PROJECT REPORT

ON

“INDIA CHINA TRADE RELATIONS

AND PERCEPTION OF INDIAN
PEOPLE’S”

Submitted in partial fulfillment of the requirement for the degree of

MASTERS OF BUSINESS ADMINISTRATION

SUBMITTED TO:-
PUNJAB TECHINCAL UNIVERSITY,
JALANDHAR

SUBMITTED BY:
Pardeep Sharma
MBA(4th Sem.)
Roll No.7116223083
RIMT-IMCT ,MANDI GOBINDGARH

1
 CERTIFICATE

This is to certify that Mr. Pardeep Sharma has completed her project report titled

“INDIA CHINA TRADE RELATIONS AND PERCEPTION OF INDIAN

PEOPLE’S” under my supervision. To the best of my knowledge and belief this is his

original work and this, wholly or partially, has not been submitted for any degree of this

or any other University.

Date: Mr. G.P.S.Bakshi

(Prof. RIMT-

IMCT)

2
 DECLARATION

I hereby declare that this project work entitled INDIA CHINA TRADE RELATIONS
AND PERCEPTION OF INDIAN PEOPLE’S is my work, carried out under the
guidance of my guide MR. G.P.S.Bakshi . My report neither fully nor partially has ever
been submitted for award of any other degree to either this university or any other
university.

PARDEEP SHARMA

3
 ACKNOWLEDGMENT

Heartfelt thanks to those who support me……………

“If words are considered as symbol of Approval and Taken of appreciation then let the
words play the heralding role of expressing my sincere gratitude and thanks”.

Any accomplishment requires the effort of many people and this work is no different. I
am indebted to Prof .G.P.S Bakshi ( RIMT-IMCT) for whose guidance and patience I
would have not been able to accomplish this task.

My topic of the report is “India china trade tade relations and Perception of
Indian people’s” I thoroughly enjoyed with many fine people of Chandigarh. I have tried to
collect secondary as well as primary data for my research project.

I appreciate the contribution of each and hope that I have accurately incorporated their
considerable knowledge.

Last but not the least I am also thankful to my parents and friends who provided me with their
full cooperation for successfully completion of my project.

And I thank “The Almighty” who is always with me

Pardeep Sharma

4
 PREFACE

I am lucky that I got an opportunity for making the project report on India China trade
relations and perception of the Indian people’s from my own interest. This study has
been carried out to study the present Scenario of India china trade, and different
patterns of India china trade relations. Goldman sachs a famous Economist has
argued that the economic potential of Brazil, Russia, India, and China is such that
they may become among the four most dominant economies by the year 2050. The
thesis was proposed by Jim O'Neill, global economist at Goldman Sachs. These
countries encompass over twenty-five percent of the world's land coverage, forty
percent of the world's population and hold a combined GDP (PPP) of 15.435 trillion
dollars. On almost every scale, they would be the largest entity on the global stage.
These four countries are among the biggest and fastest growing Emerging Markets.
He has used word BRIC nations for this and my aim is to know the emerging trade
relations between the two Asian giants.However, it is important to note that it is not
the intent of Goldman Sachs to argue that these four countries are a political alliance
(such as the European Union) or any formal trading association, like ASEAN.
Nevertheless, they have taken steps to increase their political cooperation, mainly as a
way of influencing the United States position on major trade accords, or, through the
implicit threat of political cooperation, as a way of extracting political concessions
from the United States, such as the proposed nuclear cooperation with India.

I visited the various concerns for the preparation my project report on the topic
“INDIA CHINA TRADE RELATIONS AND PEOPLE’S PEREPTION” and the
study is divided into various chapters to get knowledge OF various aspects of trade
relations.

I also considered some published material as secondary data as well as primary data
on the particular topic as well as about the concern. This helps me in boosting up my

5
confidence and determination for the accomplishment of my project. This report is
written account of what I learnt and experienced during our survey. I wish, those
going through it will not only find it readable but also get as useful information.
The main limitation that our experienced was that I did not get the full and correct
Information from the market, as many of the respondents did not answer to our
Questionnaire correctly completely.

