ECONOMIC INTEGRATION BETWEEN INDIA AND CHINA

SUBMITTED IN PARTIAL FULLFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF THE M.COM DEGREE OF MASTER IN COMMERCE -1 (MANAGEMENT) SUBMITTED TO UNIVERSITY OF MUMBAI LALA LAJPAT RAI COLLEGE, MAHALAXMI, MUMBAI SUBMITTED BY

ANIL MARU Roll no: 629

SUPERVISED BY PROF. JANKI ANNANRAJ Dr. J.Barucha 14th October 2013

CERTIFICATE

I hereby certify that the work which is being presented in the M.Com internal project report entitled INDIA TRADE WITH CHINA in partial fulfilment of the requirements for the award of the Master of Commerce and Economics, in MANAGEMENT and submitted to the LALA LAJPATRAI COLLEGE OF COMMERCE AND ECONOMICS, Mahalaxmi, Mumbai-400034 is an authentic record of my own work carried out under the supervision of Prof. Janki Annanraj & Dr.j.Barucha. The matter has not been presented by me for the award of any other degree elsewhere.

SIGNATURE OF THE STUDENT:

SIGNATURE OF SUPERVISORS:

INTERNAL EXAMINER:

EXTERNAL EXAMINER:

COLLEGE STAMP

PRINCIPAL

acknowledgement

I express my sincere Gratitude to Prof. Janki Ananraj for her stimulating guidance, continuous encouragement and supervision throughout the course of present work I am extremely thankful to Dr.Suryakant Kasuneco-ordinator and Principal Neelam Arora for providing me infrastructural facilities to work in without which this work would not have been possible

Contents Introduction ...........................................................................................4 DEFINITION ....................................................................................4 ECONOMIC INTEGRATION MEANING .........................................6 OBJECTIVES OF ECONOMIC INTEGRATION ..............................8 advantages OF ECONOMIC INTEGRATION ..................................10 STAGES of Economic Integration......................................................12 Obstacles to economic integration: .....................................................14 TRADE BETWEEN INDIA AND CHINA RELATIONS: ...............14 TIES OF ECONOMIC INTEGRATION BETWEEN INDIA AND CHINA.................................................................................................18 Bilateral trade blossoms ......................................................................19 FORMS of bilateral trade ....................................................................20 Comparative advantages ..................................................................20 Rapid economic growth ....................................................................20 CHINA INDIA BILATRAL TRADE: ...............................................23 1. India: the worlds 4th largest economy: World Bank ..............24 2. China and India have had a long-standing boundary dispute which involves territories of over 138,000 cities .............................25 3. China-India trade began to return to normal in July 1998. Culture and commerce has linked these two since then. ...............................26 4. Indo-China Trade Relations, Indian Economy Overview .......27 Trends in bilateral trade ties ................................................................28

1.India, China join hands at WTO ministerial,The Economic Times .................................................................................................28 2.Strategic cooperation defines our ties, Chinese Ambassador Sun Yuxi ..................................................................................................29 3.China-India Bilateral Trade diagram: ...........................................29 4. Lets shop for oil, gas together: India, China, The Indian Express ..............................................................................................30 From China To ASEAN: Rebalancing Indias Trade .........................32 INDIA is devising a new strategy to reduce the trade deficits with China. ................................................................................................32 Bibliography ........................................................................................35

Introduction Economic integration is the unification of economic policies between different states through the partial or full abolition of tariff and non-tariff restrictions on trade taking place among them prior to their integration. This is meant in turn to lead to lower prices for distributors and consumers with the goal of increasing the combined economic productivity of the states.

DEFINITION An economic arrangement between different regions marked by the reduction or elimination of trade barriers and the coordination of monetary and fiscal policies. The aim of economic integration is to

reduce costs for both consumers and producers, as well as to increase trade between the countries taking part in the agreement. The elimination of tariff and nontariff barriers to the flow of goods, services, and factors of production between a group of nations, or different parts of the same nation. Economic integration is the unification of economic policies between different states through the partial or full abolition of tariff and nontariff restrictions on trade taking place among them prior to their integration.

