Indo-China Trade Affairs

Indo-China relations, also called Sino-India relations, refers to the bilateral relationship between the People's Republic of China (PRC) and the Republic of India. Relations began in 1950 when India was among the first countries to break relations with the Republic of China on Taiwan and recognize the PRC. China and India are the world's most populous countries and also fastest growing major economies. The resultant growth in China and India's global diplomatic and economic influence has also increased the significance of their bilateral relationship. China and India are two of the worlds oldest civilizations and have coexisted in peace for millennia. Cultural and economic relations between China and India date back to ancient times Relations between contemporary China and India have been characterized by border disputes, resulting in three major military conflicts the Sino-Indian War of 1962, the Chola incident in 1967, and the 1987 Sino-Indian skirmish. However, since late 1980s, both countries have successfully attempted to reignite diplomatic and economic ties. In 2008, China emerged as the largest trading partner of India and the two countries have also attempted to extend their strategic and military relations.

Geographical overview

China and India are separated by the formidable geographical obstacles of theHimalayanmountain chain. China and India today share a border along the Himalayas and Nepal and Bhutan, two states lying along the Himalaya range, and acting as buffer states. In addition, the disputedKashmirprovince of India (claimed by Pakistan) borders both the PRC and India. As Pakistan has tense relations with India, Kashmir's state of unrest serves as a natural ally to the PRC.

History :India and China had relatively little modern political contact before the 1950s. However, both countries have had extensive and close historical cultural contact since the 1st century, especially with the transmission of Buddhism from India to China. Trade relations via the Silk Road acted as economic contact between the two regions. The history is divided into several parts depending upon the era as follows:

After independence
Jawaharlal Nehru based his vision of "resurgent Asia" on friendship between the two largest states of Asia; his vision of an internationalist foreign policy governed by the ethics of the Panchsheel, which he initially believed was shared by China, came to grief when it became clear that the two countries had a conflict of interest in Tibet, which had traditionally served as a geographical and political buffer zone, and where India believed it had inherited special privileges from the British Raj.

1950s
In 1950 Mao Zedong, the Commander of the Liberation Army and the Chairman of the Communist Party of China viewed Tibet as an integral part of the Chinese State. Mao was determined to bring Tibet under direct administrative and military control of Peoples Republic of China and saw Indian concern over Tibet as a manifestation of the Indian Government's interference in the internal affairs of the Peoples Republic of China. The PRC sought to reassert control over Tibet and to end Lamaism (Tibetan Buddhism) and feudalism, which it did by force of arms in 1950. To avoid antagonizing the People's Republic of China, Nehru informed Chinese leaders that India had neither political nor territorial ambitions, nor did it seek special privileges in Tibet, but that traditional trading rights must continue. With Indian support, Tibetan delegates signed an agreement in May 1951 recognizing PRC sovereignty but guaranteeing that the existing political and social system of Tibet would continue. Direct negotiations between India and the PRC commenced in an atmosphere improved by India's mediation efforts in ending the Korean War (19501953). Meanwhile, India was the 16th state to establish diplomatic relations with the People's Republic of China, and did so on April 1, 1950. In 1954, India published new maps that included the Aksai Chin region within the boundaries of India (maps published at the time of India's independence did not clearly indicate whether the region was in India or Tibet).[17] When an Indian reconnaissance party discovered a completed Chinese road running through the Aksai Chin region of the Ladakh District of Jammu and Kashmir, border clashes and Indian protests became more frequent and serious. In January 1959, PRC premier Zhou Enlai wrote to Nehru, rejecting Nehru's contention that the border was based on treaty

and custom and pointing out that no government in China had accepted as legal the McMahon Line, which in the 1914 SimlaConventiondefined the eastern section of the border between India and Tibet. The Dalai Lama, spiritual and temporal head of the Tibetan people, sought sanctuary in Dharmsala, Himachal Pradesh, in March 1959, and thousands of Tibetan refugees settled in northwestern India, particularly in Himachal Pradesh. The People's Republic of China accused India of expansionism and imperialism in Tibet and throughout the Himalayan region. China claimed 104,000 km of territory over which India's maps showed clear sovereignty, and demanded "rectification" of the entire border.

1960s :- Sino-Indian War

Border disputes resulted in a short border war between the People's Republic of China and India on 20th October 1962. The PRC pushed the unprepared and inadequately led Indian forces to within forty-eight kilometers of the Assam plains in the northeast and occupied strategic points in Ladakh, until the PRC declared a unilateral cease-fire on 21 November and withdrew twenty kilometers behind its contended line of control.At the time of Sino-Indian border conflict, a severe political split was taking place in the Communist Party of India. One section was accused by the Indian government as being pro-PRC, and a large number of political leaders were jailed. Subsequently, CPI split with the leftist section forming the Communist Party of India (Marxist) in 1964. CPI(M) held some contacts with the Communist Party of China in the initial period after the split, but did not fully embrace the political line of Mao Zedong. Relations between the PRC and India deteriorated during the rest of the 1960s and the early 1970s as Sino-Pakistani relations improved and Sino-Soviet relations worsened.

