CHINA

China and India today represent Asias two largest and most dynamic societies which are emerging as new trend setters in international relations. Especially, with their annual GDP growth rates standing respectively at 9.6% and 8.20% for 2011.China and India have since come to be recognised as the fastest growing economies. According to World Bank estimates, and assessed on the basis of purchasing power parity, China and India have already become respectively the second and fourth largest economies of the world surpassing developed countrieS. From the global perspective, China and India today represent two unique new players presenting an extraordinary combination of a very large GDP and still with significant poverty and pockets of unrest and a very low per capita income and living standards. This unique combination raises several questions about their becoming major drivers in international economic trends. However, in the politico-strategic sphere, their recent economic success has resulted in both seeking an expanded space in regional as well as international decision-making, something that is becoming a matter for worldwide concern. Thanks, however, to their colonial and cold war legacies, their economic success had, for a long time, remained a mutually exclusive exercise thus slowing down its pace of progress and its global impact. It is only rather recently that their political initiatives at confidence-building began to expand their areas of mutual co-operation, which now remains premised on their new mantra of mutual accommodation and mutual benefit. Their bilateral trade has since come to be recognised as the most reliable as also the most agreeable instrument of China-India rapprochement. Their long-term potential as trade partners, however, remains yet to be fully explored and exploited and their political equations remain yet vulnerable to their problematic legacies. It is in this context of their fast changing equations that this article makes an attempt to hypothesise how their bilateral trade promises to become the most potent instrument for resolving their political difficulties and facilitate progress in actualising their strategic partnership for the future. This China-India economic partnership remains an essential prerequisite for the success of their regional and global political initiatives.

The new context

The context of China-India bilateral trade itselfbilateral as well as regional and globalhas been changing rapidly. At the bilateral level, this is self-evident in the way their rapidly growing trade partnership has provided a great boost to their ongoing political confidence-building. In the wake of their diplomatic stand-off following Indias nuclear tests of May 1998, their bilateral trade was the first to bounce back to its normal pace. However, this boom in their bilateral trade could not have been possible in absence of bold political initiatives yet, in recent years, it is the role of their business communities that has become far more influential in determining the tone and tenor of their political interactions.

Their recent signing of the April 2005 general parameters agreement for their boundary settlement, their opening of a third border trade route through Sikkim in June 2003, and now their discussions for evolving a China-India Free Trade Area (FTA) remain some of the examples which have been accompanied by a reduction in forces deployment on their border and revival of several cottage industries among border communities in remote and inaccessible regions. Apparently, policy-makers from both sides have begun to increasingly focus on the social and political spin-offs of their bilateral trade. The last five years have witnessed ChinaIndia trade quadruple and the expectation that it will reach US$30 billion by 2010 appears increasingly credible. However, for both China and India, their rise to stardom is no without its share of pitfalls, puzzles and challenges. Much of the aforementioned success remains particularly true of China with India slightly behind. Indias Prime Minister Manmohan Singh is seen as an architect of Indias economic reforms and opening up. However, even without government initiatives, several sectors in India have picked up momentum and will continue to grow helping New Delhi to catch up with Peking. For example, the number of skilled professionals from India are growing at enormous speed. They mainly work in the software industry, and Chinese enthusiasm for Indias information technology sector clearly recognises this new trend TRADE RELATION : BILATERAL TRADE : India and China agreed to increase bilateral trade to $100 billion by 2015 during the summit held on 15-17 December 2010 in Delhi. Both sides agreed to take measures to promote more Indian exports to China with a view to reducing Indias trade deficit with China. In the last decade, bilateral trade between India and China has risen twenty fold. Bilateral trade was $42.4 billion in fiscal year 2009-2010 and is expected to go up to $60 billion this calendar year. Although China is Indias major trading partner, trade flows are heavily weighted in Chinas favor, with India unable to diversify its basket of exports to China. EXPORTS :
India's exports to China

1. Ores, Slag, Ash, Cotton + Yarn, Fabric, Organic Chemicals, Copper + Articles Thereof, Precious Stones, Metals, Iron And Steel, Plastic, Machinery, Salt; Sulfur; Earth, Stone, Inorganic Chemcals; Rare Earth Metals, Electrical Machinery, Hides And Skins, Artificial Flowers, Feathers, Tanning, Dye, Paint, Putty, Fish And Seafood
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Ores, Slag, Ash; Cotton + Yarn, Fabric; Copper + Articles Thereof; Precious Stones, Metals; Artificial Flowers, Feathers and hides and skin account for US$ 11229.57 million, which is 76% of the total exports to China. This means majority of exports are still low end products.

Organic chemicals, iron and steel, plastics, machinery, inorganic chemicals, electrical machinery account for only US$ 2203.592 million, which is 15% of the total exports to China. This means export of value added products is still to pick up.
India's imports from China

Electrical Machinery, Machinery, Organic Chemicals, Iron And Steel, Iron/Steel Products, Fertilizers, Plastic, Impregnatd Text Fabrics, Silk; Silk Yarn, Fabric, Vehicles, Not Railway, Inorganic Chemicals; Rare Earth Metals, Manmade Filament, Fabric,Mineral Fuel, Oil Etc, Aluminum
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Electrical machinery, machinery, plastics, iron & steel, fertilizers, inorganic chemicals, organic chemicals, optical instruments, medical instruments, auto components and aluminum recorded heavy growth in imports from China. Electrical products, electronic products and machineries occupy 47% of the total imports from China. Majority of the products imported from China are high end or value added products.

INVESTMENT:
At present, investment links between the two countries are relatively modest. Haier and Huawei have significant presence in India. Similarly, Bharat Forge, TCS, and Infosys are building a noteworthy presence in China. These types of Greenfield investments will continue to grow. However, the quantum leap will come as some of the bigger companies from India and China acquire third-country companies that already have a significant presence in the other country (e.g., if an Indian auto company were to acquire a western auto company with significant presence in China). It is certain that, over just the next five years, we will see a growing number of foreign acquisitions by Indian and Chinese companies. As these acquisitions materialise, it is inevitable that investment linkages between India and China will grow rapidly.