China and India: Greater Economic Integration
Gupta, Anil K., Wang, Haiyan, The China Business Review
Rapidly expanding trade and nascent foreign investment promise stronger economic links between the world s two fastest-growing and most populous countries.
Economic ties between China and India will play a large role in one of the most important bilater- al relationships in the world by 2020. Bilateral trade has already surged from under $3 billion in 2000 to nearly $52 billion in 2008 (see Table 1). Though last years figure equals only one-eighth 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 sug- gest 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 world s 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 Vajpayee's 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 country's trade with the rest of the world, and since 2001, China's 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 India's largest trade partner. Last year, India was China's tenth-largest export market.
Drivers 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.
The different comparative advantages of the two countries provide grounds for strong economic exchange (see Tables 2 and 3). Although China's economy is three times as large as India's, its manufacturing sector is five times that of India's. Chinese exports to India thus consist primarily of manufactured goods, especially various types of machinery. Conversely, India has some of the world's largest reserves of iron ore, bauxite, and manganese, and its exports to China consist primarily of raw materials to feed that country's 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 India's larger IT companies invest directly …
Questia, a part of Gale, Cengage Learning. www.questia.com
Publication information: Article title: China and India: Greater Economic Integration. Contributors: Gupta, Anil K. - Author, Wang, Haiyan - Author. Magazine title: The China Business Review. Volume: 36. Issue: 5 Publication date: September/October 2009. Page number: 22+. © U.S.-China Business Council Mar/Apr 2009. Provided by ProQuest LLC. All Rights Reserved.
This material is protected by copyright and, with the exception of fair use, may not be further copied, distributed or transmitted in any form or by any means.