PROJECT

TRADE AND GEOPOLITICS

INDIA CHINA

Submitted to: Prof. P.Chakarborty

Submitted by: Ishu Singla(191026), 191026@foreian.com Nishanth.P (191037), 191037@foreian.com Parminder Singh(191041), 191041@foreian.com

 INTRODUCTION

People's Republic of China (PRC) and the Republic of India. The economic and diplomatic importance of China and India, which are the two most populous states and the worlds fastest growing major economies, has in recent years increased the significance of their bilateral relationship. Relations between China and India date back to ancient times. China and India are two of the worlds oldest civilizations and have coexisted in peace for millennia. Trade relations via the Silk Road acted as economic contact between the two regions. However, since the early 1950s, their relationship has been characterized by border disputes, resulting in military conflict (the Sino-Indian War of 1962, the Chola incident in 1967, and the 1987 Sino-Indian skirmish).Both countries have in recent years successfully attempted to reignite diplomatic and economic ties, and consequently, the two countries relations have become closer. China is India's largest trading partner, and has recently reverted its stance on India's bid for a UNSC seat, after Chinese assistant Foreign Minister Kong Quan formally declared that China will back India's UNSC bid. Today, India is a main seller of Iron ore to China, and fills the desperate need of natural resources for the nation. In recent past, China and India both have had close economic and military ties. In2005, China and India announced a "strategic partnership". China and India continue to strengthen their relations. Trade between China and India continues to grow. But , the relations have been estranged due to certain political issues between both countries. CURRENT STATUS India China relations have been going through a rough phase for some time now. In fact, over the past year they have become even more complex than they normally have been over the past five decades as a result of new Chinese diplomatic and military assertiveness when he characterized them as being in a fragile state that needed care. This is clear from the recent Chinese attitude, wherein Beijing has favored Pakistan at the cost of India. China is selling a one Giga watt nuclear reactor to Pakistan and is determined to ink a civilian nuclear energy cooperation agreement with the country which has for years indulged in nuclear proliferation. China has been issuing stapled visas to Indians living in Jammu and Kashmir but not for Pakistanis in Kashmir. This makes it clear on whose side China is in South Asia. Various issues that stand pending between both countries. 1. The first is the pending border dispute. Chinese leaders and analysts often quote Deng Xiao-Pings advice to keep this issue aside till a favourable moment arrives for finding a mutually acceptable solution. Delay suits China because the trans-border status quo presently favours it and it has developed its military capability in such a manner as to be able to use it should China decide that the time has come to impose its will in the eastern sector. Indians suspect-with valid reason- that the Chinese preference for keeping the issue prolonged is motivated by the desire to give itself time for the further strengthening of its military capability in Tibet. Indias interest will be served by a quick resolution of the dispute, which has not been forthcoming. 2. The second is the failure of the Chinese to reach an agreement with the Dalai Lama on the demands of the Tibetan people. India has recognised Tibet as an integral part of China in the expectation that the international acceptance of the One China principle will pave the way for the return of the Dalai Lama and his Tibetan followers to Tibet with honour and dignity so that they can take their due to place in the local society. 3. The third is what many Indians see as the double standards followed by China with regard to Jammu & Kashmir. China expected India to recognise Tibet as an integral part of China and accept the One China principle. India did so without reservation. Indians are greatly disappointed that China has not reciprocated by recognising Jammu and Kashmir as an integral part of India and by accepting the One India principle, which is as precious to India as the One China principle is to China. 4. The fourth is what many Indians see as Chinas attempts to build up Pakistan not only as a time-tested friend, but also as a welcome strategic surrogate against India. Chinas nuclear and military supply relationship with Pakistan and its support to Pakistan in its disputes with India are seen by many in India as a malign exploitation of Pakistans differences with India to serve Chinas own interests.

