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China and India make trade gains

Published by The Straits Times, Singapore on 2004-08-09

NEW DELHI - When Mr Shao Qiwei, Vice Governor of China's Yunan Province, announced here this week that bilateral trade between his country and India would exceed US$10 billion this year - an increase of 107 percent over 2003 - there was cheering in government and business circles. There was further cheering when it came to be known that the trade gains meant that China had overtaken Japan in becoming India's biggest trading partner in the North-east Asia region.

While US$10 billion isn't an especially formidable figure - it represents less than 9 percent of India's overall annual trade of US$115 billion - the fact that Asia's two giants were in a "trade, not tirade" mode is both economically and politically significant. After all, bilateral trade between them barely a decade ago was US$338 million. And a decade before that, the figure was, unbelievably enough, zero.

That zero was more a consequence of a bitter political history than an inability to open up their markets to each other. Although India's then Prime Minister, Jawaharlal Nehru, welcomed Mao Xedong's Communist takeover of China in 1949 bilateral relations soon soured. The brutal occupation of Tibet - long an autonomous buffer between India and China - was scarcely appreciated in India, which subsequently granted asylum to the Tibetan spiritual leader, the Dalai Lama. Then in 1962, the Chinese military asserted its superiority over a surprised and ill-prepared Indian army with the seizing of several border regions, including parts of Ladakh in northeast India.

The military humiliation devastated Nehru, who had never thought that the Chinese would actually dispatch troops into India. Within two years, India's first prime minister was dead; the medical cause was a stroke, although Nehru's daughter, Indira Gandhi - who was to become prime minister herself later - often said that he died of a broken heart.

But all this is history, and when Vice Governor Shao visited India this week with 100 other Chinese officials and businessmen, nobody referred to the turbulent past.

Rather, the talk was about how India and China - the world's two most populous countries, with 1.1 billion and 1.3 billion people respectively - could construct an economic bloc to rival the European Union. The talk was also how each could draw on the other's strengths - China acquiring software acumen, textiles and consumer durables from India, the latter importing more electrical goods, nuclear technology and mineral products from China. Mr Shao pointed out that India had a timely opportunity to grab a piece of China's US$7 billion software sector.

The talk was about how, in purchasing power parity, India had already become the world's fourth biggest economy, after the United States, China and Japan.

Officials at the influential Confederation of Indian Industries were even emboldened to say that China could one day become India's biggest trading partner, outstripping the current leaders, the United States, Mauritius and Singapore. Privately, they rued the fact that China's trade with Russia was seven times greater than with India, whose economy - the current GDP is US$660 billion - is three times that off Russia.

The talk was also how Chinese construction expertise could be useful in building India's proposed network of national highways and irrigation canals. And the talk was about getting Chinese assistance in constructing new power plants to supply rural areas with power so that these regions could be fully opened up for new manufacturing plants.

There was little talk, however, about how China and India have become rivals in attracting foreign direct investment: China gets US$53 billion each year, while India gets US$3 billion. This disparity bothers the Indians no end because of a genuine feeling in business circles that India offers a better cohort of skilled workers fluent in English - the language of globalisation - and also has a burgeoning middle class of 300 million, bigger than that of China.

Nor was there talk about India's resentment over the fact that the US, the world's biggest economy at US$10 trillion, had granted the coveted "most favoured nation" status to China, while India wasn't even in the running.

There was no talk - except in private expressions of envy among Indian businessmen - about how China, an export powerhouse, had quadrupled its GDP over the last 20 years, while in India it had only had doubled. And there was no boastful talk among the visiting Chinese that China had crossed the level of US$600 million in world trade in comparison with India's US$115 billion. China enjoys a 3.4 per cent share of world trade, while India is aiming 1 per cent in 2007, when global trade is expected to US$15 trillion.

And, of course, there was no talk whatsoever about the large chunks of Indian territory that China has occupied for the last four decades in disregard of the British-created McMahon Line separating the two countries.

There seems to be tacit acknowledge in New Delhi's political corridors that India is unlikely to raise the border issue with China for two reasons: One, that China will never give up the occupied territories unless India militarily forces it to, which will never happen. And second, that the two nations see it more in their mutual self-interest to pursue trade and technological cooperation rather than revisit fights over what's mostly barren mountainous regions.

Of course, trade and economic relations between countries are inevitably influenced by their politics. Maybe China's new "all-weather" defence and technology pact with India's long-standing foe, Pakistan, will affect its political ties with India. Maybe there will border flare-ups that would affect trade ties. Maybe India will express shrill offence at China's covert - and reportedly growing - support of the Naxalite guerrillas and irredentists operating in northeast India.

But this week, when there was much to celebrate in this capital city about how open trade and improved economic relations can enjoy primacy in our age of galloping globalisation, the inclination among the Chinese and their Indian hosts was to be optimistic about their commercial future. And rightly so.

Pranay Gupte,
Senior Writer and Global-Affairs Columnist

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