1970s
In August 1971, India signed its Treaty of Peace, Friendship, and Cooperation with the Soviet Union, and the United States and the PRC sided with Pakistan in its December 1971 war with India. Although China strongly condemned India, it did not carry out its veiled threat to intervene on Pakistan's behalf. By this time, the PRC had just replaced the Republic of China in the UN where its representatives denounced India as being a "tool of Soviet expansionism." India and the PRC renewed efforts to improve relations after Indian Prime Minister Indira Gandhi's Congress party lost the 1977 elections to Morarji Desai's Janata Party. In 1978, the Indian Minister of External Affairs AtalBihari Vajpayee made a landmark visit to Beijing, and both nations officially re-established diplomatic relations in 1979.

 1980s
In 1981 PRC minister of foreign affairs Huang Hua was invited to India, where he made complimentary remarks about India's role in South Asia. In 1980, Indian Prime Minister Indira Gandhi approved a plan to upgrade the deployment of forces around the Line of Actual Control to avoid unilateral redefinitions of the line. India also increased funds for infrastructural development in these areas. In 1984, squads of Indian soldiers began actively patrolling the Sumdorong Chu Valley in Arunachal Pradesh (formerly NEFA), which is north of the McMahon Line as drawn on the Simla Treaty map but south of the ridge which Indian claims is meant to delineate the McMahon Line. The Sumdorong Chu valley "seemed to lie to the north of the McMahon line; but is south of the highest ridge in the area, and the McMahon line is meant to follow the highest points" according to the Indian claims, while the Chinese did not recognize the McMahon Line as legitimate and were not prepared to accept an Indian claim line even further north than that.The Indian team left the area before the winter. In the winter of 1986, the Chinese deployed their troops to the Sumdorong Chu before the Indian team could arrive in the summer and built a Helipad at Wandung.Surprised by the Chinese occupation, India's then Chief of Army Staff, General K.Sundarji, airlifted a brigade to the region.

1990s
As the mid-1990s approached, slow but steady improvement in relations with China was visible. Top-level dialogue continued with the December 1991 visit of PRC premier Li Peng to India and the May 1992 visit to China of Indian president R. Venkataraman. Six rounds of talks of the Indian-Chinese Joint Working Group on the Border Issue were held between December 1988 and June 1993. Progress was also made in reducing tensions on the border via confidence-building measures, including mutual troop reductions, regular meetings of local military commanders, and advance notification of military exercises. Border trade resumed in July 1992 after a hiatus of more than thirty years, consulates reopened in Bombay (Mumbai) and Shanghai in December 1992, and, in June 1993, the two sides agreed to open an additional border trading post. During SharadPawar's July 1992 visit to Beijing, the first ever by an Indian minister of defence, the two defense establishments agreed to develop academic, military, scientific, and technological exchanges and to schedule an Indian port call by a Chinese naval vessel. Substantial movement in relations continued in 1993. The sixth-round joint working group talks were held in June in New Delhi but resulted in only minor developments. However, as the year progressed the long-standing border dispute was eased as a result of bilateral pledges to reduce troop levels and to respect the cease-fire line along the India-China border. Prime Minister NarasimhaRao and Premier Li Peng signed the border agreement and three other agreements (on cross-border trade, and on

increased cooperation on the environment and in radio and television broadcasting) during the former's visit to Beijing in September. Possibly indicative of the further relaxation of India-China relations, at least there was little notice taken in Beijing, was the April 1995 announcement, after a year of consultation, of the opening of theTaipei Economic and Cultural Center in New Delhi. The center serves as the representative office of the Republic of China (Taiwan) and is the counterpart of the India-Taipei Association in Taiwan; both institutions have the goal of improving relations between the two sides, which have been strained since New Delhi's recognition of Beijing in 1950. Sino-Indian relations hit a low point in 1998 following India's nuclear tests in May. Indian Defense Minister George Fernandes declared that "China is India's number one threat", hinting that India developed nuclear weapons in defense against China's nuclear arsenal. In 1998, China was one of the strongest international critics of India's nuclear tests and entry into the nuclear club. During the 1999 Kargil War China voiced support for Pakistan, but also counseled Pakistan to withdraw its forces.

2000s
With Indian President K. R. Narayanan's visit to China, 2000 marked a gradual re-engagement of Indian and Chinese diplomacy. In a major embarrassment for China, the 17th Karmapa, UrgyenTrinleyDorje, who was proclaimed by China, made a dramatic escape from Tibet to the Rumtek Monastery in Sikkim. Chinese officials were in a quandary on this issue as any protest to India on the issue would mean an explicit endorsement on India's governance of Sikkim, which the Chinese still hadn't recognised. In 2002, Chinese Premier Zhu Rongji reciprocated by visiting India, with a focus on economic issues. 2003 ushered in a marked improvement in Sino-Indian relations following Indian Prime Minister AtalBihari Vajpayee's landmark June 2003 visit to China. China officially recognized Indian sovereignty over Sikkim as the two nations moved toward resolving their border disputes.

2010s
In April 2010, the second BRIC summit was held in Brasilia.Chinese PremierWen Jiabao paid an official visit to India from Dec.15-17,2010 at the invitation of Prime Minister Manmohan Singh. He was accompanied by 400 Chinese business leaders, who wished to sign business deals with Indian companies.

