Indo-China Economic and Commercial Relations

The Chinese economy was decentralized in 1978 and major economic reforms were introduced which created conditions for rapid economic growth and structural changes in China. The development has been so impressive that, China has set the target for average annual growth rate in the tenth Five Year Plan period (2001-2005) at around 7 percent. It is lower than the actual yearly growth between 1996-2000 at 8.3%.

In 1980, China’s share in world trade was less than one percent, and it started permitting foreign direct investment (FDI). However, over the last 20 years China has grown to become the world’s second largest economy after US. The high growth rate of China is attributed to high levels of trade and greater investment effort. Strong exports growth from China has helped push China’s economy to 7.3% growth rate in 2000-2001. China is the world’s second largest recipient for FDI. Inflow of foreign direct investment and growth in Special Economic Zones (SEZ) has also helped China increase its productivity.

The deficit in the Chinese economy has also grown steadily from 0.8% of GDP in 1996 to 2.5% (estimated) of GDP in 2000. Increasing budget deficit poses a serious problem for Chinese economy. Two major areas with accumulated deficit are (a) NPAs of the state-owned banks and (b) social security system.

India - China Bilateral Relations

China and India established diplomatic relations on 1 April 1950. India was the second country to establish diplomatic relations with China among the non-socialist countries. In 1954, Chinese Premier Zhou Enlai and Indian Prime Minister Nehru exchanged visits and jointly initiated the famous Five Principles of Peaceful Coexistence.

In 1988 Indian Prime Minister Rajiv Gandhi visited China. His visit brought the relations of the two countries into a new stage of development as the two sides agreed to maintain peace and tranquillity along the line of actual control and make efforts to improve and develop bilateral relations prior to finding a solution of the boundary questions. The two countries decided to establish Joint Working Groups on boundary questions, Trade, Science & Technology. India and China have also signed an Agreement on issues relating to the World Trade Organisation (WTO) and MoUs on setting up a Joint Working Group on Steel and for cooperation in the IT Sector, in 2000.

In 1984 India & China signed a Trade Agreement, providing for Most Favoured Nation Treatment. In 1994 the two countries signed the agreements on avoiding double taxation. Agreements for cooperation on health and medical science, MOUs on simplifying the procedure for visa application and on banking cooperation between the two countries have also been signed.

Developing border trade between North-Eastern India and Western China is being seen as important for increasing bilateral trade, especially with Chinese Government announcing Preferential Investment Policies for its western provinces. India could work towards developing infrastructure to facilitate such trade. Developing infrastructure for creating trade routes (Highways & Railways) between China – Myanmar – India is being considered as being of strategic importance in developing a unified growth area.

Bilateral Trade

In the past few years, India-China bilateral trade has revealed a sustained pattern of growth. The potential to enhance trade is even higher, given the complementarities based on comparative and competitive advantages.

Following table summarizes the trend in India-China trade since 1994-95:

Source : DGCI&S

India-China bilateral trade reached US$ 3 billion according to Indian official statistics in the year 2001-2002. According to Chinese Customs Statistics, however, bilateral trade reached US$ 5 billion in calendar year 2002. While India is among China’s top 20 trading partners, China’s trade with India accounted for only 0.8% of its total external trade in 2001-02. The share of China in India’s total trade was also small, at 3% approximately

India's Exports To China

Major items of India’s export to China are iron ore and other mineral ores; marine products; drugs and pharmaceuticals; inorganic, organic, agro and fine chemicals; cotton yarn, fabrics & madeups; castor oil, plastic & linoleum products; guergum meals, etc.

Source : DGCI&S (Directorate General of Commercial Intelligence & Statistics)

Top five items of exports to China which include iron ore, other ores & minerals, plastic & linoleum, marine products and drugs & pharmaceuticals, accounted for a share of 65.98 per cent in India’s total exports to China and have had similar proportions in previous years as well (57.6 per cent and 51.7 per cent in 2000-01 and 1999-2000 respectively). Indian exports to China are largely concentrated to primary products, while higher value added manufactured items are gradually making their presence in the export basket.

Potential Areas Of Exports To China

• Exports of iron ore, slag, ash, plastic & linoleum to China increased substantially, indicating enhanced capacity of Indian goods to cater to the growing demand of Construction Industry in China. While the demand for specialty steel is strong in China, both due to the booming housing and industry construction, China is also emerging as a big importer of aluminium, especially for its communication and transport infrastructure.
• India exports tanned hides to China's finished leather industry and there is increasing potential to raise India’s market share in this sector.
• The demand for diamond jewellery in China is increasing steadily and Indian diamond traders could devise concerted strategies to emerge as leading suppliers to China.
• Decoration & furnishing industry in China is upbeat and is rising at an annual rate of 30%. Indian exporters should explore these sectors in order to tap the increasing demand in China.
• Though India is the third largest exporter of seafood and fish to China, immense potential lies in exploiting high quality fish market e.g. prawn, shellfish etc. as well as frozen marine products.
• The restructuring of China’s textile sector could result in new opportunities for increasing exports of cotton yarn/fabrics to China. East China possesses the ability to compete in market for international high quality textile garment and middle processing technology; textile industry in West China seeks opportunities in low and medium quality textile market. Indian companies could accordingly develop win-win partnerships in different provinces and regions of China.

