India & China: The Ties that Bind
For years, India was one of the few countries in the world that ran a trade surplus with China. It was fed by China’s hunger for natural resources and the fact that, while Chinese-made goods were cheap by developed world standards, they were often beyond the means of most Indian consumers.
But all that changed last year. Chinese exports to India jumped to US$14.5 billion from just under US$9 billion in 2005 and US$6 billion in 2004. This growth propelled bilateral trade to US$25 billion in 2006, up from US$13.6 billion in 2004 and a paltry US$1 billion in 1995.
SPEEDING UP
With the consumer classes in China and India growing rapidly, big investments in infrastructure and strong demand for raw materials, bilateral trade could hit US$40 billion by 2010.
Nevertheless, given that China and India are respectively the first and second fastest growing economies in the world, they can do a lot more in terms of two-way trade. China exported US$287 billion in goods and services to the US last year. India-US trade was a lot smaller but it still came to almost US$32 billion - without including services.
The wheels are turning, though. In particular, efforts are being made to boost mutual investment, which totaled less than US$500 million between 1991 and 2006. Of that, China’s direct investment in India was US$236 million or 0.28% of total foreign direct investment in India.
“Relative to the magnitude of trade, investments do lag behind,” said Nirupama Rao, India’s ambassador to China. Rao sees a lot of room for growth due to the complimentary nature of the two economies. India’s exports to China - which totaled US$10.2 billion in 2006 - are dominated by iron ore for steel, processed cotton and yarn, plastic, precious stones and minerals. China takes these raw materials and sends back machinery, organic chemicals that feed India’s generic pharmaceuticals industry, steel and fuel.
“The character and composition of the India trade basket, however, needs changes for trade to grow even faster,” Rao said, noting that China has a stronger line in value-added exports than his country.
One case in point is textiles. India has plenty of cotton but it produces very few T-shirts. Indian cotton makes its way to Chinese manufacturers who, taking advantage of a highly disciplined workforce, then sell the finished T-shirts back to India. China’s textile exports to India jumped from US$179 million in 2004 to US$338 million in 2006.
But, at the same time, India’s cotton and yarn exports rose from US$240 million in 2004 to a huge US$905 million in 2006 - the cotton shipped to China is turned into garments that clothe consumers the world over.
This growth in bilateral trade is happening as India continues to open its doors to more foreign business, turning its back on decades of Indio-centric policy. As part of the latest budget, released on February 28, the government cut tariffs and duties while making new industries accessible to overseas investors. (See: Brick by brick: Bye-bye trade barriers)
This openness is a boon for foreign players with know-how that India needs and products India wants. Chinese companies have both.
Technology firm Huawei first entered India in 1999 and has established its largest research and development center in Bangalore, which now employs some 1,200 Indian engineers. The company has pledged to invest US$150 million in India over the next three years but it has also had to climb out of a public relations hole regarding the perception of Chinese brands.
“There was a very negative perception… that everything was cheap. You can buy it, you can use it and if it works, fine. But if it doesn’t work, you can throw it out,” said Ramdev Sharma, chief technology and marketing officer at Huawei in Gurgaon, India. “Low cost but poor quality.”
ENGAGING INDIA
Sharma is friendly and casually dressed. He is fluent with the company’s philosophy and admits that working for a Chinese firm in India can have its challenges, particularly the language barrier and the different approaches to decision-making. Top management is mostly Chinese but more and more Indians are playing important roles.