 Trade & Commercial Relations

India and China officially resumed trade in 1978. In 1984, the two sides signed the Most Favored Nation Agreement. India-China bilateral trade which was as low as US$ 2.92 billion in2000 reached US$ 61.7 billion in 2010, making China Indias largest goods trading partner. In2008, bilateral trade stood at US$ 51.8 billion and China became Indias largest goods tradingpartner, replacing the United States of America. By the end of 2009, as a result of the worldeconomic downturn, bilateral trade dropped to US$ 43.27 billion (a decline of 16.54%). However, in 2010 bilateral trade reached US$ 61.74 billion, a growth of 43% compared to thesame period last year. India exported goods worth US$ 20.86 billion (+52%) to China andimported goods worth US$ 40.88 billion (+38%) from China, resulting in an adverse balance oftrade of US$ 20 billion. In the first 8 months of 2011, India-China bilateral trade reachedUS$ 48.17 billion (+19.47% over the same period last year). Indias total exports to China forbillion (+26.33%). The trade deficit for the first 8 months has already reached US$ 16.8 billion.

India-China Trade :In 2004, India was among Chinas top 20 trading partners, fifteenth inimports, and eighteenth in exports. China was a much more importanttrade partner for India in 2004, ranking in the top five, second in imports,and third in exports.

China-India Bilateral Trade

Boomingbilateraltrade has come to be the strongestpillar of China-Indiareapprochement. This has not onlysinceovertaken the pace of political confidencebuilding but also has a substantial impact on theirmutual perceptions. Their border trade has especiallybrought about a noticeable transformation in theirremote and problematicborderregions. This has contributed to overalltranquillity and peace in the area and has as wellfacilitatedprogress in their border negotiations. This boom in trade has alsointroduced new trends. The two states are no longer onlyrecipients on foreign direct investment but have enteredinto a new phase of beinginvestors, bothmutually as in otherregions. In this new context, the increasingdeficit in the energysector and the competition to capture new marketspresent major challenges to sustainingthis boom in theirbilateraltrade.

 The new context Of China-India Bilateral Trade :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. China-India trade began to return to normal in July 1998. Culture and commerce has linked these two. Swaran Singh, China-India Border Trade: A Tool for Building Mutual Confidence, in Isabelle Saine. 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 China-India 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 recognizes this new trend. Nothing compares to the China-India bilateral trade when it comes to evaluating the positive trends in post-1962 China-India relations. Starting with an extremely slow pace with an annual turnover of only a few million dollars, and then staying on the margins for much of the 1980s, their trade has gradually come to occupy the centre stage of their interaction. The target of reaching US$20 billion in bilateral trade by 2008set by the two prime ministers in their meeting in Delhi in April 2005is now expected to be reached before end of 2005. Similarly, the target of US$30 billon of

bilateral trade set for 2010 is now expected to be reached by 2009. At least in the shortrun, their current institutional arrangements and enthusiasm augurs very well for their continued trade boom, which can contribute a great deal to their growing confidence one in the other and their evolving long-term strategic partnership10. Especially, Chinas foreign trade stood at US$851 billion for 2003 and exceeded US$1 trillion for 2004. Indias foreign trade, by comparison, reached only about US$180 billion for 2004. If the East Asian financial crisis had diverted Chinas trade to India then the countertrends in the wake of Indias nuclear tests of May 1998, resulted in Indias total foreign trade sliding from US$86.86 for 1998 to US$81.84 billion for 1999. However, this general slide was not proportionally reflected in the China-India bilateral trade though China this was perhaps one area most directly affected by Indias nuclear tests (see Figure 1). Positive trends in the bilateral trade have been particularly shaped by the economic reforms on both sides and the consequent search for new business partners. As a result of this, their complicated politico-strategic equations, that had continued to slow the rising enthusiasm, have come to be underplayed and marginalised. To cite some examples of China using trade as its diplomatic tool, its trade with other problematic neighbours like Japan and South Korea has increased respectively from US$16.8 billon and US$0.7 billion for 1990 to a whopping US$99.6 billion and US$36.2 billion for 2002, making them each others most valued trade partners. Chinas combined trade with Japan and South Korea reached US$212 billion for 200411. For the same period, Chinas bilateral trade with India grew from US$0.2 billion for 1990 to US$5 billion for 2002, though it has increased much faster since then reaching US$7.6 billion for 2003 and US$13.6 billion for 2004. China-India Bilateral Trade

Viewed in the context of South Asia, Chinas trade with India have witnessed impressive increases defying all suspicions about Chinas special relationship with Pakistan or Chinas encirclement of India (see Figure 2). To highlight some other strong

fundamentals that promise to sustain their current trade boom, while China continues to enjoy a huge favourable balance of trade vis--vis most other smaller states of the South Asian region, it is only the China-India trade that has remained to be Chinas most balanced trade in South Asia and often the balance has been in favour of India. Indeed, the two seem to be becoming increasingly relaxed about their bilateral ties and are now thinking of building joint strategies towards their regional and global initiatives. No-one today talks of a China-India clash in South-East Asia where both have built flourishing engagement without any mutual friction or skepticism. While so far they have not allowed this to become a major stumbling block yet their intensifying search for energy sources abroad is lately seen as one area that could post a serious challenge for their economic engagement12.