6
 CONTENTS

TITLE
CERTIFICATE
DECLARATION
ACKNOWLEDGEMENT
PREFACE

1. INTRODUCTION TO THE STUDY 1-10

 INTRODUCTION 1-3

 TRADE HISTORY 3-10

2. ECONOMY OF CHINA AND INDIA 11-40

 ESTABLISHMENT OF DIPLOMATIC RELATIONS 12-13

 ECONOMY OF CHINA 14-26
 ECONOMY OF INDIA 27-37
 CONCEPT OF SPECIAL ECONOMIC ZONES 38-40

3. RESEARCH METHODOLOGY 41-43

4. SECONDARY DATA 44-63

5. DATA ANALYSIS AND INTERPRETATION 63-79

6. FINDINGS 80

7. BIBLIOGRAPHY 81

8. ANNEXURE 82-85
7
 CHAPTER-1
INTRODUCTION TO THE STUDY

8
 INTRODUCTION

Hardly a day passes without a newspaper article, television show, or Internet blog story
about the rise of China and India in the global economy. There are many reasons for
this public interest. Never before have such large economies—with a combined
population of 2.5 billion—grown so fast for so long: GDP growth in China averaged
9.1 percent over the last decade, and India averaged 6.percent. Some people are fearful:
Will China and India dominate the world economy? Will they consume the earth’s
scarce resources? Will they bid down wages elsewhere? Others are curious: Can China
and India sustain such impressive growth rates, especially in light of perceived
fragilities (China’s financial sector and India’s public debt being notable examples)?
Others seek lessons: Noting that neither China nor India is pursuing an “orthodox”
model of development, they want to know how these economies did it,and whether
there are lessons for other developing countries .Because of this heightened interest
among the general public, media coverage of China and India tends to emphasize the
human dimension—stories comparing a factory worker in China with a software
designer in India, interviews with foreign investors comparing the two countries’
prospects, or pictures contrasting the booming worlds of Shanghai and Mumbai with
abject poverty in rural China and India

This project considers the story from a different vantage point. By bringing to bear the
best available data and analytical tools, the study can provide answers that are much
more nuanced than the typical news story. To take one example, the study demonstrates
that, despite their similar size, the two Giants are not the same—China’s role in the
global economy is much greater than India’s, with important implications for other
countries China and India share at least two characteristics: their populations are huge
and their economies have been growing very fast for at least 10 years. Already they
account for nearly 5 percent and 2 percent of world gross domestic product (GDP),

9
respectively, at current exchange rates. Arguably, China’s expansion since 1978 already
has been the largest growth “surprise” ever experienced by the world economy; and if
we extrapolated their recent growth rates for half a century, we would find that China
and India—the Giants—were among the world’s very largest economies. Their vast
labor forces and expanding skills bases imply massive productive potential, especially
if they continue (China) or start (India) to invest heavily in and welcome technology
Inflows .Low-income countries ask whether there will be any room for them at the
bottom of the industrialization ladder, whereas high- and middle-income countries fear
the erosion of their current advantages in more sophisticated fields.

All recognize that a booming Asia presages strong demands, not only for primary
products but also for niche manufactures and services and for industrial inputs and
equipment. But, equally, all are eager to know which markets will expand and by how
much. Moreover, the growth of these giant economies will affect not only goods
markets but also flows of savings, investment, and even people around the world, and
will place heavy demands on the global commons, such as the oceans and the
atmosphere. This book cannot answer all these questions, but it contains six essays on
important aspects of the growth of the Giants that will, at least, aid thinking about
them. Its principal aim is to highlight some of the major implications of the Giants’
growth for the world economy and hence for other countries, drawing on new
research and on the burgeoning literature concerning China and India: it is about
dancing with the Giants without getting one’s toe steppedon.

Three study focus on the Giants’ interactions with other countries (via the evolution
of the industrial capabilities, their international trade, and the international financial
system.

10
 INDIA CHINA TRADE HISTORY

China and India are separated by the formidable geographical obstacles of the Tibetan
Plateau and the Himalayan mountain chain, with Tibet serving as a buffer region
between the two. 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 disputed Kashmir province (jointly claimed by India and
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.

Two territories are currently disputed between the People's Republic of China and
India: Aksai Chin and Arunachal Pradesh. Arunachal Pradesh is located near the far
east of India, while Aksai Chin is located near the northwest corner of India, at the
junction of India, Pakistan, and the PRC. However, all sides in the dispute have
agreed to respect the Line of Actual Control and this border dispute is not widely seen
as a major flashpoint.