5. The fifth is Chinas reluctance to support Indias permanent membership of the UN Security Council. India under Jawaharlal Nehru played an active role in canvassing for the Peoples Republic of China to be given its due place as a permanent member of the Security Council. In an historic act of ingratitude, China has failed to reciprocate Indias gesture and has done everything possible to keep India out. A leading defense expert has projected that China will attack India by 2012 to divert the attention of its own people from "unprecedented" internal dissent, growing unemployment and financial problems that are threatening the hold of Communists in that country. "China will launch an attack on India before 2012. As China media and other international experts have said that there are multiple reasons for a desperate Beijing to teach India the final lesson, thereby ensuring Chinese supremacy in Asia in this century. TRADE IN 5 YEARS Since 2004, the economic rise of both China and India has also helped forge closer relations between the two. Sino-Indian trade reached US$36 billion in 2007, making China the single largest trading partner of India. The increasing economic reliance between India and China has also bought the two nations closer politically, with both India and China eager to resolve their boundary dispute. They have also collaborated on several issues ranging from WTO's Doha round in 2008 to regional free trade agreement. Similar to Indo-US nuclear deal, India and China have also agreed to cooperate in the field of civilian nuclear energy. However, China's economic interests have clashed with those of India. Both the countries are the largest Asian investors in Africa and have competed for control over its large natural resources. India and China agreed to take bilateral trade up to US$100 billion on a recent visit by Wen Jiabao to India. Bilateral trade between India and China exceeded the two countries' $60 billion target last year, driven largely by rising Indian imports of Chinese machinery that have left a record trade imbalance of $20 billion in China's favour. Figures released for last year showed that bilateral trade in 2010 reached $61.7 billion, with Chinese exports to India touching $40.8 billion. This marked a 43 per cent jump in trade volume from last year, when the recession reduced two-way trade to $43 billion. In 2008, China became India's largest trade partner with $51.8 billion in bilateral trade. Despite the growth, the figures underscore rising Indian concerns over the fastwidening trade deficit, with Indian exports, largely made up of iron ore, other raw materials and cotton, contributing a little over $20 billion equalling the size of the deficit.

Deficit is otherwise likely to widen even further in the coming year, with iron ore sales, which have driven Indian exports, expected to fall with the recent ban in Karnataka. India is China's third biggest supplier of iron ore, behind Brazil and Australia. But following the ban, Chinese importers have increasingly diversified their imports, seeking out new markets such as South Africa and Ukraine. China, in contrast, exports finished goods

to India, mainly machinery. Growing demand for Chinese telecom and power equipment has fuelled the growth in trade. Indian officials have also pointed out the one bright spot in the coming year could come from Indian pharmaceutical companies, with China set to accelerate a $2-billion reform in its healthcare sector in coming months. India-China bilateral trade hit a record USD 73.9 billion last year, but the ballooning trade deficit in Beijing's favour rose to over USD 27 billion, raising concern among Indian authorities. The overall bilateral trade figures for Jan-Oct, 2011 released by the China Customs are as follows:

Indias total trade with China for the period Jan-Oct, 2011 Indias Exports to China for the period Jan-Oct, 2011 (top 3 % change)
SN HS Total 26 39 23 Description
Value in USD MIllions

1 2 3

Copper And Articles Plastics And Articles Food Industry Residues & Waste; Prep Animal Feed Description

Oct10 16969 630 319 138

Oct11 18893 1664 547 225

% Share Oct10 100 4 2 1

Oct11 100 9 3 1

% Change 11/10

11 164 71 64

Indias Imports from China (top 3 in % change)

SN HS Total 73 27 31
Value in USD MIllions

1 2 3

Articles Of Iron Or Steel Mineral Fuel, Oil Etc.; Bitumin Subst; Mineral Wax Fertilizers

Oct10 32868 1138 396 1411

Oct11 1684 1738 605 2620

% Share Oct10 Oct11 100 100 3 4 1 1 4 6

%Change 1/10

27 53 53 86

Investment
Chinese Investment in India 2007- USD 16 million 2008- USD 49.1 million (Cumulative investment till Dec 2008 was at USD 91.1 million) 2010- USD 33 million (Chinas non-financial investment in India) Jan-Oct, 2011- USD 50.77 million (Chinas non-financial investment in India) Till Oct, 2011- USD 298.75 million Indian Investment in China 2006 USD 52 million 2007- USD 34 million in 78 Projects 2008- USD 257 million in 92 projects ( turnover realized was USD 88.1 million and the cumulative committed FDI from India into China in the projects till 2008 was USD 898 million in 426 projects) 2010- India's FDI in China- 77 Projects; investment of USD 55 million. Jan-Oct, 2011- India's FDI in China- 83 Projects; investment of USD 33.45 million Till Oct, 2011- India's FDI in China- 676 Projects; investment of USD 432.98 million

