Promotion of Trade and Investment between People's Republic of China and India: Toward a Regional Perspective

By Bhattacharyay, Biswanath; De, Prabir | Asian Development Review, January 1, 2005 | Go to article overview

Promotion of Trade and Investment between People's Republic of China and India: Toward a Regional Perspective


Bhattacharyay, Biswanath, De, Prabir, Asian Development Review


Open regionalism and integration between the world's two largest developing countries, People's Republic of China (PRC) and India, in trade, investment and infrastructure can foster outward-oriented development, and economic and social benefits that could result in poverty reduction. In view of the increasing trend of regional integration, particularly the expanded European Union and North American integration, the opportunity costs of not moving toward greater economic integration between neighboring countries the PRC and India, which have much in common, could be increasing. This paper discusses the possible areas of PRC-India economic cooperation and economic integration between the northeastern region of India and southwestern provinces of the PRC.

I. INTRODUCTION

The economic relations between the People's Republic of China (PRC) and India and the relative spheres of their activities are the most current issues in their internal relations. With the ongoing economic reform program and market liberalization process gradually extending to most sectors of both economies, the scope and responsibilities of the governments in the PRC and India have increased and new vistas for economic opportunities have opened up between the two countries.

The PRC and India have strong historical and cultural links and share many similarities. They are two of the world's most populous countries, sharing between them over a third of the world's population. They also possess centuriesold civilizations and unique histories. After pursuing inward-oriented policies in the early years of their development, the PRC (since 1978) and India (since 1991) have increasingly deepened their economic integration with the rest of the world. While the PRC has emerged as one of the world's fastest growing economies, India's economy with a robust average annual growth rate of 6 percent in the 1990s is also showing a healthy growth momentum. The PRC and India have not only attempted to deepen their economic relations with world economies but also between themselves. Bilateral trade and investment links between the two countries have grown rapidly over the past few years, suggesting the presence of complementarities and unexploited potentials.

Substantial complementarities characterize the economic structures of the PRC and India. While the PRC has emerged as the manufacturing hub of the world, India's strengths in knowledge-based services have gained international recognition. Opportunities for fruitful cooperation exist in many areas, such as manufacturing, services, and investment (Agarwala 2002). Their geographical proximity and large-size economies would facilitate exploitation of these synergies. They can also pool resources for improving their competitiveness with neighboring countries particularly those in South and Southeast Asia. They can fruitfully share their development experiences and cooperate in several areas, especially in the critical area of energy security. The PRC-India economic cooperation has the potential to benefit over a third of humanity. The complementary strengths of the two economies can be exploited for mutual benefit. Cooperation could also be instrumental in building closer border trade to enable both to regain their place in the world economy as they had before the 18th century (Singh 2005). This would also facilitate poverty reduction in these countries particularly in the border areas where there is a relatively high incidence of poverty (Lama 2005).

Economic cooperation between the PRC and India has been deepening in recent years. Both countries have decided to focus on economic issues instead of political and security matters (Government of India 2005a). They respect each other's success and work for common interests, particularly in improving the quality of life of their citizens. Benefits of closer economic cooperation have been reflected in rising bilateral trade between the two countries. …

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