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.However, the
initial focus of the leaders of both the nations was not the foreign policy, but the
internal development of their respective states. When they did concentrate on the
foreign policies, their concern wasn’t one another, but rather the United States of

11
America and the Union of Soviet Socialist Republics and the alliance systems which
dominated by the two superpowers.

1950s
On October 1, 1949 the People’s Liberation Army defeated the Kuomintang
(Nationalist Party) of China in a civil war and established the People's Republic of
China. On August 15, 1947, India became an independent dominion under British
Commonwealth and became a federal, democratic republic after its constitution came
into effect on January 26, 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 People’s Republic of China and saw Indian concern over Tibet
as a manifestation of the Indian Government in the internal affairs of the People’s
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 (1950-
1953).

In April 1954, India and the PRC signed an eight-year agreement on Tibet that set
forth the basis of their relationship in the form of the Five Principles of Peaceful
Coexistence (or Panch Shila). Although critics called the Panch Shila naive, Nehru
calculated that in the absence of either the wherewithal or a policy for defense of the
Himalayan region, India's best guarantee of security was to establish a psychological

12
buffer zone in place of the lost physical buffer of Tibet. Thus the catch phrase of
India's diplomacy with China in the 1950s was Hindi-Chini bhai-bhai, which means,
in Hindi, "Indians and Chinese are brothers". Up until 1959, despite border skirmishes
and discrepancies between Indian and Chinese maps, Chinese leaders amicably had
assured India that there was no territorial controversy on the border though there is
some evidence that India avoided bringing up the border issue in high level meetings.

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).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 Simla Convention defined 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 km² of territory over which India's maps showed clear sovereignty, and
demanded "rectification" of the entire border.

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. By this time, the PRC had just replaced the Republic

13
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 the Soviet Union
invaded Afghanistan in December 1979. The PRC modified its pro-Pakistan stand on
Kashmir and appeared willing to remain silent on India's absorption of Sikkim and its
special advisory relationship with Bhutan. The PRC's leaders agreed to discuss the
boundary issue, India's priority, as the first step to a broadening of relations. The two
countries hosted each others' news agencies, and Mount Kailash and Mansarowar
Lake in Tibet, the mythological home of the Hindu pantheon, were opened to annual
pilgrimages from India.

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 Sharad Pawar'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. .

14
The 1993 Chinese military visit to India was reciprocated by Indian army chief of
staff General B. C. Joshi. During talks in Beijing in July 1994, the two sides agreed
that border problems should be resolved peacefully through "mutual understanding
and concessions." The border issue was raised in September 1994 when PRC minister
of national defense Chi Haotian visited New Delhi for extensive talks with high-level
Indian trade and defense officials. Further talks in New Delhi in March 1995 by the
India-China Expert Group led to an agreement to set up two additional points of
contact along the 4,000 km border to facilitate meetings between military personnel.
The two sides also were reported as "seriously engaged" in defining the McMahon
Line and the line of actual control vis-à-vis military exercises and prevention of air
intrusion. Talks in Beijing in July 1995 aimed at better border security and combating
cross-border crimes and in New Delhi in August 1995 on additional troop
withdrawals from the border made further progress in reducing tensions.

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 the Taipei 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.
.
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, Urgyen Trinley Dorje, 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.

15
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 Atal Bihari 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. 2007 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. 2007 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 twenty-
first 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. Regarding the issue of India gaining a permanent seat on the
UN Security Council, on his visit, Wen Jiabao initially seemed to support the idea, but
had returned to a neutral position on the subject by the time he returned to China. In the
South Asian Association for Regional Cooperation (SAARC) Summit (2005) China was
granted an observer status. While other countries in the region are ready to consider
China for permanent membership in the SAARC, India seems reluctant.