India’s Top Exports To China

Source: Embassy of India, Beijing

India has already emerged as the top exporter of salt, sulphur, earth, stone and artificial flowers and feathers and important exporter of ores, slag, ash (rank 3rd), precious stones, metals (rank 4^th), cotton yarn, fabric (rank 5^th), hides & skins (rank 12^th), inorganic chemicals (rank 8^th). It is therefore, important to tap such complementarities fully & penetrate the growing Chinese market.

Following products have been identified as focus products for enhancing India’s exports to China:

• Software
• Diamonds, gems & jewellery
• Processed minerals & steel
• Drugs & pharmaceuticals
• Residual chemicals & allied products
• Textile machinery
• Processed foods, agricultural products esp. fresh fruits & marine products,
• Films, etc.

Under the India-China Fast Track Partenership Initiative, FICCI and CCPIT agreed to set up Six Task Forces on WTO, Pharmaceuticals, Computer hardware and Education, Chemicals, Electronics and Telecom, with an objective to develop new synergies.

FICCI and CCPIT have also initiated an India-China Trade Link Service, which facilitates online exchange of information where Indian and Chinese Businessmen can post and view their queries online for effective partnerships.

India's Imports from China

India’s major imports from China include chemicals, mechanical and electronic goods, silk, pharmaceuticals, machinery, minerals, iron and steel etc. Among the fastest growing Chinese exports to India are artificial resins, plastics, and manufactures of metals, electrical machinery and equipments, project goods, crude minerals and professional instruments.

India’s Principal Imports From China (April ’96 - March ’03)

Source : DGCI&S (Directorate General of Commercial Intelligence & Statistics)

India-China Investment Links

With China's entry into the WTO, immense opportunities have opened for setting up joint ventures and business collaborations between Indian & Chinese Industry.

Total Chinese investments in India amounted to about US$148.5 million by November 2002, whereas total Indian investments in China are estimated to be about US$28.4 million. Though there has not been significant transfer of technology between the two countries, many Chinese conglomerates are looking keenly at the Indian market as part of the "go-out" strategy and have plans to enter the Indian market. Major Chinese companies have set up offices in India in sectors such as machinery, metallurgical equipments, chemicals, automobiles, silk, engineering, and IT.

The presence of Indian companies in China has also increased substantially, especially in such sectors as iron and steel products, textiles, chemicals, automobile components, pharmaceuticals, etc. Indian companies in China are active in Services Sector as well including Restaurants, Entertainment, Culture, Banking, etc.

Further, Indian companies are looking at projects in China in the areas of gas turbine, steel, steel plant, etc. Project exports are an important area, particularly as China receives a large amount of multi-lateral loans and Indian companies can participate in projects enjoying multi-lateral funding.

Top Sectors attracting FDI from China:

Top sectors attracting FDI from China are Telecommunications (56.59%), Metallurgical Indsutries (37.12%), Commercial, Office & Household Equipments (1.90%) Transportation Industries (1.81%) and Electrical Equipment (including computer Software & Electronics) (1.19%).

Transportation and Banking links

The increasing trade and investment links between India & China have resulted a new era of bilateral commercial cooperation. The new initiatives supporting the potential for enhancing new synergies include the strengthening of direct communication links and the infrastructure for supporting such links.

Industry & business in both India & China are increasingly participating in each other’s trade fairs, buyer-seller meets, and the exchange of delegation at different levels has paved the way for increased connectivities between the two countries which could result in increasing the trade turnover to US$10 billion in the next few years.

Direct communication links (air, ship & road) are being strengthened between the two countries in order to facilitate greater flow of trade between the two countries. Direct air services between Beijing and New Delhi have been increased in the past two years. Major Chinese shipping companies have also visited India to consider starting regular service between India & China.

In the area of banking, Indian banks such as the State Bank of India have opened offices in China and others are seriously considering establishing their offices in China.

Ficci's Initiatives With China

• FICCI & CCPIT set up the India-China Joint Business Council in 1985 – an institutional arrangement to enhance bilateral economic & commercial relations. The last meeting of the JBC was held in Mumbai in January 2002 where new initiatives to enhance bilateral ties were launched.

• In June 2003, a high-powered FICCI delegation visited China coinciding with the visit of Hon’ble Shri Atal Behari Vajpayee, Prime Minister of India to China.
• FICCI jointly organized the Business meeting in honour of Chinese Premier Zhu Rongji in February 2002 in Mumbai, with high-level participation of industry CEOs on both sides.

• Earlier in May 2002, high power FICCI’s CEO delegation visited China, under the leadership of, then President FICCI.

