struggling with vital economic issues such as rupee downturn, political instability, budget deficit and many more. Both countries are on unstable economic pulpits, thus the two neighbours have to make an attempt to converge to stabilise both economies and to create global financial platform for themselves. BRICS was formulated with the concept of stimulating the members of the group to become developed from developing countries, the collaboration between India and China could lead the two economies to an improved position as both could be serviceable to one another. As reported by 12th five year plan, India plans to invest $1 trillion in infrastructure. China’s being better equipped with new technologies, human resource and capital could help India in attaining its goal. In return, China will be able to gain from outsourcing its resources to India. Thus, attainment to an economically improved situation would be frictionless. The two countries can be defenders and examples for emerging and developing economies.

The two countries are not an ideal example of international relations as there are inevitable issues between them. It’s been almost 50 years since India and China are having border issues and this has been one integral reason for divergence between the two nations despite so many attempts to work together. Every attempt was centric to resolving border issues and very less was talked about other issues concerning the two economies. The two countries have been showing unrelenting rivalry. China’s scepticism about India being a part of US’s plan to encircle their country encourages China to exhibit rivalry and non-cooperation. Since India granted political asylum to Dalai Lama, China accused India of being pro Tibet though India has considered Tibet as a territory of China. A host of misunderstandings lingering between the two nations calls for the unresolved disputes between them. The relation between India and China is ambiguous; Friends, Competitors, Rivals or Future Investors.

The author is a 2nd year Economics Student.

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