Essay Topics on INDIA-CHINA TIES — IMPARTING GREATER DEPTH

English_Master February 25, 2016 No Comments

INDIA-CHINA TIES — IMPARTING GREATER DEPTH

The rapid thaw in recent years of the long frosty Sino-Indian relationship has been accompanied by a strong growth of business ties, so much so that China is set to overtake the U.S. as India’s largest trading partner in the next few years. Over 100 Indian companies have set up shop on the shores of the erstwhile Middle Kingdom, while some 50 Chinese firms now have operations in India. The Confederation of Indian Industry’s office in Shanghai says it receives 4-5 inquiries every day from Indian companies interested in exploring the China market.

Pick-up in trade

Recently released statistics from China’s customs au­thorities reveal that Sino-Indian trade in the first seven months of 2006 had reached $13.6 billion, up 27 per cent over the same period the previous year. It is widely expected that the trade target, set during Chinese Premier Wen Jiabao’s visit to India in April 2005, of $20 billion by 2008 will be met by the end of this year itself.

The latest trade target to be set was during Chinese President Hu Jintao’s visit to India in late November when both sides agreed to try and increase their trade volume to $40 billion by 2010.

Indeed, since the start of the new century, every ambitious target set for bilateral trade has proved not to be ambitious enough, the statistics zooming ever upwards with a momen­tum seemingly of their own. In 2005 India-China trade in­creased by 37 per cent over 2004 to touch $18.7 billion. Just three years earlier in 2002, the bilateral trade was a paltry $5 billion.

In 2005, more than 100 bilateral trade delegations crossed the Himalayas to seek out opportunities for trade and invest­ment.

The major sectors in which Indian companies have a presence in China are pharmaceuticals, IT and IT-enabled ser­vices, laminated tubes, auto-components and banking.

Growing Indian IT presence

China has in fact been aggressively seeking Indian ex­pertise and investment to help build its own software- serv­ices industry, persuading Indian IT heavyweights over the last few years to train Chinese students, and set up cooperative projects with local governments and universities.

In January 2005, the Beijing municipal authorities, in collaboration with the central government, established a spe­cial Sino-Indian cooperative office, whose sole purpose is to woo Indian IT firms to set up a base in China’s capital. Thus, all the major Indian IT firms, including Satyam, Tata Consul­tancy Services (TCS), Infosys, and Wipro have installed them­selves in China’s major cities.

TCS has in fact teamed up with Microsoft and three state-owned Chinese entities to establish a joint venture that is be­ing billed as a “role-model” for the Chinese IT industry. The joint venture, in which TCS will have a majority stake, will employ up to 10,000 persons, according to TCS CEO S. Ramadorai.

Aside from the TCS joint venture, Infosys Technologies announced it would invest $65 million over a five-year pe­riod in its China business and establish development centres in Hangzhou and Shanghai, eventually employing some 6,000 persons.

Infosys has 450 employees in the mainland and, ac­cording to Vineet Toshniwal, head of sales and marketing for China, will hire 1200 employees by March 2007.

 Satyam too announced plans to ramp up its China op­erations, and inked an agreement with Microsoft last year, focusing on the multibillion-dollar enterprise solutions mar­ket in Greater China.

According to Satyam’s President, Ram Mynampati, the company intends to hire some 3,000 engineers by 2007, up from the current 250.

And it is not just the big boys who are enthusiastically looking north. A whole array of specialized, small, and me­dium sized companies have now made the pilgrimage to Chi­na’s shores. IGate Global Solutions, Newgen Software, Zenzar Technology are names that are becoming known in Chinese cities from Wuxi to Shenzhen.

Moreover, Indian IT training companies such as NUT and Aptech have been successful in grabbing a large share of the domestic training market.

After having entered China in 2000, Aptech has estab­lished more than 200 training schools in 57 different cities, while NUT has 126 centres in 23 different provinces.