Chinese Project Contracts in India 2007- Contract signed - USD 4.56 billion, turnover realized - USD 1.99 2008- Contract signed - USD12.9 billion, turnover realized - USD 4.3 billion 2010- Contract signed - USD 6.9 billion, turnover realized - USD 5.8 billion. Jan-Feb, 2011- Contract signed - USD 13.6 billion, turnover realized - USD 4.5 billion. Cumulative value of Contractual Chinese investment (Projects) till Oct, 2011 was USD 53.46 Billion. The overall turnover realized from these projects till Oct, 2011 was about USD 24.57 billion. INDIAs CONCERNS???? Stung by a rapidly widening trade deficit with China and Beijings continued rebuff of Indian attempts to reset the equation, the Congress-led government is fleshing out a draft action plan to seek combat its Asian rival. Indias trade deficit with China is forecast to balloon to US$278.5 billion by 2014, a 20-fold increase from US$14.3 billion in 2004. At US$40.8 billion, Chinese exports to India were nearly double the US$ 20.8 billion in Indian exports to China, mainly driven by cotton and iron ore. India is also looking at raising duties on tier-two products (where it has minimal dependence) and creating nontariff barriers where dependence is high. concerted effort is also expected be made to ensure that Chinese stateowned procurement agencies buy in bulk from Indian companies. Overall, the ministry will also seek to harness the strengths of the domestic market to gain access into Chinese markets in pharmaceuticals and information technology, its two strongest areas. Broadly, New Delhis China plan is designed to bolster areas where India is not competitive, how duties could be realigned to bring about a level playing field, how Indian industries could whittle down their dependence on Chinas semi-finished products and how Indias advantages could be harnessed to maximum gain.. India has repeatedly sought more access in Chinese markets across the board so that the gap could be reduced. Although China has assured India that it would give access through government contracts in sectors like pharmaceuticals and IT, penetration into the Chinese market has been far from easy. India also wants China to remove tariff and non-tariff barriers on the import of power plant equipment and allow sufficient export of metcoke every year, without imposing any export duties, to meet the requirement of Indian industry. Frustrated, India has also occasionally barred Chinese investments in certain sectors citing national security concerns. In December 2009, India banned import of all mobile phones from China which did not have IEMI numbers (specific numbers that a handset carries which enables tracking it). Analysts predict that in the long term, the uneven bilateral trade could mean that India will look to impose trade barriers on Chinese commodities in order to rebalance trade and protect domestic manufacturers. India has been the most vociferous complainer at WTO. Of the 1061 anti-dumping complaint logged at the WTO since 2005, a quarter of them have been registered by India, being the most vocal nation against antidumping activities. On the other end, China has been the chief recipient of anti-dumping charges. 366 complaints have been logged against China of the total 1061 complaints logged since 2005. In addition India has been the most disgruntled by Chinese trade manipulations having lodged a total of 137 cases with the WTO against China in the last 15 years. Second, China is also set to emerge as a manufacturing threat to India. According to a recent report, the National Security Council (NSC) has projected that by 2014-15, over 75% of Indias manufacturing will depend on imports from China. Currently, 26% of Indias manufacturing GDP is dependent on Chinese goods. Indias manufacturing GDP is $304 billion and $79 billion of this is linked to imports of all kinds, including raw materials, from China. The NSC projects that Chinas share in Indian manufacturing GDP will rise to $321, i.e. 75% of the total industry output which itself will touch $429 by 2014-15. By then, Indias GDP is expected to top $2.68 trillion. These projections may be far-fetched and unrealistic, but the fact remains that China is emerging as a slow killer for Indias domestic manufacturing industry through cheap imports .that are not able to compete with Chinese imports on cost factor. Further, they are not export-oriented or simply unfit for exports as revealed by large share of primary products and raw materials in Indias export basket.