Strong fundamentals of China-India trade

It is the nature of China-India bilateral trade as a confidence-building measure that must be underlined to appreciate its interface with their political relations which remains so critical for its long-term prospects. Therefore, more than being measured in terms of statistics and profits, it is the political impact of trade which remains the barometer of their economic engagement. Both sides clearly display that understanding at least in their more recent initiatives. Moreover, with the inclusion of Indias trade with Hong Kong and Macao (as also Indias rising trade with Taiwan, and the possibility of an eventual unification of Taiwan), Greater China has already emerged as Indias largest trading partner and one of its kind. Major items of export from India to China remain iron and chrome ore, plastic and linoleum, marine products, cotton yarn and fabrics, organic and inorganic chemicals, dye intermediates, bulk drugs and pharmaceuticals, construction quality wire rods, tobacco and tea, while Chinas exports to India include items like raw silk and silk yarn, coking coal, some types of chemicals, pulses, mercury and antimony, freshwater pearls, pig iron, newsprint and several low-technology consumer items. Gradually, many new sectorslike border trade or high-tech tradeare being also explored while information technology and infrastructure development are already emerging as major areas for co-operation. Thirdly, it is the dynamism of their economies and societies, especially their young populations and increasingly skilled manpower, that are going to be their critical asset. In absolute terms, as proportion of their total trade or even in terms of per capita trade this may present a dismal picture, yet trends in the growth rate of China-India trade show strong potential and have important political implications. However, even

in terms of its share in their total foreign trade, while India accounts for little more than 1% in Chinas total foreign trade, China now accounts for over 5% of Indias total foreign trade which creates substantial stakes for mutual co-operation. Finally, their foreign exchange reserves provide perhaps the easiest laymans indicator of their international economic standing. Chinas foreign exchange reserves, which stood at mere US$1.6 billion for 1978, had exceeded US$659 billion by March 2005. These may not be huge figures compared to those of Japan at US$843 billion yet they are when compared to Indias US$142 billion. The same also remains true of their foreign direct investment (FDI) inflows where China and India are often projected as either poles apart or competing against each other. However, both have again continued to sustain growth simultaneously without any major friction. Their FDI remains perhaps the strongest mover of their foreign trade and especially in case of China it has come to be known as the main locomotive for their economic success.

Foreign Direct Investment(FDI)

Unlike India, FDI makes China a global player. In 2000, in cumulative terms, China was worlds fifth-largest recipient of FDI, after the United States (US$1.3 trillion), the United Kingdom (US$497 billion), Benelux Economic Union states (US$482 billion) and Germany (US$480 billion). But for 2004, China was to clock the second largest FDI inflow of US$62 billionnext only to the United States which makes these FDI inflows the most critical as also most visible indicator of its sustained and rapid economic development. Even India is expected to emerge as the next hot spot for FDI inflows. Amongst others, the UNCTAD-DITE Global Investments Prospects Assessment 2004, estimates for 2004-2007 put China and India at the top two ranks followed by the US as third. This, however, remains rather ambitious, especially for India. Even for China, while it is expected to continue to leapfrog, it is likely to stay at its second position and may not surpass the US for a very long time. By comparison, Indias FDI has been generally sluggish and, for the early 1990s Indias contracted FDI stood at $0.15 billion for 1991, $0.23 billion for 1992, $0.57 billion for 1993, $0.95 billion for 1994, and $1.96 billion for 1995. But from there, Indias FDI has experiences some acceleration and rose to $3.4 billon for 2002 and $4.3 billion for 2003; and some experts also question calculation methods and suspect underplaying of Indias FDI statistics. For year 2004, Indias FDI was estimated to exceed a rather impressive US$8 billion. And, given this new enthusiasm of the United Progressive Alliance, the government has been talking of absorbing an FDI of US$15 billion for 2005 and US$30 billion for 2007 to reach a total of US$150 billion of fresh FDI in next ten years.

Among the reasons cited to explain India lagging behind, is the argument that China had decided to open up to FDI back in 1979 and created special economic zones (SEZs) in coastal regions that had the clear advantage of geographical proximity to Hong Kongthe hub of capital investment in Asia, and that China had the added advantage of its political system, cheap labour and special incentives for foreign investors as for its armed forces which were to become major players in Chinas opening up experiments25. Also important is overseas Chinese contributions. Nonresident Indians and overseas Chinese have been distinct categories in FDI inflows into their respective homelands. Beginning only from the early 1990s, while non-resident Indians do contribute a little to Indias FDI, overseas Chinese are known to present a unique example by contributing over two-thirds of the whopping inflows of FDI into China26.

Institutional arrangements
As regards an evolving overall institutional framework for their bilateral trade, the China-India Joint Working Group for the Boundary Question (JWG) remains the most generic and potent forum for all issues and sets the overall tenor of China-India relations. More specifically, the two also have a JWG for Trade and Commerce which is supported by a Joint Business Council that represents business interests, in particular of the non-state sector. They also have a JWG for Science and Technology that focuses more on research and development sectors. In operative terms, much of the norms and regulations for clearing road-blocks and evolving the new legal framework for trade are facilitated by their regular meetings. Besides, using such opportunities as Summits, many more agreements have been signed between individual Departments and Ministries from both sides. Among some more exciting institutional frameworks, China and India have recently launched discussions to evolve a bilateral free trade area (FTA) agreement. This indicates their desire to go beyond the World Trade Organisation framework and mutually reduce tariffs even further as also to remove non-tariff barriers. Indeed, in their meeting over March 21st-22nd 2004, the senior officials from China and India had launched the first round of discussions for signing a FTA agreement and a comprehensive economic co-operation agreement in Peking. The idea was further followed up during Premier Wen Jiabaos visit to India over April 9th-12th 2005. However, unlike their government, some Chinese experts continue to have strong misgivings. To quote one well-known expert on South Asia, Although a FTA between China and India will be hard to achieve in the short term, its significance in forming a multi-party regional free trade system is apparent, given the huge population and size of the two countries. Another Chinese expert believes that the stronger trade ties and complimentary economic structures cannot ensure the quick establishment of a FTA between the two countries.