On July 6, 2006, China and India re-opened Nathula, an ancient trade route which was
part of the Silk Road. Nathula is a pass through the Himalayas and it was closed 44 years
prior to 2006 when the Sino-Indian War broke out in 1962. The initial agreement for the
re-opening of the trade route was reached in 2003, and a final agreement was formalized
on June 18th, 2006. Officials say that the re-opening of border trade will help ease the
economic isolation of the region.]In November 2006, China and India had a verbal spat
over claim of the north-east Indian state of Arunachal Pradesh. India claimed that China
was occupying 38,000 square kilometres of its territory in Kashmir, while China claimed
the whole of Arunachal Pradesh as its own. In May 2007, China denied the application

16
for visa from an Indian Administrative Service officer in Arunachal Pradesh. According
to China, since Arunachal Pradesh is a territory of China, he would not need a visa to
visit his own country. Later in December 2007, China appeared to have reversed its
policy by granting a visa to Marpe Sora, an Arunachal born professor in computer
science. In January 2008, Prime Minister Manmohan Singh visited China and met with
President Hu Jintao and Premier Wen Jiabao and had bilateral discussions related to
trade, commerce, defense, military, and various other issues.[citation needed] In July 2008, at
the 34th G8 summit in Japan, Hu Jintao and Manmohan Singh had a friendly meeting In
the wake of the 2008 Sichuan earthquake, India offered aid to help the earthquake victims

17
 CHAPTER-2

ECONOMY OF INDIA
AND CHINA

18
 ESTABLISHMENT OF DIPLOMATIC RELATIONS

China and India established diplomatic relations on April 1, 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. Indian Prime Minister, Rajiv Gandhi's visit to China in December 1988,
facilitated a warming trend in relations. The two sides issued a joint statement that
stressed the need to restore friendly relations on the basis of the Panch Sheel and
noted the importance of the first visit by an Indian prime minister to China since
Nehru's 1954 visit. India China Economy agreed to broaden bilateral ties in various
areas, working to achieve a "fair and reasonable settlement while seeking a mutually
acceptable solution" to the border dispute.

Rajiv Gandhi signed bilateral agreements on science and technology cooperation, on

civil aviation to establish direct air links, and cultural exchanges. The two sides also
agreed to hold annual diplomatic consultations between foreign ministers, and to set
up a joint ministerial committee on economic and scientific cooperation and a joint
working group on the boundary issue. The latter group was to be led by the Indian
foreign secretary and the Chinese vice minister of foreign affairs. As the mid-1990
approached, slow but steady improvement in relations with China was visible. Top-
level dialogue continued with the December 1991 visit of Chinese premier Li Peng to
India and the May 1992 visit to China of Indian president Ramaswami Venkataraman.

Border trade resumed in July 1992 after a hiatus of more than thirty years, consulates
reopened in Bombay (or Mumbai in the Marathi language) and Shanghai in December
1992, and, in June 1993, the two sides agreed to open an additional border trading
post. Though, Rajiv Gandhi's visit to China in December 1988 is usually identified as
a turning point and break-through in India-China relations, it should also be noted that
many years of previous effort had a contribution to it.. In 1976, the two countries
19
decided to restore ambassadorial-level diplomatic ties after a gap of 15 years. The
next major step was foreign minister Vajpayee's visit to China in February 1979 The
first high-level visit between the two countries since 1960. 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.
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. In 1980, China's share in world trade was less than one percent, and
it started permitting foreign direct investment (FDI). In 1999, China had grown to
become the world's second largest economy after US in terms of GDP. 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 9.1% growth
rate in 2003-2007. China is the world's second largest recipient for FDI with total FDI
inflows crossing US $ 53 billion in 2003. Growth in Special Economic Zones (SEZ)
has also helped China increase its productivity.

20
 ECONOMY OF CHINA

Market liberalization in the Chinese Economy has brought its huge economy forward
by leaps and bounds but rural China still remains poor, even as its cities increase in
affluence. China economy is huge and expanding rapidly. In the last 30 years the rate
of Chinese economic growth has been almost miraculous, averaging 8% growth in
Gross Domestic Product (GDP) per annum. The economy has grown more than 10
times during that period, with Chinese GDP reaching 3.42 trillion US dollars by 2007.
In Purchasing Power Parity GDP, China already has the biggest economy after the
United States. Most analysts project China to become the largest economy in the world
this century using all measures of GDP.

However, there are still inequalities in the income of the Chinese people, and this
income disparity has increased in the recent times, in part due to a liberalization of
markets within the country. The per capita income of China is only about 2,000 US
dollars, which is fairly poor when judged against global standards. In per capita income
terms, China stands at a lowly 107th out of 179 countries. The Purchasing Power Parity
figure for China is only slightly better at 7,800 US dollars, ranking China 82nd out of
179 countries.