Pharma, auto components units

Pharmaceutical companies such as Ranbaxy, Aurobindo Pharma, Dr Reddy’s Laboratories and Orchid Pharmaceuti­cals have also been operating in China for several years and more recently auto component manufacturers such as Sundram Fasteners and Bharat Forge have opened up factories in the mainland.

One of the latest Indian firms to invest in China is wind energy company Suzlon Energy. It has made a $60 million investment in its Tianjing factory, the first by an Indian com­pany in the Chinese energy sector. Its factory will manufac­ture the turbines needed in wind farms.

Banking foray

Testament to these growing bilateral business ties, the State Bank of India became the first Indian bank to start retail banking operations in China early last year. Apart from SBI, several other major Indian banks have representative offices in China. Even an Indian law firm, Remfry and Sagar Associates, has opened an office in Beijing, becoming in the proc­ess the first Indian law firm to establish a full-fledged office outside of lndia. On the surface then this is a veritable eco­nomic renaissance providing evidence of the emergence of an economic colossus, Chindia that brings together the might of two of the world’s fastest growing economies.

Long way to go

But scratching the surface reveals any celebration of Chindia to be chimerical. Serious, continuing flaws in the structural composition of trade and a low investment en­gagement in a larger context mean that there are many miles to go before the Sino-Indian economic relationship has the kind of significance that exists in China’s relations with its truly weighty trading partners. In 2005, China’s total trade volume was worth $1.4 trillion. Sino-US bilateral trade reached $204.7 billion and Sino-Japanese trade, $189.4 bil­lion,

India was only the 16th largest exporter to China in 2005, a drop of one place compared to 2004 and the 13th biggest importer of Chinese products. In the first seven months of 2006-07. India accounted for only 1.47 per cent of China’s total imports and 1.46 per cent of China’s aggregate exports.

Longer-term commitments are not impressive either once put in a larger context. Indian investment in China currently stands at $130 million. By contrast, by the end of 2005, U.S. businesses had invested $51.1 billion in China and set up 49.000 enterprises in the country. In 2005 alone, China’s to­tal PDI inflows were worth $72 billion. Chinese investments in India are not much cause for celebration either. According to the Indian government, PDI inflows from China between August 1991 and October 2005 worked out to a total of $2.03 million.

Chinese statistics put the figure considerably higher at about $47.35 million but given that India’s total inward PDI for the same period stood at $36.2 billion, even this number is distinctly unimposing.

Chinese statistics put the figure considerably higher at about 547.35 million but given that India’s total inward PDI for the same period stood at $36.2 billion, even this number is distinctly unimposing.

Low-value exports

On the trade front, the major continuing worry is the composition of the trade basket. India’s exports to China are overwhelmingly dominated by low-value, primary products with a huge reliance on iron ore. In 2005 ores, slag and ash comprised 56 per cent of India’s exports to the mainland with a year-on-year growth of 28 per cent.

Despite Indian trade officials having repeatedly ex­pressing concern over the lopsided nature of this export composition, in the first seven months of 2006 iron ore continued to dominate exports to China and made some 50 per cent of total exports. Undue reliance on a single commodity is far from ideal. If the iron and steel industry in China were to experience a new direction it would dramatically impact on Indian exports. China’s ongoing construction boom cannot be expected to last forever.

Driven by fears of overheating, the authorities in Beij­ing have in fact been trying to tighten growth at the macro-level for the last several months.

The impact of these measures on Indian exports is al­ready being felt. In the first six months of 2006 Indian ex­ports of iron ore thus decreased for the first time in years, by almost 16 per cent (in contrast iron ore exports had exploded by almost 233 per cent in 2004). As a result, despite a sharp increase in exports of some commodities like raw cotton, overall Indian exports to China declined by 1.16 per cent in the first half of 2006 compared to the same period a year ago. Bucking the trend of the last few years, India has thus devel­oped a trade deficit with China of $858.5 million in the first half of 2006.