 Investments and joint ventures

In international relations, finance capital transfers have been a rather recent phenomenon compared to the trading of goods and services. But mutual investments always reflect greater mutual confidence and provide a great boost to bilateral trade, especially in the long-run. And this is especially true when it comes to China-India bilateral trade. However, as of now, the United States stands out as the largest investor, accounting for about 21% of Indias total FDI inflows. Mauritius follows with a 12% share, but it is really a conduit for investors from various countries, including the United States, because of a special tax treaty with India which grants exemption from Indian taxes for Mauritius-based companies. The United Kingdom is then the third largest investor in India followed by the Republic of Korea, Japan and the non-resident Indians who now account for about 4% of Indias total FDI inflows32. Chinas export expansion in certain sectors has had a direct impact on similar exports from and investment into labour-abundant India. Yet, there are sectors where China and India have entered into joint ventures and they today hold joint stakes in Kazakh oil firms and Sudans oilfields. The first China-India joint venturebetween Indias Mideast Integrated Steel Limited and China Metallurgical Import Export Corporationwas commissioned in Orissa way back in January 1993. As regards Indias investments in China, irrespective of its thriving private sector being active since its independence in 1947, the nearest that Indias investments were to reach China were Hong Kong. China virtually allowed no foreign investment until the early 1980s. But, even after long years of operations in Hong Kong, few businessman of Indian origin made it really big in Hong Kongs business circles. Also, considering that much of Indian investments remain in services, Hong Kong continued to be the most favored destination as its obvious attraction as a hub of business and trading. Indeed, it was from here that most Indian business houses made their debut in extending their operations into China mainland. This, however, is not true of Chinese investment that has been concentrated in Indias mining and low-technology manufacturing sectors. However, given their political baggage of their problematic past, Chinese investment into India has not only continued to heavily fluctuate but also continue to suffer from a huge gap between their contracted FDI and their actual absorption in real projects on the ground. For the period between August 1991 and August 2000, while China had contracted an FDI worth US$225.07 million with India, the actual inflow was only US$0.56 million. Comparing this with their overall performance in attracting FDI, both India and China have separately faired much better, which shows that the pace of their mutual investments still continues to be guided by their bilateral politico-strategic equations.

The reality, however, has been changing rapidly in last few years. Indias Ranabaxy pharmaceuticals and National Institute for Information Technology (NIIT), today clearly dominates Chinas pharmaceuticals and IT education. There have also been several other smaller and less known initiatives in IT education. Indias Tata Group, one of largest conglomerates in Asia, plans to increase its investment from US$2 million to US$5 million in Chinas software sector and has also been in discussion about joint-venture projects in other sectors like automobiles and steel35. Chinas home electrical appliance makers Guangdong province-based Konka and Indias Tata Consultancy Limited (TCL) have also established joint ventures in India. Chinas Konka though halted its manufacturing in India due to the allegedly restrictive policies and it was reported to have deep difference with its Indian partners36. But again, during the June 2003 visit by Prime Minister Vajpayee, China had pledged to invest US$500 million in Indias infrastructure sector.

Indian Companies in China

With the growth in bilateral trade between India and China in the last few years, many Indian companies have started setting up Chinese operations to service both their Indian and MNC clientele in China. Indian enterprises operating in China either as representative offices, Wholly Owned Foreign Enterprises or Joint Ventures with Chinese companies are into manufacturing (pharmaceuticals, refractories, laminated tubes, auto-components, wind energy etc.), IT and IT enabled services (including IT education, software solutions, and specific software products), trading, banking and allied activities. While the Indian trading community is primarily confined to major port cities such as Guangzhou and Shenzhen, they are also present in large numbers in places where the Chinese have set up warehouses and wholesale markets such as Yiwu. Most of the Indian companies have a presence in Shanghai, which is Chinas financial center; while a few Indian companies have set up offices in the capital city of Beijing. Some of the prominent Indian companies in China include, o Dr. Reddys Laboratories, o AurobindoPharma o Matrix Pharma o NIIT o Bharat Forge o Infosys o TCS o APTECH o Wipro o Mahindra Satyam

o o o o o o o

Essel Packaging Suzlon Energy Reliance Industries SUNDARAM Fasteners Mahindra & Mahindra TATA Sons, Binani Cements

In the field of banking, ten Indian banks have set up operations in China. o State Bank of India (Shanghai) o Bank of India (Shenzhen) o Canara Bank (Shanghai) o Bank of Baroda (Guangzhou) have branch offices, while others o o o o o Punjab National Banks UCO Bank Allahabad Bank Indian Overseas Bank Union Bank of India have representative offices.

Apart from PSU banks, private banks such as Axis, ICICI also have representative offices in China.