• FICCI’s Corporate Retreat – an annual event for top CEOs of Indian industry, was organized in Suzhou, and addressed by leading experts on China in 2002.

• FICCI’s hyperlink with China Council for Promotion of International Trade (CCPIT) provides the trade link service to facilitate online exchange of information. Indian and Chinese businessmen post and view their queries online for concretizing effective partnerships through this website.
• India-China Fast track Partnership Initiative between FICCI and CCPIT has set up six task forces on WTO, Pharmaceuticals, Computer Hardware, and Education, Chemicals, Electronics and Telecom, with an objective to enhance sectoral ties and create new connectivities.

• Several companies from China participated in the IndiaChem 2002 - India's largest exhibition on Chemicals, organised in New Delhi, jointly by FICCI & Department of Chemicals and Petrochemicals, Government of India. Chinese companies concretized new business tie-ups successfully at the exhibition.
• FICCI as a member of the India-China Eminent Person's Group participates actively in the Groups’ meetings. In the last meeting held in February 2003 in New Delhi, FICCI contributed significant proposals for enhancing bilateral relations. The next meeting is scheduled to be held in Beijing in February 2004.
• FICCI is the Initial member (Corporate Founder Member) of the BOAO Forum for Asia and FICCI representatives participate actively in the annual meetings of the BOAO Forum for Asia. In November 2003, FICCI took a high-powered delegation led by Dr A C Muthiah, President FICCI to attend the BOAO Annual Conference in Hainan, China.

FICCI office in China

FICCI’s office in China is endeavouring to enhance commercial relations between our industry & business, forging greater connectivities. New networks and links with provinces and regions as well as appropriate counterpart organizations in China have been established to enhance synergies with different markets in China.

In order to catalyse business partnerships, FICCI office in China endeavours to :

• provide information on various aspects of Chinese economy, sectors, market trends, etc.
• provide industry & product specific services. Our professional teams in China as well as India conduct desired market research/studies and provide inputs for strengthening business presence in each other’s countries.
• provide match-making services and guidance on setting up offices in China and India.
• facilitate participation in each other’s trade fairs, exhibitions and buyer-seller meets.
• Provide Chinese speaking staff, familiar with the local market to assist in business operations.

Headquartered in Beijing, FICCI office in China is equipped to assist Indian companies in their business plans and operations in any part of China through our deep networks with different provinces and regions in China. For more details write to : ficci@ficci.com, or anitul@public3.bta.net.cn

Facilitating interface with dignitaries & key decision-makers

FICCI organises high-level interactive meetings and interface with dignitaries to provide a forum for developing appropriate links with the key decision makers from time-to-time :

• Meeting with H.E. Mr. Jiang Zemin, then President of China – India, November 1996
• Courtesy Call on H.E. Mr. Li Lanqing, then Vice Premier of China – China, 1997
• Meeting with the Governor of Guangdong Province, Mr. Lu Ruihua - India, May 2000
• Meeting with H.E. Mr. Tang Jiaxuan, Foreign Minister of China – India, July 2000

• Meeting with H.E. Mr. Li Changchun, Party Secretary of the Guangdong Provincial Committee, of the Communist Party of China, and Member, Politbureau – India, May 2001
• Meeting with Mr Ji Jianye, Mayor, Yangzhou Municipal Peoples’ Government – India, February 2003

FICCI’s partners in China

Besides the JBC agreement between FICCI and CCPIT, FICCI has also signed MoUs with various organizations in China to strengthen networks for doing business, including :

• Shanghai WTO Affairs Consultation Centre
• CCPIT Beijing sub-council
• CCPIT Xiamen sub-council
• CCPIT Qingdao sub-council
• CCPIT Guangdong Province Shenzhen SEZ council
• CCPIT Hebei Sub- Council
• Yangzhou Municipal People’s Government

Arbitration Agreement

In February 2000, FICCI along with Indian Council of Arbitration and China International Economic & Trade Arbitration Commission signed an agreement to cooperate in the field of commercial arbitration.

Unraveling China’s economy and creating new bridges

FICCI’s China Forum organizes regular interface with leading experts on such aspects as India-China commercial relations, business opportunities for Indian and Chinese industry, unraveling China’s economy with relevance for India. This is a part of ongoing series of seminars & conferences to sensitise Indian industry on potential business opportunities.

Experts and leading professionals from industry, finance, academicia, have addressed several meetings organized by FICCI including :

• Mr. Andy Xie, Head, Morgan Stanley’s Regional Economic Team on "Unraveling China’s Economy : Relevance for India"
• Mr. Mark Clifford, Asia Regional Editor, BusinessWeek on "Unleashing India in the Global Matrix"
• Prof. Richard Cooper, Maurits C. Boas Professor of International Economics, Harvard University on "China’s Entry into the WTO"
• Mr. Wang Chan, Chairman Shanghai WTO Affairs Consultation Centre on "China’s entry into WTO : Issues & Implications"
• Mr. P Thornhill, Asia Editor, Financial Times on "Impact of China’s Economic Expansion on Asia"