1. China-India Economic Cooperation: Now is the time to act

China-India Economic Cooperation: Now is the time to act

China and India face challenges that are unique to each. However, if the two were to cooperate and collaborate on the economic front, it will contribute to global good

Updated: March 14, 2017 2:39 AM
The Chinese growth model may need some course-correction, especially at a time when the world awakens to the new leadership in America and likely closed-door policies in Europe. (Rohnit Phore)

Even as China’s forex reserves swelled, its exchange rate hardly appreciated. Thanks to this not-quite-text-bookish policy, the world at large enjoyed getting a wide variety of excellent China-made consumer goods at near-throwaway prices. China’s hard-working and disciplined people made the country great. The rest of the world facilitated it via economic globalisation.

The Chinese growth model may need some course-correction, especially at a time when the world awakens to the new leadership in America and likely closed-door policies in Europe.

India’s case is different. Thanks to the initiatives of the former Prime Minister PV Narasimha Rao and his finance minister, India moved out of the inward-looking economic philosophy, cementing on the earlier era of hesitant reforms. Economic growth picked up. It is now common for commentators to add India to China as the key influencers on the global economic scene.

Manufacturing-driven China is showing signs of slowing down. The same could soon be the case for services-driven Indian growth, possibly threatened by external shocks to the service export base. Donald Trump has made clear his preferences—bringing factories and jobs back to the US and restraints on H-1B visas. ‘Buy American, Hire American’ was his message on January 20, as part of his maiden speech immediately after taking oath of office. The policy framework could give a jolt to China and India.

Dreamers (like me) look at the 2015 population numbers—1.37 billion in China and 1.31 billion in India—and get fascinated with the idea of the mega-economy that can result from collaboration and integration. It makes sense in the context of evolving demographic trends: China’s ageing population and India’s demographic dividend.

India’s mounting trade deficit with China inspired The Economist to put out a very readable article in February 2016 on the trade gap (Arrive Full, Leave Empty). It makes the pertinent point that a vast part of the overall trade deficit of India will be wiped out once the deficit with China is off the books.

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When one sees the growing trade, the proximity of the two vast nations and the enormity of the combined market, the policy prescription that comes to the fore is for manufacturing investments to flow from China into India, and services sector collaboration on an unprecedented scale.

Post-liberalisation, India did attract sizeable FDI. During 2011-16, the average annual inflows were of the order of $40 billion. Total inflows since the turn of the century amounted to $290 billion. Sad to say, China accounted for just 0.5% of the total ($1.4 billion) for the long spell of 15 years.

One might think that there is little for China to gain from China-India Cooperation. This may not be so when one considers the medium to longer timespan—the combined markets and new products and services plus specialisation yet to unfold beyond current expectations. China-India Cooperation could bring benefits to demographically smaller nations in and around, helping growth, stability and security.

China-India Cooperation is the best bet for reducing military expenses, overcoming terrorism, and ensuring growth in the two nations as well as across the globe via backward and forward linkages propelled by competitive advantage. Maritime security issues, Nuclear Suppliers Group matters, smaller neighbours’ diplomatic energy savings—all will be facilitated once this cooperation is running at full steam.

“Inequality in income distribution and uneven development space are worrying. Over 700 million people in the world are still living in extreme poverty,” observed President Xi Jinping in his speech on January 17 at the World Economic Forum in Davos. It is not utopian to say that India’s underemployed low-income people and the lower middle class in China looking for opportunities to move up the income ladder will say ‘thank you’ to the China-India Cooperation agenda.

Where does one start? How does one start? It is easy to formulate the China-India Cooperation agenda—automatic approval with zero waiting time for Chinese FDI into Indian manufacturing sector with minimal reservations; visa-free entry for students from each side; unrestricted tourist movement; hassle-free remittances; free trade as per agreed time-table with no further approval requirements; etc.

To be frank, one must not expect China to bell the cat, given its current preoccupations on the economic front and business-as-usual in diplomatic relations. It will be too much to expect India to say “cooperation at any cost.”

The hope must be for third parties to bring leaders and policy-makers from both countries for a series of closed-door discussions on understanding the case for China-India Cooperation and the next steps to take it forward.

The article appeared as a guest column in the China-India Brief (online), issued in late January by the Centre on Asia and Globalisation, Lee Kuan Yew School, National University of Singapore.

Bhanoji Rao
The author is adjunct professor, Lee Kuan Yew School of Public Policy, National University of Singapore, and governing board member of GITAM and IFHE universities in India

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