Chinese Companies in India

According to information available with the Embassy of India, close to 100 Chinese companies have established offices/operations in India. Many large Chinese state-owned companies in the field of machinery and infrastructure construction have won projects in India and have opened project offices in India. These include, o Sinostee o Shougang International o Baoshan Iron & Steel Ltd o Sany Heavy Industry Ltd o Chongqing Lifan Industry Ltd o China Dongfang International o SinoHydro Corporation

Many Chinese electronic, IT and hardware manufacturing companies also have operations in India. These include o Huawei Technologies o ZTE o TCL o Haier A large number of Chinese companies are involved in EPC projects in the Power Sector. These include o Shanghai Electric o Harbin Electric o Dongfang Electric o Shenyang Electric Chinese automobile major Beijing Automotive Industry Corporation (BAIC) has recently announced plans to invest US$ 250 million in an auto plant in Pune. TBEA a Xinjiang-based transformer manufacturer has firmed up plans to invest in a manufacturing facility in Gujarat. During the visit of Premier Wen to India, Huawei announced plans to invest in a telecom equipment manufacturing facility in Chennai. The commodity composition of trade in Table lists Indias top 10 exports to China and top 10 imports from China. Similarly,

Issues related to trade affairs:1)India-China Trade Tensions Rise

China threatens to bring its opposition to India's toy import ban to the WTO, while India seems poised to restrict other Chinese products India and China are gearing up for a showdown, one that might go all the way to the World Trade Organization, over India's increasing reluctance to allow Chinese imports to flood the Indian market. The seemingly incongruous export item that raised hackles this time around? Chinese plastic toys, which have captured anywhere between 60% and 90% of its $2.5 billion toy market, depending on whose numbers you trust. On Jan. 23 the Indian government imposed a six-month ban on the imports of Chinesemade toys. In retaliation, on Feb. 4 the official Chinese government newspaper, the China Daily, reported that Beijing is considering appealing to the World Trade Organization to overturn the measure as an unfair trade restriction. But underneath what seems like a traditional and simple trade disputeIndia protecting its growing toy market from cheap foreign importslies nearly a decade of Indian and Chinese mistrust, envy, and even complex geopolitics, say experts. Although India and China are still growing, both economies are hurting badly from the global recession. Sino-Indian trade grew as much as 33% in 2008, to nearly $52 billion, according to data maintained by China's General Administration of Customs, but that's tiny compared with the $425 billion bilateral trade between China and the European Union, or the $333 billion trade between China and the U.S. As both countries experience growth rates of 7% or less, compared with 9% for India and over 10% for China before the financial crisis hit, there is an increased rivalry between them, especially when it comes to sectors where both have strong domestic manufacturers, such as steel, petrochemicals, and textiles. The toy business is another such industry. The Indian government has advertised its ban on Chinese plastic toys as a safety measure. For nearly two years, Indian officials and nonprofit consumer groups have collected data showing many of the toys in the Indian marketand especially those from Chinahave high levels of lead and cadmium. Although the same study showed that many Indian toys had exactly the same unacceptably high levels of dangerous chemicals, New Delhi officials say they had to act against Chinese imports. "People are confusing trade issues with safety issues," says India's minister of state for health, Panabaka Lakshmi, through a spokesperson. "Our concern is merely the safety of India's children."

From Steel to Penicillin

Toys may be just the beginning. Officials in India's Ministry of Trade confirm the Indian government has been collecting data and passing them to Chinese counterparts in several sectors where New Delhi plans either to ban or restrict Chinese imports. Whether India proceeds with such restrictions depends in part on its success at the WTO dispute settlement hearing that China threatens against the toy ban. India already has 10 anti-dumping investigations under way into Chinese-made products as varied as penicillin, steel used for car manufacturing, and even linen. In other words, the toy ban is the proverbial shot across the bow. "There is a serious problem on the Chinese side in terms of security and safety of the products that get shipped here," says professor Madhav Das Nalapat, director of the school of geopolitics at Manipal University in South India. "And the idea is to get them to look seriously at this, and a whole gamut of issues." If the intent was to get China's attention, it worked. Following the announcement of the toy ban, China's vice-minister for commerce met with India's ambassador to China and, according to a statement on the ministry's Web site, asked that India "show care and restraint in using trade-remedy measures during this unusual period of severe challenges in the world economy." Making things more complicated is the fact that India has 17 ongoing investigations into Chinese exports, which has led to a curtailment of sales in Chinese steel, textiles, petrochemicals, and now toys, according to Chinese Commerce Ministry spokesman Yao Jian. "The Chinese government is extremely concerned that India, in such a short space of time, has frequently carried out trade investigations on Chinese goods and limited imports," said Yao in a statement. Sinking Demand

The timing of the ban is especially bad for China. It announced on Feb. 11 that its January exports had fallen 17.5% from the year before, as demand dried up in most of the world for the kind of products Chinese companies excel atcheaper electronics, clothes, and steel. Its toy exports, according to the customs bureau, fell by more than 14%. From the perspective of India's politicians and toy-making companies, though, the timing of the ban could hardly have been better. The move comes just a month or so before Hindus celebrate the festival of Holi, where children and adults alike splash colors on each other to mark the victory of good over evil in the epic Ramayana. In the past decade, Chinese toys like water pistols have managed to corner almost the entire market during Holi; now, those exports will sit unsold in warehouses.

China's muscular response to the toy ban has already gotten the diplomatic wheels rolling in India. In a short conversation outside his office, Trade Minister Kamal Nath said India was confident the ban would stand up in front of a dispute settlement body at the WTO. "I welcome any discussions on this matter," he said, adding that his office was happy to answer any queries from the Chinese government on the reasons behind the ban. But, he said, "Until [we] are satisfied, we simply cannot lift the ban."