In 2005, its trade surplus with China stood at $843.2 million, itself a decline, from the $ 1. 74 billion surplus in
2004.

The fact that primary products like iron ore and raw cot­ton dominate India’s exports also means that the benefits of value addition including increased employment, higher profitability, and technological upgradation and so on are lost.

By contrast, China’s top exports to India include electri­cal machinery and machinery, which together accounted for 43.9 per cent of total Indian imports from the mainland in 2005. Trade associations like CII and the Indian embassy in Beijing have identified certain sectors they believe have strong potential for growth in trade including dairy products, ma­chine tools, power and energy sector ancillaries and certain segments of apparel.

The upcoming Made in India show will thus be show­casing products from some of these sectors.

However, trade alone cannot provide long-term stability to a bilateral economic relationship, given that it is affected by a gamut of short-term circumstances and can as a result prove fickle. The example of iron ore is a case in point. Mu­tual investments are thus crucial to a truly sustainable eco­nomic engagement.

Investment opportunities

Indian companies have begun to be attracted by the op­portunities China offers in recent years. Its high volume, low-cost investment environment, connectivity to global markets, productive labour force and the presence on Chinese shores of large numbers of multinational clients have lured a steady stream of Indian investors in diverse sectors already outlined including IT, pharmaceuticals, banking, wind farm equipment, auto-components and tyre manufacturing.

Yet the majority of these investors in both the manu­facturing and services sectors either sell to MNCs in China or export their products out of China to their traditional buy­ers. The meaty Chinese domestic market remains an impos­ing Great Wall that so far few Indian firms have been able to scale.

Orind Refractories, .has had operations in China’s Liaoning province since 1994. Yet, it exports all but a tiny fraction of its 95,000 tonnes of bricks a year. Navin Misra, a senior manager at Orind, explains that despite all their efforts to enter the domestic market, the partnership between Chi­nese steel mills and their captive suppliers has proved impossible to break,

Even the much-hyped synergies between India’s soft­ware prowess and China’s hardware might have failed to materialize. All the big Indian IT companies have invested in China.

However, despite predictions that Indian companies could come to account for up to 40 per cent of the $30 billion domestic Chinese market for software so far, none of India’s IT heavyweights has been able to make a dent in this market. Foreign-owned companies continue to be kept out of the re­ally large, multimillion dollar IT deals at the state-owned en­terprises and Indian companies have found barriers like lan­guage and culture more challenging to overcome than ex­pected.

Low Chinese interest

Conversely, low levels of Chinese investments in India are explained by Sujan Chinoy, former Indian Consul Gen­eral in Shanghai, as due to there “being very few commercial reasons for them (the Chinese) to invest until such time as India acquires the importance of a high value market to them with the attendant weight-age that a large bilateral economic engagement brings,”

In addition, Chinese investments in Indian infrastruc­ture projects continue to repeatedly be blocked due to “security” concerns. For example, New Delhi has reportedly de­cided that it does not want any Chinese companies investing in or managing any Indian ports. Chinese telecom companies like Huawei have also been refused permission to invest in India in the recent past, out of fears of Chinese espionage. Such fears underline the continuing vein of mistrust that lies deep in Sino-Indian ties even as Beijing and New Delhi at­tempt to forge a new “strategic partnership”.

During President Hu’s recent visit to India a “Bilateral Investment Promotion and Protection” agreement was signed aimed at removing some of these investment hurdles. How it is put into practice, however, remains to be seen. From run­ning scared of China, there certainly is an increasing willing­ness to engage with the mainland on the part of India Inc. But both industry and policy makers need to go beyond cheering the numbers for bilateral trade and look to address the under­lying fundamentals that are in need of transformation if India and China are to develop the kind of economic linkages that would give real depth to their bilateral ties and forge the type of formidable partnership that advocates of Chindia hope for.