ECONOMIC INTEGRATION MEANING

Economic integration is the unification of economic policies between different states through the partial or full abolition of tariff and non-tariff restrictions on trade taking place among them prior to their integration. This is meant in turn to lead to lower prices for distributors and consumers with the goal of increasing the combined economic productivity of the states. The trade stimulation effects intended by means of economic integration are part of the contemporary economic Theory of the Second Best: where, in theory, the best option is free trade, with free competition and no trade barriers whatsoever. Free trade is treated as an idealistic option, and although realized within certain developed states, economic integration has been thought of as the "second best" option for global trade where barriers to full free trade exist There are varying levels of economic integration, including preferential trade agreements (PTA), free trade areas (FTA), customs unions, common markets and economic and monetary unions. The more integrated the economies become, the fewer trade barriers exist and the more economic and political coordination there is between the member countries. By integrating the economies of more than one country, the shortterm benefits from the use of tariffs and other trade barriers is diminished.

At the same time, the more integrated the economies become, the less power the governments of the member nations have to make adjustments that would benefit themselves. In periods of economic growth, being integrated can lead to greater long-term economic benefits; however, in periods of poor growth being integrated can actually make things worse.

OBJECTIVES OF ECONOMIC INTEGRATION There are economic as well as political reasons why nations pursue economic integration. The economic rationale for the increase of trade between member states of economic unions that it is meant to lead to higher productivity. This is one of the reasons for the global scale development of economic integration, a phenomenon now realized in continental economic blocks such as ASEAN, NAFTA, SACN, the European Union, and the Eurasian Economic Community; and proposed for intercontinental economic blocks, such as the Comprehensive Economic Partnership for East Asia and the Transatlantic Free Trade Area. Comparative advantage refers to the ability of a person or a country to produce a particular good or service at a lower marginal and opportunity cost over another. Comparative advantage was first described by David Ricardo who explained it in his 1817 book On the Principles of Political Economy and Taxation in an example involving England and Portugal.[3] In Portugal it is possible to produce both wine and cloth with less labor than it would take to produce the same quantities in England. However the relative costs of producing those two goods are different in the two countries. In England it is very hard to produce wine, and only moderately difficult to produce cloth. In Portugal both are easy to produce. Therefore while it is cheaper to produce cloth in Portugal than England, it is cheaper still for Portugal to produce excess wine, and trade that for English cloth. Conversely England benefits from this trade because its cost for producing cloth has not changed but it can now get wine at a lower price, closer to the cost of cloth. The conclusion drawn is that each country can gain by specializing in the good where it has comparative advantage, and trading that good for the other. Economies of scale refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producers average cost per unit to fall as the scale of output is increased. Economies of scale is a long run concept and refers to reductions in unit cost as the size of a facility and the usage levels of other inputs

increase.[4] Economies of scale is also a justification for economic integration, since some economies of scale may require a larger market than is possible within a particular country for example, it would not be efficient for Liechtenstein to have its own car maker, if they would only sell to their local market. A lone car maker may be profitable, however, if they export cars to global markets in addition to selling to the local market. Besides these economic reasons, the primary reasons why economic integration has been pursued in practice are largely political.

advantages OF ECONOMIC INTEGRATION Economic integration can be defined as a kind of arrangement where countries get in agreement to coordinate and manage their fiscal, trade, and monetary policies in order to be mutually benefitted by them. There are many degrees of economic integration, but the most preferred and popular one is free trade. In economic integration no country pays customs duty within the integrated area, so it results in lower prices both for the distributors and the consumers. The ultimate aim of economic integration is to increase trade across the world. There are many other advantages associated with this concept. Some of these are: 1. Progress in Trade: All countries that follow economic integration have extremely wide assortment of goods and services from which they can choose. Introduction of economic integration helps in acquiring goods and services at much low costs. This is because the removal of trade barriers reduces or removes the tariffs entirely. Reduced duties and lowered prices save a lot of spare money with countries which can be used for buying more products and services. 2. Ease of Agreement: When countries enter into regional integration, they easily get into agreements and stick to them for long periods of time. 3. Improved Political Co-operation: Countries entering economic integration form groups and have greater political influence as compared to influence created by a single nation. Integration is a vital strategy for addressing the effects of political instability and human conflicts that might affect a region. 4. Employment Opportunities:

As economic integration encourage trade liberation and lead to market expansion, more investment into the country and greater diffusion of technology, it create more employment opportunities for people to move from one country to another to find jobs or to earn higher pay. For example, industries requiring mostly unskilled labour tends to shift production to low wage countries within a regional cooperation. 5. Greater Consensus: Unlike WTO with huge membership (147 countries), easier to gain consensus amongst small memberships in regional integration 6. Beneficial For Financial Markets: Economic integration is extremely beneficial for financial markets as it eases firm to borrow finances at low rate if interest. This is because capital liquidity of larger capital market increases and the resultant diversification effect reduces the risks associated with high investment. 7. Increase in FDI: Economic integration helps to increase the amount of money in Foreign Direct Investment (FDI). Once firms start FDI, through new operations or by merger, takeover, and acquisition, it becomes a international enterprise.

STAGES of Economic Integration There are about five additive levels of economic integration impacting the global landscape:
1.

Free trade. Tariffs (a tax imposed on imported goods) between member countries are abolished or significantly reduced. Each member country keeps its own tariffs in regard to third countries. The general goal is to develop economies of scale and comparative advantages, which promotes economic efficiency.

2.

Custom union. Sets common external tariffs among member countries, implying that the same tariffs are applied to third countries. Custom unions are particularly useful to level the competitiveness playing field and address the problem of reexports (using preferential tariffs in one country to enter another country).

3.

Common market. Factors of production, such a labour and capital, are free to move within member countries, expanding scale economies and comparative advantages. Thus, a worker in a member country is able to move and work in another member country.

4.

Economic union. Monetary and fiscal policies between member countries are harmonized, which implies a level of political integration. A further step concerns a monetary union where a common currency is used, such as with the European Union (Euro).

5.

Political union.

Represents the potentially most advanced form of integration with a common government and were the sovereignty of member country is significantly reduced. Only found within nation states, such as federations where there is a central government and regions having a level of autonomy.

Success factors: Among the requirements for successful development of economic integration are "permanency" in its evolution (a gradual expansion and over time a higher degree of economic/political unification); "a formula for sharing joint revenues" (customs duties, licensing etc.) between member states (e.g., per capita); "a process for adopting decisions" both economically and politically; and "a will to make concessions" between developed and developing states of the union. A "coherence" policy is a must for the permanent development of economic unions, being also a property of the economic integration process. Historically the success of the European Coal and Steel Community opened a way for the formation of the European Economic Community (EEC) which involved much more than just the two sectors in the ECSC. So a coherence policy was implemented to use a different speed of economic unification (coherence) applied both to economic sectors and economic policies. Implementation of the coherence principle in adjusting economic policies in the member states of economic block causes economic integration effects. Obstacles to economic integration: Obstacles standing as barriers for the development of economic integration include the desire for preservation of the control of tax revenues and licensing by local powers, sometimes requiring decades to pass under the control of supranational bodies. The experience of 1990-2009 has shown radical change in this pattern, as the world has observed the economic success of the European Union. So now no state disputes the benefits of economic integration: the only question is when and how it happens, what exact benefits it may bring to a state, and what kind of negative effects may take place. TRADE BETWEEN INDIA AND CHINA RELATIONS:

ChinaIndia relations, also called Sino-Indian relations or IndoChina relations, refers to the bilateral relationship between the People's Republic of China (PRC) and the Republic of India. Historically, India and China have had relations for more than 2,000 years but modern relationship began in 1950 when India was among the first countries to end formal ties with the Republic of China (Taiwan) and recognise the PRC as the legitimate government of Mainland China. China and India are two most populous countries and fastest growing major economies in the world. The resultant growth in China and India's international diplomatic and economic influence has also increased the significance of their bilateral relationship. China and India are two of the worlds oldest civilisations and have co-existed in peace for millenniums.[1] Cultural and economic relations between China and India date back to ancient times. The Silk Road not only served as a major trade route between India and China, but is also credited for facilitating the spread of Buddhism from India to East Asia. During the 19th century, China's growing opium trade with the British Raj triggered the Opium Wars.During World War II, India and China played a crucial role in halting the progress of Imperial Japan. Relations between contemporary China and India have been characterised by border disputes, resulting in three major military conflicts the Sino-Indian War of 1962, the Chola incident in 1967, and the 1987 Sino-Indian skirmish. However, since the late 1980s, both countries have successfully attempted to reignite diplomatic and economic ties. In 2008, China emerged as India's largest trading partner and the two countries have also attempted to extend their strategic and military relations. Despite growing economic and strategic ties, there are several hurdles for India and the PRC to overcome in order to establish favourable relations. Though bilateral trade has continuously grown, India faces massive trade imbalance heavily in favour of China. The two countries have failed to resolve their long-standing border dispute and Indian media outlets have repeatedly reported Chinese military

incursions into Indian territory. Both nations have steadily established heavy military infrastructure along border areas. Additionally, India remains weary about China's strong strategic relations with Pakistan while China has expressed concerns about Indian military and economic activities in the disputed South China Sea. In June 2012, China stated its position that "Sino-Indian ties" could be the most "important bilateral partnership of the century". That month Wen Jiabao, the Premier of China and Manmohan Singh, the Prime Minister of India set a goal to increase bilateral trade between the two countries to US$100 billion by 2015. According to a 2013 BBC World Service Poll, 36% of Indians view China positively, with 27% expressing a negative view, whereas 23% of Chinese people view India positively, with 45% expressing a negative view.

HERE IS A MAP SHOWING HOW CLOSE IS INDIA AND CHINA AND THUS THEY HAVE REGIONAL TRADE. INDIA IS TO THE SOUTH-WEST OF CHINA

TIES OF ECONOMIC INTEGRATION BETWEEN INDIA AND CHINA Economic ties between China and India will play a large role in one of the most important bilateral relationships in the world by 2020. Bilateral trade has already surged from under $3 billion in 2000 to nearly $52 billion in 2008 . Though last years figure equals only oneeighth of total US-China trade in 2008, China-India trade is growing at nearly three times the pace of US-China trade, and rapid growth will likely continue. Even conservative estimates suggest that, by 2020, China-India trade could surpass last years US-China total of $409.2 billion and more than half of total projected US-China trade in 2020. Such trade expansion would affect every major world economy, including the United States. Though foreign direct investment (FDI) between China and India trails trade growth, it too will likely surge in the years to come.

Bilateral trade blossoms As neighbors and two of the worlds oldest civilizations, China and India have shared a long history of cultural, scientific, and economic linkages. In modern times, economic ties between the two countries were almost completely severed from 1949 to 1978. Following a brief border war in 1962, bilateral trade and investment came to a halt. Economic ties officially resumed when China embarked on economic reforms but remained largely insignificant for the next two decades. The last 10 years, however, have seen a transformation of the economic relationship between China and India. Since the 1990s, both countries have become increasingly outward-looking in their economic policies and have embraced deeper economic integration with the rest of the world. China and India are also members of the World Trade Organization (WTO)India as a founding member and China since 2001. Indian Prime Minister Atal Behari Vajpayees visit to China in June 2003 accelerated the momentum for economic integration. The visit led to a pragmatic decision by both countries political leaders to cultivate economic ties without being constrained by unresolved border disputes. After this visit, the two sides set up a joint study group to examine how China and India could expand trade and cooperation. The reduction and elimination of trade barriers has helped to stimulate economic exchange. Since 2000, trade between China and India has grown nearly twice as fast as each countrys trade with the rest of the world, and since 2001, Chinas trade with India has grown more rapidly than its trade with any of its top 10 trade partners. In 2008, China surpassed the United States to become Indias largest trade partner. Last year, India was Chinas tenth-largest export market.

