China and India, half of the world's population, continue to move closer and closer to one another; but it's often hard to tell whether the proximity will result in an embrace or a disagreement.
When it comes to China-India relations, the two Asian behemoths have been playing the great game quite bashfully. They support each other on international fronts whether it's to arm wrestle rich countries for farm subsidies at the WTO, hold regular high level diplomatic talks, conduct joint military exercises, fight terrorism or improve air and rail links, the intriguing combination of India and China is a growing, commanding global force. However the two countries are still developing their relationship and occasionally have spats over issues such as border demarcation, disagreeing on international relations, competing for international resources to fuel their rapid growth, and this does create headlines. Overall though the trend is towards better relations and increasing bilateral trade.
Regional trade with ASEAN
China and India have both reached free trade agreements with ASEAN in the past month which will boost trade between ASEAN and China and India, as well as help bilateral Sino-Indian trade. The ASEAN trade bloc comprises the countries of Indonesia, Thailand, Malaysia, Singapore, Brunei, the Philippines, Cambodia, Laos, Myanmar and Vietnam. Formed in 1967, its member nations have a combined gross domestic product of more than US$1.1 trillion and a population of about 570 million. India's trade with ASEAN is now expected to leap within the next 12 months to US$60 billion, up from US$47 billion, while ASEAN trade with China is likely to hit US$80 billion in the same period.
In total then, ASEANs agreements with China and India affect some 3 billion consumers throughout Asia. India has relaxed tariffs to zero for import/export on some 3,500 products with the region, and China some 7,000. These agreements mean that products crossing through ASEAN nations (Burma or Vietnam for example) between India and China are only likely to increase in magnitude. The impact on both India and China will be significant and could lead to the re-establishing of previously long dormant trade routes between the two countries.
Singapore, Malaysia and Indonesia are currently India's three largest trading partners within ASEAN. "This is a historic development given the increasing engagement between India and ASEAN countries, and the enhanced economic cooperation," Indian Commerce Minister Anand Sharma said after the trade agreement signing. "This agreement definitely will open new opportunities and new pathways for multi-sectorial engagements."
The Calcutta-Guangzhou
gateway
Several ancient trade routes between India and China existed in the past, and particularly between India's major Port city of Calcutta (now Kolkata) and China. Accordingly one of the spaces that is likely to open up is the gap between West Bengal and Guangdong Province.
Kolkata's historic position over the last 150 years has not been kind to the city, and has held the state of West Bengal back considerably. Previously the capital of India under the British, it lost this position in 1911 when the capital was moved to New Delhi. The city had developed as a major regional port, exporting products from Tibet and China, and being the center of the jute processing industry on supplies of the plant from the eastern part of Bengal (now Bangladesh). Consequently, before the 1947 partition of India, Bengal state enjoyed close economic and trade ties with China, with just the Himalayas to the north and Burma to the east separating the two.
Calcutta (the name was changed in 2001) was home to the largest Chinatown in India, a position the city still holds today. However, the Chinese position on Tibet, the 1962 Sino-India border war, and the collapse of the jute industry following the partition spelled the end for the city as a major international trading port. That however could be set to change. As trade ties between India and China develop, Kolkata is beginning to resume its importance in Sino-Indian trade. The Chinese government established a consulate in Kolkata in 2008 and the India government set up a consulate in Guangzhou at the same time. Direct flights now link Kolkata with Guangzhou, China and Dhaka, Bangladesh as the previously destroyed trade routes start to reenergize.
West Bengal is also of vital strategic importance to India, not just for its proximity to China but also for the latent potential. The Indian government has now introduced a "North-Eastern Regional Vision 2020" program that is specifically targeted at West Bengal and Kolkata as the state capital. Prime Minister Manmohan Singh was quick to comment on the region when asked about the new India-ASEAN FTA. "If the northeast is to benefit from any improved trade relations or any present or future FTAs, the numerous plans and proposals that has been put forth and are in paper only must be implemented and brought to fruition first," Singh said. "Northeast India, a storehouse of great natural resources but very backward economically, needs to be built up and readied if it is really going to be the 'gateway' or 'center' of trade between India and East Asia."
Indeed, the Chinese consul general to Kolkata, Mao Siwei, has also recognized this. In a speech made to the Bengal National Chamber of Commerce and Industry in April, Mao stated that China-India economic relations were a "win-win situation," citing China's capacity for producing power equipment and building power plants as being much larger than the domestic demand required.
"To maintain and develop the capabilities of power equipment manufacturing and power plants construction," Mao said, "Chinese power industry has to go abroad. They have found many large markets in the world, but the Indian market is one of the largest."
Guangdong has already stated its intention to develop more as a high-tech hub, and move its manufacturing up stream. Much of the cheap manufacturing, electrical products and textiles business is to be expected to move to Bengal and Vietnam. With both Shenzhen and Guangzhou ahead of Shanghai in average salaries and GDP income, Guangdong simply cannot afford to hold onto its low end industrial manufacturing base any more. West Bengal, along with Vietnam, will pick up the lion's share of this movement of industry and labor-intensive work.
Dezan Shira & Associates maintains five offices in India including in Mumbai and Kolkata, as well as nine offices in China including in Shanghai, Guangzhou and Shenzhen, email india@dezshira.com for advice over India business establishment and tax issues, or visit the firm's website at www.dezshira.com for full details.
Asia Briefing also publishes material on India and China: 2point6billion.com deals with bilateral trade between the two countries as well as matters concerning emerging Asia; and our complimentary India Briefing Magazine and Daily Business News can be accessed from www.india-briefing.com.