India needs to be more open to Chinese investments

With the ongoing economic reform programme and market liberalisation process gradually extending to most sectors of the Chinese and Indian economies, the scope and responsibilities of the governments of China and India have increased and new vistas for economic opportunities have opened up between the two countries. Towards this direction, the Indian Prime Minister Manmohan Singh?s visit to China last month has opened a new chapter on

Indo-China relations. It was Singh?s first state visit to China since taking office in 2004.

A careful scrutiny of the full text of China-India Joint Declaration 2008 is significant on two counts. First, Singh successfully reinforced confidence to further develop ties, vowing to promote bilateral relations to a higher level. Also, in order to forge mutual trust and enhance bilateral cooperation, both the countries agreed to conclude a mutually advantageous and high quality regional trading arrangement (RTA) at an appropriate time, apart from other initiatives such as China-India defence dialogue, among others.

China is India?s second largest trading partner. Bilateral trade reached $34.2 billion for the period January-November 2007, up by 54% from the same period in 2006. Owing to this phenomenal rise in bilateral trade, the two countries agreed to set a bilateral trade target of $60 billion in 2010, raised from the earlier forecast of $40 billion.

India imports more than what it exports to China thereby having an unfavourable trade balance, which is widening every year. However, the striking trade imbalance in value terms between the two countries is a matter of concern. The scenario is different when we take quantity (weights) of trade.

Services trade between the two countries?if we exclude Hong Kong, is presently not high. But, growing bilateral trade in goods and investments offers high potential for services trade expansion. On the services export, both China and India have complementarities. India is comparatively at a better position in the case of IT, health, and higher education, whereas China in construction, travel and tourism, and financial services. Services trade between the two is not a one-way trade; we see a positive sum game.

Each side is, therefore, focused on taking advantage of rising opportunities for mutual gains, rather than competing with each other. Therefore, a bilateral FTA just in merchandise may worsen the trade and generate undesirable results to both. Instead, a comprehensive FTA (economic partnership agreement) taking goods, services and investments will generate a ?win-win? gain for both the countries. A mutually advantageous and high quality regional trading arrangement (RTA), as postulated by the two leaders, is a correct step.

Compared to trade, bilateral FDI has not grown much. Chinese FDI, excluding Hong Kong, in India was only $3.30 million during 2000 to 2007, only 0.01% of total FDI inflows. In contrast, Indian FDI in China is much more than Chinese FDI in India. Several Indian companies in information technology, pharmaceutical and engineering sectors have invested in China over the last one and half decades.

Despite barriers, couple of mainland Chinese companies and organisations have entered India through joint venture and collaboration, such as Wuhan Research Institute of Post and Telecommunication has tied up with Himachal Exicom Communications for ?in-building and tunnel projects? for Delhi Metro Rail, National Highways Authority of India (NHAI) has tied up with China Coal Construction Group and Longjian Road and Bridge for building NH2 and even the East-West corridor.

In West Bengal, Chinese company Dongfang is working with West Bengal Power Development Corporation Ltd (WBPDCL) on the Sagardighi thermal power project.

On a thermal power project in Andheri, Mumbai, Grasim and Ultra Tech Cement are in collaboration with China National Machinery Company. Reliance energy is depending on Chinese specialist workers who are laying the energy pipelines.

There is a definite need to reconfigure India to being more open to Chinese investment.

The geographical proximity between the two countries and their large-size economies would facilitate exploitation of these synergies. India-China cooperation can also pool resources for improving their cooperation with neighbouring countries and regional blocs particularly those in Asia.

The India-China Joint Declaration 2008 indicates that both the countries will be working closely to deepen cooperation between Asia and Europe, to strengthen regional integration process in Asia through East Asia Summit (EAS), and to help each other?s participation in South Asia Association for Regional Cooperation (Saarc), Bay of Bengal Initiative for MultiSectoral Technical and Economic Cooperation (Bimstec) and Shanghai Cooperation Organisation (SCO). China is keen to join Bimstec, whereas India needs Chinese help to its formal entry into SCO.

What was never discussed, at least formally, during the Indian Prime Minister?s visit to China in January 2008 was cooperation among the states and provinces of India and China.

The cooperation between India and China could be instrumental in building closer trade at the border to enable both to regain their place in the world as they had before the 18th century.

Higher trade at the border would also facilitate poverty reduction in the two countries particularly in the border areas where there is a relatively high incidence of poverty. Cross-border initiatives, such as road or energy pipelines, relating to trade facilitation and investment promotion can be instrumental in generating jobs, increasing sub-regional gross national product (GNP), improving intra-sub regional trade, and deepening the economic fabric.

China-India trade at the border would bring enormous benefits to eastern and northeastern part of India, and South and Southwestern part of China. Locational advantage exists due to unique proximity to other countries in South and Southeast Asia.

India?s north-eastern region (NER) can emerge as a strategic base for foreign or domestic investors to tap the world?s largest market?Saarc, Bimstec and Asean. There is a track-II dialogue emerging from Kolkata?it is called K2K (Kolkata to Kunming) initiative. This sub-national initiative within the ambit of China-India cooperation has already seen three rounds of dialogue during the past six years.

?The author is fellow, RIS, New Delhi. He can be contacted at prabirde@ris.org.in. Views expressed by the author are personal