FORMS of bilateral trade There are two primary drivers of the burgeoning trade between China and India: differing comparative advantages of the two countries and sustained, high growth rates in both economies.
Comparative advantages

The different comparative advantages of the two countries provide grounds for strong economic exchange. Although Chinas economy is three times as large as Indias, its manufacturing sector is five times that of Indias. Chinese exports to India thus consist primarily of manufactured goods, especially various types of machinery. Conversely, India has some of the worlds largest reserves of iron ore, bauxite, and manganese, and its exports to China consist primarily of raw materials to feed that countrys expanding steel and automotive sectors. Services trade between China and India remains small. Though India has emerged as a global powerhouse in information technology (IT) and IT-enabled services, language differences create natural barriers to the export of these services from India to China. Thus, many of Indias larger IT companies invest directly in local operations within China.
Rapid economic growth

The sheer size and growth rates of these economies have boosted bilateral trade, as bigger economies have more to buy and sell. In 2008, Chinas economy grew 9.0 percent and Indias grew 7.3 percentboth faster than any other major economy in the worldand these countries will likely continue to grow faster than other major economies through 2010, according to International Monetary Fund projections. The two countries could also remain the worlds two fastest-growing economies for the next two to three decades. In this context, the prospects for continued strong growth in bilateral trade appear to be bright.

Imports of lower-priced capital goods from China, such as turbines for electric utilities, can help India address the infrastructure bottlenecksespecially in roads, highways, ports, and electric powerthat have appeared as Indias manufacturing revolution gets under way. Because Chinese capital goods are often much cheaper than those from Western or Japanese manufacturers, such imports from China can keep costs low, allowing India to modernize and upgrade its infrastructure more quickly.

CHINA INDIA BILATRAL TRADE: Booming bilateral trade has come to be the strongest pillar of ChinaIndia rapprochement. This has not only since overtaken the pace of political confidence-building but also has a substantial impact on their mutual perceptions. Their border trade has especially brought about a noticeable transformation in their remote and problematic border regions. This has contributed to overall tranquillity and peace in the area and has as well facilitated progress in their border negotiations. This boom in trade has also introduced new trends. The two states are no longer only recipients on foreign direct investment but have entered into a new phase of being investors, both mutually as in other regions. In this new context, the increasing deficit in the energy sector and the competition to capture new markets present major challenges to sustaining this boom in their bilateral trade.

1. India: the worlds 4th largest economy: World Bank

China and India today represent Asias two largest and most dynamic societies which are emerging as new trend setters in international relations. Especially, with their annual GDP growth rates standing respectively at 9.1% and 8.5% for 2003 and at 9.5% and 6.9% for 2004, China and India have since come to be recognised as the fastest growing economies. According to World Bank estimates, and assessed on the basis of purchasing power parity, China and India have already become respectively the second and fourth largest economies of the world surpassing developed countries1. From the global perspective, China and India today represent two unique new playerspresenting an extraordinary combination of a very large GDP and still with significant poverty and pockets of unrest and a very low per capita income and living standards. This unique combination raises several questions about their becoming major drivers in international economic trends. However, in the politico-strategic sphere, their recent economic success has resulted in both seeking an expanded space in regional as well as international decisionmaking, something that is becoming a matter for worldwide concern.

2. China and India have had a long-standing boundary dispute which involves territories of over 138,000 cities To their colonial and cold war legacies, their economic success had, for a long time, remained a mutually exclusive exercise thus slowing down its pace of progress and its global impact. It is only rather recently that their political initiatives at confidence-building began to expand their areas of mutual co-operation, which now remains premised on their new mantra of mutual accommodation and mutual benefit2. Their bilateral trade has since come to be recognised as the most reliable as also the most agreeable instrument of China-India rapprochement. Their long-term potential as trade partners, however, remains yet to be fully explored and exploited and their political equations remain yet vulnerable to their problematic legacies.