 INDIAN OCEAN GEOPOLITICS Encirclement and Containment of India. This is to be achieved by creation of hostile neighbors on the land borders and making a Sting of pearls around peninsular India to dominate the sea routes in the Indian Ocean. This would not only isolate India but break her links with ASEAN and Africa. It seeks to roll back Indias look East policy. To carry out encirclement, China has created a 'String of Pearls' around Indian coastline from Gwador in Pakistan to Hambantota in Sri Lanka to Sree Port (ARAKANS) in Myanmar and also in Thailand. This is an attempt to encircle and contain India. It wants to dominate the sea routes of trade in the Indian Ocean and checkmate India in her trade with Africa and ASEAN. China is helping Myanmar to get nuclear weapons with the help of North Korea. It has been creating a set of hostile nations on the periphery of India, from Pakistan and Nepal to Myanmar and Srilanka. It won over Sri Lanka by supporting her militarily in war against LTTE. Induction of some 7000-11000 troops in POK is towards this end. Breakup of India through Outsourced War. Induce internal implosion and create an external attrition. Internal implosion to be affected by exploiting militancy and insurgency, such as ULFA in Assam and Naga insurgency in the Nagaland, along with fast spreading Maoists/ Naxalites in the Centre and South India. External attrition to be caused by Pakistan- sponsored violence and Terrorism in Punjab, Kashmir and entire Northern and Western India. A Chinese defence strategist, Zhong Guo Zhan Lue Gang wrote an article, published in Chinese language on the internet, on August 08, 2009 Covert Cyber & Trade War. China has been covertly conducting Cyber Warfare against India, aimed at affecting the command and control systems by virus attack on Indian official computers, either to make them dysfunctional or hack them to extract vital information. Towards this end, China has recently demonstrated her capability to shoot a satellite, which can cripple command and control systems based on satellite communications. SUGGESTIONS 1. Unless there is a change in the policies of the Chinese Government on these issues, the trust and comfort level will continue to be low and there is a limit beyond which the relations betIndiaen the two countries cannot improve. 2. The time has come for India to re-examine its policies with regard to China. The improvement in economic relations has benefited China more than India. If one analyses purely on the basis of trade exchanges, both countries have benefited, but the adverse balance of trade in Chinas favour and Indias dependence on raw material exports for keeping up the steady surge in bilateral trade dilute the significance of the surge in trade. 3. Other parameters of the bilateral economic relations tilt strongly in favour of China. The liberal openingup of the Indian construction sector to Chinese construction companies has led to a situation where next to African countries, India has become a major dumping ground for Chinese engineers and semi-skilled workers to the detriment of the interests of Indian engineers and semi-skilled workers. Our opening up the doors to sensitive sectors such as telecommunications to Chinese private companies - private in name, but State-sponsored in reality has added to the major security concerns of our security agencies. 4. India has been disillusioned by the self-centred policies of Beijing and its lack of reciprocity in respecting our core interests. Strategic relations have to be a two-way traffic and based on quid pro quo. For China, they are a one-way traffic benefiting only its core interests. India should no longer accept this. 5. Re-fashioning our economic relations with China in order to rid them of elements which are to the exclusive advantage of China should receive equal priority. There is a need for a re-think on our Tibetrelated policies without reversing our recognition of Tibet as an integral part of China. India has to be more assertive in pursuing an One India policy as a quid pro quo for our accepting the One China policy.

REFERENCES 1. Article :Futute of india china trade by Ralph J Tyler, Professor of Strategy & Organisation and Research Director, Center for International Business Education & Research Robert H Smith School of Business, University of Maryland. 2.Article How will China respond to rising India by Rajeev Sharma retrieved at http://oilprice.com/ Geopolitics/Asia/How-Will-China-Respond-To-A-Rising-India.html 3. Article Issues with India retrieved at http://blog.foolsmountain.com/2010/06/23/issues-with-indiachinarelations/ 4. India's Trade Balance Problems with China retrieved at http://blog.foolsmountain.com/2010/06/23/ issueswith-indiachina-relations/ 5. Article One India One China by B.Raman retrieved at http://globalgeopolitics.net/wordpress/ 2010/09/09/one-india-one-china/