2)Src-http://www.acus.org/event/india-china-relations-currentissues-and-emerging-trends
January 25, 2010 Event Summary: The Atlantic Council recently hosted Mr. Mohan Guruswamy, South Asia Center Nonresident Senior Fellow and Chairman of New Delhis Centre for Policy Alternatives. In his talk, he addressed the deep-seated rivalry between two Asian powerhouses, India and China, and the factors contributing to the exacerbation of the issue. He also discussed the future of the India-China relationship where it is headed and what it could possibly bring on both regional and international scales. Mr. Guruswamy first explored the India-China relationship through a historical lens, pointing out that the relations between these two neighbors have always been tenuous, riddled with contentious border issues and territorial claims, and made even more muddled by the lack of a clear historical record demarcating the borders. He indicated that the burgeoning border disputes, partly a result of the British Raj's lack of setting clear borders, were exacerbated by China's occupation of Lassa in 1962 and then by India's retaliatory occupation of the Tawang region. Attempts to resolve these border issues from China's package deal offer in 1986 to their revised proposal in 1988 - have proved unsuccessful, and now neither country is willing to further negotiate on their dispute. In todays political context, Guruswamy observed, these two neighbors still show an unrelenting rivalry. China's fears regarding India, such as their belief that India is a part of the US' plan to encircle their country (a claim which China feels is "evidenced" by the US-India Civilian Nuclear Agreement) encourages China's desire to "trip" India before the military asymmetry will begin to close. Further adding to the preexisting distrust between the two countries is India's economic growth, specifically as China's GDP growth rate is expected to decline in the recent future while India's is supposed to steadily increase. Other political factors that continue to deepen the India - China divide is the issue of Tibet. Ever since India granted political asylum to the Dalai Lama, China has

accused India of being pro Tibet (despite Indias acknowledgement of Tibet as a Chinese territory). There is also what Guruswamy calls the coming crisis of the Dalai Lamas, where two Dalai Lamas will rise (one from Dharamsala and one from Tibet) to succeed upon the passing of the current Dalai Lama which will further create tension regarding this issue. The political stability of other key regional countries such as Afghanistan, Pakistan and Myanmar all have the potential to impact India-China relations as well. Indian interests in respect to China in the long-run include the following key concepts: avoiding an arms race with China, avoiding entanglement in the US-China rivalry, and avoiding being kept in check by China. Indias aim for the future, Guruswamy asserted, is to walk softly but carry a big enough stick to keep the dragon at bay. The question and answer session following the discussion addressed several topics, most importantly, Indias developing relationship with key strategic countries Russia, the US and China. In respect to recent Indo-Chinese cooperation (specifically at the Copenhagen Conference on Climate Change), Guruswamy noted that while they were rivals, they were not enemies, and that they knew how to work together with common interests in mind. To reassert his point, Guruswamy exemplified their burgeoning trade relationship, and the potential for the two countries to work together on a number of key security issues, such as terrorism and drug trafficking.

3)Impact of nuclear tests

Without doubt, Indias nuclear tests of 1998 had presented the most serious acidtest for China-India trade relations. There are various ways to examine how China-India trade and commerce were affected by these tests, and how bilateral trade proved to be a major catalyst in facilitating the post-1998 official and political interactions. Prime facie, their bilateral trade had suffered a visible setback the growth rate tumbling from an average 78% during the preceding eight years to mere a 3.4% for 1998. More curious was the follow-up: China-India trade was to undergo an exponential boom these last seven years following the 1998 nuclear test (as shown in Figure 1). Indeed, a month-tomonth change in China-India trade for 1998 presents a most startling picture of the business sector as the first to bounce back in a matter of six months, between May and November 1998. Trends in trade surplus can be another important indicator of the impact of nuclear tests on bilateral trade ties. Beginning from the early 1990s, while India had enjoyed a trade surplus during 1992, 1993 and 1996, the trade surplus was with China during 1994, 1995, 1997. In fact, according to experts, the China-India trade was known to experience fluctuations even within each year as India generally enjoyed a trade surplus during the first half of the year while in China this trend was reversed during the last few months, every time. For 1997, for example, during the first eight months of

1997, there was a trade surplus in favour of India of US$40 million. Very suddenly, Chinas exports experienced faster growth resulting in China having a trade surplus of US$53 million by November which dropped to US$36 million by the end of December. But no such trend was seen during 1998 when the trade surplus with China reached its peak of US$110 million though this rectified itself in 1999. All that we had were the symbolic cancellation of China Commodity Fair in Mumbai during August-September 1998 and Chinas visibly low-profile presence during New Delhis India International Trade Fair during November 1998. This did create skepticism among businessmen on both sides. Academic exchanges were the second important sector to return to normal, not letting political polemics overshadow positive economic initiatives. In addition, when seen in the larger context of Chinas negative growth rates in their annual trade with Asia, even the low positive growth in Sino-Indian bilateral trade for 1998 trade inks was seen to bode very well for SinoIndian ties.

