On the eve of Prime Minister Manmohan Singh’s visit to China, there is a great air of expectancy. India and China are home to 40 per cent of world’s working age population and 14 per cent of world’s GDP. From the ninth position as our trading partner in 2001, China has jumped to second position and is destined to overtake the US.

However, this relationship can be sustained only if our economic engagement is a two-way street. The challenge before Manmohan Singh is how to match the burgeoning Chinese exports to India and diversify our export basket beyond iron ore and other non-renewable resources.

Our trade with China went through a dramatic increase from $2.5 billion in 2000-01 to a whopping $25 billion in 2006-07. However, what is deeply worrisome is the rising trade deficit in favour of China. Equally worrying is the near-monopoly of Chinese exports to India in certain critical sectors. India’s trade deficit with China climbed to $9.2 billion in 2006-07 while with US we had a surplus of $7.1 billion. Interestingly, the trade deficit with China during the first six months of this financial year has already mounted to $8.7 billion. And we may end up with a $12 to $14 billion deficit by the end of the financial year.

The share of Chinese imports in our global import basket has risen from 4 per cent in 2001-02 to 9.4 per cent in 2006-07. It is even more striking that China’s industrial goods exports to India today amount to 10 per cent of India’s entire industrial GDP.

On the other hand, India occupies a minuscule 1.3 per cent of China’s global imports. From a mere 0.7 per cent in 2001-02, today our imports of tubes and pipes from China account for 74.7 per cent. Similarly, in the area of transmission apparatus for radio and telephony, imports from China have jumped from 11.5 to 49.4 per cent in a few years. In the case of automatic data processing machines, China’s share in our imports has risen from 12.4 per cent to 35 per cent.

In other words, we are developing a dependency syndrome on a single country in some critical areas. Of course, if Chinese products are competitively replacing our imports from the developed world, what could be the harm? But if this tidal wave of Chinese products is radically replacing Indian manufacture, there is cause for worry. With China’s pricing mechanism still remaining opaque and with massive subsidies to capital through huge non-performing assets in their banking system, India’s capacity to compete against a strategic and targeted inflow will become more and more difficult.

What should India’s strategic position be in the next phase of our economic engagement? India must focus on entering Chinese markets wherever we have core competencies and China must facilitate this process. India’s core competency in pharmaceuticals is well established across the world - 40 per cent of India’s pharma products are exported to the developed world. However, our pharmaceutical exports to China are minuscule. The procedures for product and company registration and for procuring import drug licences in China are far too expensive and time-consuming. These ‘non-tariff barriers’ are acting as an impediment to the entry of Indian pharmaceutical companies into China. The prime minister’s visit could open up this new frontier of exports.

Similarly, in the case of IT, Indian companies have practically failed to acquire any Chinese orders and are left to work with MNCs operating in China. The upcoming bilateral talks could focus on an opening up of India’s service exports to China, across the value chain, given our proven strength in exports to the most advanced economies of the world. China must open its markets to us in this area with a strategic partnership in mind.

Furthermore, India has attained significant heights in the area of heavy engineering and niche manufacturing. Indian companies have begun to execute massive projects across the world. And yet their footprints in China are puny. The virtuous circle will only be complete when our top corporate groups feel the comfort to deeply engage with the massive market of China. We are exporting significant amount of our non-renewable resources like iron ore and other minerals, yet we are unable to access China’s massive reserves of coking coal which is a dire necessity for us. Will the prime minister’s visit open up this lifeline of India’s steel industry?

As the world’s largest producer of films, India is also not able to enter the Chinese market despite the demand for Bollywood and South Indian films in China. Unfortunately, China has an annual quota of 50 foreign movies and much of this goes to Hollywood. Travel between the two countries is hamstrung by lack of direct flights not only to Beijing, but other Chinese destinations too. Will the PM’s visit bring a revolution in people-to-people contact?

India and China are inseparable partners in progress in the 21st century. Our future is deeply tied together as the focus of the world shifts to Asia. However, the current engagement could easily turn into an unequal and unsustainable economic relationship. Now is the time to script a win-win model. Let the dragon and the elephant dance together and not be separated by a 'Chinese wall'.

Source:http://timesofindia.indiatimes.com/Opinion/Editorial/LEADER_ARTICLE_An_Unequal_Relationship/articleshow/2693753.cms

Replying to [cyber chap]:
I noted many things mentioned in your essay.Yes,I agree that both India and China have a large population.And China also needs large amounts of imports.We are sending out huge amounts of coal and buying huge amount of oil and iron ores.
Chinese people normally do not have the habit of using Indian products.And there is also very few products sold in our supermarkets which come from India.For example,the olive oil from Europe and Africa,Chinese normally do not use olive oil,we use vegetable oil or sometimes animal oil.If you promote olive oil from Greek,there may be very few people buy the products.The reason for this is that we are accustomed to vegetable oil.To change this habit,you need to explore the huge market and also be patient to wait for some time.If many people are accepting your products and start to buy it,you then become successful.
Another thing,India has the competency in Pharmaceautical fields.If you want to sell the pharm products,you need to sell the products first,let people get to know your good products,then there comes the opportunity.
We also want to have more direct flights from China to India.It's not what we can do.The airline companies should make the direct flight in between.If there is no applications from both sides,the governments can not open the flight lines for no demand.

Replying to [cyber chap]: Prime Minister Dr Manmohan Singh's China visit could not have come at a better time than this. With both nations emerging as global economic super-powers, there is a need for more cooperation than competition between them. And this visit did ensure that.

Both countries have signed 11 MoUs to boost bilateral relations — which in itself is good news.
Raising the target for two-way trade between the two Asian giants by 50 percent...pegging it at $60 billion for 2010 is also a good move.

However, despite these initiatives to boost trade, China will have to remove non-tariff barriers, administer exchange rates and strengthen its Intellectual Property Rights regime. Above these measures, China will also have to ensure greater market access for Indian goods in order to lessen India's widening trade deficit. Moreover, administrative barriers and regulatory regimes are far too many and far too complicated...this is not what the exporters are comfortable with.

I believe that Indian exporters too need to diversify their export offerings to China and focus on exports of non-traditional items.

Having said that, it was indeed a good move by the Indian government to take a firm stance of not entering into a Free Trade Agreement (FTA). There are a lot of areas where China needs to make certain amendments. Already there is a surge in cheap imports from China. Plus the Chinese currency is pegged to the dollar and is not a free floating currency. With an artificially pegged currency and subsidies, the Chinese exports have an unfair advantage.

So till things are sorted out, the FTA can wait.

Quoted bu Bikky khosla, CEO
Tradeindia.com
New Delhi, India

Replying to [John Food Wang]:

Thanks for the comment.

We don't look for olive oil or any other oil as India itself a net oil importer. The possible exports are heavy engineering, construction contracts, pharmaceuticals, software. Only thing wanted is easy access with level playing field with others. We have great synergies to be utilized properly.

Replying to [Anshu]:

Hi Deepali

Nice reply. I have seen your contributions on trade India board also.

You are right. Both countries have to analyse to reach their trade potential. This will give each other a huge growing market also.