3. China-India trade began to return to normal in July 1998. Culture and commerce has linked these two since then. It is in this context of their fast changing equations that this article makes an attempt to hypothesise how their bilateral trade promises to become the most potent instrument for resolving their political difficulties and facilitate progress in actualising their strategic partnership for the future. This China-India economic partnership remains an essential prerequisite for the success of their regional and global political initiatives. The context of China-India bilateral trade itselfbilateral as well as regional and globalhas been changing rapidly. At the bilateral level, this is self-evident in the way their rapidly growing trade partnership has provided a great boost to their ongoing political confidencebuilding. In the wake of their diplomatic stand-off following Indias nuclear tests of May 1998, their bilateral trade was the first to bounce back to its normal pace4. However, this boom in their bilateral trade could not have been possible in absence of bold political initiatives yet, in recent years, it is the role of their business communities that has become far more influential in determining the tone and tenor of their political interactions.

4. Indo-China Trade Relations, Indian Economy Overview Their recent signing of the April 2005 general parameters agreement for their boundary settlement, their opening of a third border trade route through Sikkim in June 2003, and now their discussions for evolving a China-India Free Trade Area (FTA) remain some of the examples which have been accompanied by a reduction in forces deployment on their border and revival of several cottage industries among border communities in remote and inaccessible regions. Apparently, policy-makers from both sides have begun to increasingly focus on the social and political spin-offs of their bilateral trade. The last five years have witnessed China-India trade quadruple and the expectation that it will reach US$30 billion by 2010 appears increasingly credible. However, for both China and India, their rise to stardom is no without its share of pitfalls, puzzles and challenges. Much of the aforementioned success remains particularly true of China with India slightly behind. Indias Prime Minister Manmohan Singh is seen as an architect of Indias economic reforms and opening up7. However, even without government initiatives, several sectors in India have picked up momentum and will continue to grow helping New Delhi to catch up with Peking. For example, the number of skilled professionals from India are growing at enormous speed. They mainly work in the software industry, and Chinese enthusiasm for Indias information technology sector clearly recognises this new trend

Trends in bilateral trade ties 1.India, China join hands at WTO ministerial,The Economic Times Nothing compares to the China-India bilateral trade when it comes to evaluating the positive trends in post-1962 China-India relations. Starting with an extremely slow pace with an annual turnover of only a few million dollars, and then staying on the margins for much of the 1980s, their trade has gradually come to occupy the centre stage of their interaction. The target of reaching US$20 billion in bilateral trade by 2008set by the two prime ministers in their meeting in Delhi in April 2005is now expected to be reached before end of 2005. Similarly, the target of US$30 billon of bilateral trade set for 2010 is now expected to be reached by 2008. At least in the short-run, their current institutional arrangements and enthusiasm augurs very well for their continued trade boom, which can contribute a great deal to their growing confidence one in the other and their evolving long-term strategic partnership. Especially, Chinas foreign trade stood at US$851 billion for 2003 and exceeded US$1 trillion for 2004. Indias foreign trade, by comparison, reached only about US$180 billion for 2004. If the East Asian financial crisis had diverted Chinas trade to India then the countertrends in the wake of Indias nuclear tests of May 1998, resulted in Indias total foreign trade sliding from US$86.86 for 1998 to US$81.84 billion for 1999. However, this general slide was not proportionally reflected in the China-India bilateral trade though China this was perhaps one area most directly affected by Indias nuclear tests

2.Strategic cooperation defines our ties, Chinese Ambassador Sun Yuxi Positive trends in the bilateral trade have been particularly shaped by the economic reforms on both sides and the consequent search for new business partners. As a result of this, their complicated politicostrategic equations, that had continued to slow the rising enthusiasm, have come to be underplayed and marginalised. To cite some examples of China using trade as its diplomatic tool, its trade with other problematic neighbours like Japan and South Korea has increased respectively from US$16.8 billon and US$0.7 billion for 1990 to a whopping US$99.6 billion and US$36.2 billion for 2002, making them each others most valued trade partners. Chinas combined trade with Japan and South Korea reached US$212 billion for 2004. For the same period, Chinas bilateral trade with India grew from US$0.2 billion for 1990 to US$5 billion for 2002, though it has increased much faster since then reaching US$7.6 billion for 2003 and US$13.6 billion for 2004.