4)Effect of India losing ground to China on trade with Bangladesh

Since Bangladesh achieved independence, seceding from Pakistan in 1971, India has been its major trading partner. But since 2002 Chinas trade with Bangladesh has increased many times over, surpassing that of India. This slowing down of economic relations between India and Bangladesh, coupled with strained and uncertain political relations, is a cause for concern. Recent visits to Bangladesh by S M Krishna, Indias External Affairs Minister, and Sonia Gandhi, President of the Indian National Congress, have laid the groundwork for Indian Prime Minister Manmohan Singhs visit scheduled for September 6-7. This opportunity should be utilized to address some of the key issues that affect bilateral economic relations. Indian exports to Bangladesh have registered a continuous decline. In 1991 Indias exports as a percentage of Chinas exports to Bangladesh were more than 150 per cent, but by the end of 2010 they had decreased to 30 per cent. Given the similarity in the export baskets of China and India to Bangladesh, Chinese exports are seen to be replacing Indian exports. China also imports less than India from Bangladesh, resulting in a higher trade balance in favour of China. Even Indias concessions to Bangladesh under the Asia Pacific Trade Agreement (APTA), the South Asia Free Trade Agreement (SAFTA), and the recently-declared zero tariff on all products other than the Sensitive List to all least developed countries (LDCs) in SAFTA have failed to improve the trade relations between the two nations. China has captured Bangladeshs market in industries such as textiles, footwear and head wear, and machinery and mechanical appliances, where India also enjoys comparative advantage. Though Chinese products in these industries are highly

competitive on price, there are many other economic and non-economic factors responsible for turning the table in favour of China.

5) Nathula
Closing Of Nathula :-

On 11 September 1967, troops of the Indian Army's 2nd Grenadiers were protecting an Engineering Company that was fencing the North Shoulder of Nathula, when Chinese troops opened fire on them. This escalated over the next five days to an exchange of heavy artillery and mortar fire between the Indians and the Chinese. 62 Indian soldiers, from the 2nd Grenadiers and the Artillery regiments were killed. Reopening Of Nathula :-

The initial agreement for the re-opening of the trade route was reached in 2003, and a final agreement was formalized on June 18, 2006. Officials say that the re-opening of border trade will help ease the economic isolation of the region. The re-opening of the Border Trade certainly helps in promoting friendly relationshipbetween these two emerging economic powers of Asia. Nathula is historically a very important border from time immemorial in respect of trade with China.2004 also witnessed a gradual improvement in the international area when the two countries proposed opening up the Nathula and Jelepla Passes in Sikkim which would be mutually beneficial to both countries. 2004 was a milestone in Sino-Indian bilateral trade, surpassing the $10 billion mark for the first time. In April 2005, Chinese Premier Wen Jiabao visited Bangalore to push for increased Sino-Indian cooperation in high-tech industries. In a speech, Wen stated "Cooperation is just like two pagodas (temples), one hardware and one software. Combined, we can take the leadership position in the world." Wen stated that the 21st century will be "the Asian century of the IT industry." The high-level visit was also expected to produce several agreements to deepen political, cultural and economic ties between the two nations.

Solutions:MEETING
Institutional Framework of Bilateral Cooperation

There are several institutional mechanisms for Indias economic and commercial engagementwith China. India-China Joint Economic Group on Economic Relations and Trade, Science andTechnology (JEG) is a ministerial-level dialogue mechanism established in 1988 during the visitof former Prime Minister Rajiv Gandhi to China. A Joint Study Group (JSG) was set up afterformer Prime Minister Vajpayees visit to China in June 2003 to examine the potentialcomplementarities between the two countries in expanded trade and economic cooperation. As per its recommendation, a Joint Task Force (JTF) was set up to study the feasibility of anIndia-China Regional Trading Arrangement. JTF Report was completed in October 2007. Thereare also Joint Working Groups on Trade, Agriculture and Energy. In Dec 2010, both countriesagreed to set up the India-China Strategic and Economic Dialogue (SED). The first SED tookplace in Beijing on September 26, 2011.

Joint Economic Group :-

India-China Joint Economic Group on Economic Relations and Trade, Science and Technology (JEG) is a ministerial-level dialogue mechanism established in 1988during the visit of former Prime Minister Rajiv Gandhi to China. JEG has so far met eight times. The scheduling of the previous seven JEGs is placed below: First Session:-New Delhi; Sep 18-20, 1989 Second Session:-Beijing; Feb 06, 1991 Third Session:-New Delhi; Dec 09, 1991 Fourth Session:-Beijing; Jan 04, 1993 Fifth Session:-New Delhi; Jun 13, 1994 Sixth Session:-Beijing; Feb 19-20, 2000 Seventh Session:-New Delhi; Mar 16, 2006 Eighth Session :- Beijing; Jan 19,2010

The 8th JEG meeting was jointly chairedby Indian Commerce & Industry Minister Mr. Anand Sharma and Chinese Commerce MinisterMr. Chen Deming. During the 8th meeting, the Commerce Ministers of the two countries agreedto work towards a more balanced trade. Mr. Chen Deming assured that China would import

more from India. The 9th JEG is to take place in India. IEC Number (Imported Exporter Code Number)

IEC is not required for the Border Trade between India & China because persons Importing or Exporting China are authorized to Trade Indian Currency value of Rs.25000/- per day per trader (2006-2007) only. Since the term Border Trade is to be construed that the Trade is opened for the people of the Border area only for the items produced in local area of limited value. Government of India increased the Indian currency value limit from Rs.25000/- to Rs. 1,00,000 per day per trader (2007-2008).