3.China-India Bilateral Trade diagram:

4. Lets shop for oil, gas together: India, China, The Indian Express Chinas trade with India have witnessed impressive increases defying all suspicions about Chinas special relationship with Pakistan or Chinas encirclement of India. To highlight some other strong fundamentals that promise to sustain their current trade boom, while China continues to enjoy a huge favourable balance of trade vis--vis most other smaller states of the South Asian region, it is only the China-India trade that has remained to be Chinas most balanced trade in South Asia and often the balance has been in favour of India. This clearly reflects strong mutual stakes which promise to sustain this trade boom at least in the short term. Indeed, the two seem to be becoming increasingly relaxed about their bilateral ties and are now thinking of building joint strategies towards their regional and global initiatives. No-one today talks of a China-India clash in South-East Asia where both have built flourishing engagement without any mutual friction or scepticism. While so far they have not allowed this to become a major stumbling block yet their intensifying search for energy sources abroad is lately seen as one area that could post a serious challenge for their economic engagement It is the nature of China-India bilateral trade as a confidence-building measure that must be underlined to appreciate its interface with their political relations which remains so critical for its long-term prospects. Therefore, more than being measured in terms of statistics and profits, it is the political impact of trade which remains the barometer of their economic engagement. Both sides clearly display that understanding at least in their more recent initiatives. Moreover, with the inclusion of Indias trade with Hong Kong and Macao (as also Indias rising trade with Taiwan, and the possibility of an eventual unification of Taiwan), Greater China has already emerged as Indias largest trading partner and one of its kind. Major items of export from India to China remain iron and chrome ore, plastic and linoleum, marine products, cotton yarn and fabrics,

organic and inorganic chemicals, dye intermediates, bulk drugs and pharmaceuticals, construction quality wire rods, tobacco and tea, while Chinas exports to India include items like raw silk and silk yarn, coking coal, some types of chemicals, pulses, mercury and antimony, freshwater pearls, pig iron, newsprint and several lowtechnology consumer items. Gradually, many new sectorslike border trade or high-tech tradeare being also explored while information technology and infrastructure development are already emerging as major areas for co-operation.

From China To ASEAN: Rebalancing Indias Trade INDIA is devising a new strategy to reduce the trade deficits with China. Dec. 19 In August 2012, at the ninth meeting of the India-China Joint Group on Economic Relations, Trade, Science and Technology in New Delhi, the main point of concern for Indias Minister of Commerce and Industry, Anand Sharma, was the widening trade deficit between the two countries $40 billion for the year ending in March 2012. Indias trade deficit with China has increased by a massive 4,000% in the last 10 years. At the meeting, the Indian and Chinese commerce ministers agreed to set up a joint working group to address trade issues, including the trade deficit. However, India has another option. Instead of relying on the working group to fix Indias trade woes, New Delhi can actively seek greater economic integration with the Association of Southeast Asian Nations (ASEAN). It is important for India to pursue this option at the next ASEAN-India Summit scheduled to be held in New Delhi on December 20-21. Nearly all the goods that India imports from China could potentially be imported from ASEAN countries. Substituting Chinese imports with ASEAN imports will not decrease Indias absolute trade deficit, but it will reduce the enormous bilateral trade deficit with China. This will result in a more equal trading relationship. UN data indicates that currently more than 50% of Indias imports in 36 product categories come from China. For trade security and diversification, it is important for India to find more sources for some of these products. In addition to the financial imbalances created by the trade deficit, there is another major problem with the current trading relationship between India and China. According to the United Nations Conference on Trade and Development, the main products that India exports to China are primary commodities, which are subject to greater price fluctuations and are low on the value chain. In 2011, iron

ore alone accounted for 41% of Indias $23 billion worth of exports to China, while cotton and copper accounted for 11.5% and 9% respectively. According to UN data, China exported more than $7 billion worth of telecommunications equipment and $2 billion in computers to India in 2011, which represents 55% of total imports in these two product categories. Huawei and ZTE, two of the largest Chinese telecommunications companies and major exporters to India, are at the centre of a recent report by the Intelligence Committee of the U.S. House of Representatives that highlights the potential security risks to the U.S. of equipment imported from the two firms. These risks might be overestimated, but it is in Indias interests to be cautious. To reduce its reliance on Chinese equipment, India can look to ASEAN nations, which exported telecommunications equipment worth $25 billion and $33 billion in computers across the world in 2011. India also heavily reliant on chemical imports from China, which are essential to make fertilisers. In 2011, more than 50% of Indian imports of four product categories that include chemicals like nitrogen compounds, heterocyclic compounds, and metallic salts came from China. This reliance on a single source can eventually impact food security in India. ASEAN countries export more than enough of the chemicals in these categories for India to begin diversifying its import sources to ASEAN. A similar situation exists in other high-value product categories such as electrical machinery, boilers, and medicinal and pharmaceutical products each of which represents over a billion dollars in imports a year from China. In April 2002, the Indian governments overtures resulted in the Comprehensive Economic Cooperation Agreement (CECA) with Singapore, followed by a Framework Agreement on Free Trade Areas with Thailand in October 2003. However, even after a raft of trade negotiations, culminating in the 2009 India-ASEAN Free Trade

Agreement (FTA) in Goods and infrastructure projects to increase connectivity, trade between India and ASEAN remains moribund. Despite its enormous market, India is still only the ninth largest export destination for ASEAN, purchasing just 3% of ASEANs total exports. Meanwhile, China has become Indias number one source of imports after Chinas entry into the World Trade Organisation in 2001 and due to the sheer size of the Chinese export market relative to other countries. But there are signs that things are changing in addition to Singapore and Thailand, New Delhi now has bilateral arrangements with other Asian countries including Myanmar, Sri Lanka, Bangladesh, Japan and Malaysia. Evidence suggests that such trade agreements have had a positive, sometimes dramatic, impact on trade. For example, after the Delhi Declaration in 2005 and the Riyadh Declaration in 2010, bilateral trade between Saudi Arabia and India rose from $13 billion in 2006 to $32 billion in 2011 (though this was partly driven by Indias increasing demand for oil). Following the Singapore-India CECA deal in 2004, bilateral trade grew from $7.5 billion in 2004 to $13 billion in 2007. After the 1999 Sri Lanka-India trade deal bilateral trade rose from just over $400 million in 1999 to $2.5 billion in 2006. For now, the Indian government has focused on FTA for services, rather than goods, because it sees this is as a strong export area. Although increasing exports is important, reducing Indias reliance on Chinese imports is also important. To achieve this, India will have to massively boost its infrastructure to reduce the cost and ease with which goods from ASEAN can be imported. Myanmar and Thailand, for example, have recently signed an agreement to develop an $8.6 billion port facility at Dawei 155 miles from Bangkok which will allow ASEAN shipping to avoid the congested Malacca straits. India can also cultivate private investment to construct and expand existing port facilities, especially to supplement the terminals at

Chennai and Haldia. India will also require sustained investment in road transport infrastructure; in the short term India can construct roads linking the poorly-connected North East with Myanmar and the rest of India. This will provide an important land route to the ASEAN economies. In addition, industry groups like the Federation of Indian Chambers of Commerce and Industry (FICCI) can play a role in making FTAs more transparent to Indian businesses, especially small and medium enterprises (SMEs), which are usually less likely than multinationals to take advantage of Indias trade agreements Bibliography 1. http://chinaperspectives.revues.org/2853#ftn1 2. http://en.wikipedia.org/wiki/File:Manmohan_Singh_and_Wen_J iabao.jpg 3. http://en.wikipedia.org/wiki/China%E2%80%93India_relations 4. http://en.wikipedia.org/wiki/File:India_China_Locator.svg 5. http://rtn.asia/1661_indias-trade-deficit-china-set-narrow-year