Economic reforms started in China in the 70s and 80s. The initial focus of these reforms
was on collectivizing the agricultural activities of the country. The leaders of the

21
Chinese economy, at that point in time, were trying to change the center of agriculture
from farming to household activities. At later stages the reforms extended to the
liberalization of prices, in a gradual manner. The process of fiscal decentralization soon
followed.

As part of the reforms, more independence was granted to the business enterprises that
were owned by the state government. This meant that government officials at the local
levels and the managers of various plants had more authority than before. This led to
the creation of a number of various types of privately held enterprises within the
services sector, as well as the light manufacturing sectors. The banking system was
diversified and the Chinese stock markets started to develop and grow as economic
reforms in China took hold.

The economic reforms made in China in the 70s and 80s had other far reaching effects
as well. The sectors outside the control of the state government of China grew at a rapid
pace as a result of these reforms. China also opened its economy to the world for the
purposes of trade and direct foreigninvestment. China has adopted a slow but steady
method in implementing their economic reforms. It has also sold the equity of some of
the major Chinese state banks to overseas companies and bond markets during the
middle phase of the first half of the 21st century. In recent years the role played by
China in international trade has also increased. PRC- people’s republic of China, is the
largest country in East Asia and the most populous in the world with over 1.38 billion
people.(20% of world’s population)

It is a socialist republic ruled by the Communist Party of China under a single-party

system and has jurisdiction over twenty-two provinces, five autonomous regions, four
municipalities, and two largely self-governing Special Administrative Regions. China's
importance in the world today is reflected through its role as the world's third largest
economy nominally (or second largest by PPP) a permanent member of the UN Security
Council as well as being a member of several other multilateral organizations including

22
the WTO, APEC, East Asia Summit.
Collectivization of the agriculture was dismantled and farmlands were privatized to
increase productivity A wide variety of small-scale enterprises were allowed to flourish
while the government relaxed price controls and promoted foreign investment. Foreign
trade was focused upon as a major vehicle of growth, which led to the creation of
Special Economic Zones (SEZs) first in Shenzhen (near Hong Kong) and then in other
Chinese cities

Nominal GDP from 1952 to 2005

23
 Statistics

 GDP (Nominal) (2007) $3.42 trillion (ranked 3rd)

 GDP (PPP) (2008) $7.8 trillion (ranked 2nd)
 GDP per capita (Nominal 2008: $3,180 (ranked 104th)
 GDP per capita (PPP) (2008) $6,100 (ranked 105th)
 GDP growth rate (2008) 9.0% (official data
 GDP by sector (2008) agriculture (primary) (11.3%) industry (secondary) (48.6%)
services (tertiary) (40.1%) note: industry includes construction (5.5%)
 GDP by components, % (2006) Private consumption (36.4)
 Government consumption (13.7)
 Gross fixed investment (40.9
 Exports of goods/services (39.7
 Imports of goods/services (-31.9)
 Interest rates (2007-12-20) One-year benchmark deposit rate: 4.14% One-year lending
rate: 7.47%
 Inflation rate (CPI) 4.9% (CPI: 8.7%, Feb 07 - Feb 08)
 Population below poverty line (2007) 10%
 Labor force (2008) 807.7 million
 Labor force by occupation (2006) agriculture (43%), industry (25%), services (32%)
 Unemployment rate (2006) 4.3% (official); 17% (unofficial)
 Industrial production growth rate (2006) 22.9%
 Main industries:: mining and ore processing, iron, steel, aluminum, andther metals,
coal; machine building; armaments; textiles and apparel; petroleum; cement;
chemicals; fertilizers; consumer products, including footwear, toys and electronics;
food processing; transportation equipment, including automobiles, rail cars and
locomotives, ships, and aircraft; telecommunications equipment, commercial space
launch vehicles, satellites

24
 Public debt (2006) 22.1% of GDP
 External debt (2006) $315 billion

Since economic liberalization began in 1978, the PRC's investment- and export-led
economy has grown 70 times bigger The primary, secondary, and tertiary industries
contributed 11.3%, 48.6%, and 40.1% respectively to the total economy It is a member
of the WTO and is the world's third largest trading power behind the US and Germany
Its foreign exchange reserves have reached US$1.9 trillion, making it the world's
largest. The PRC's success has been primarily due to manufacturing as a low-cost
producer.

This is attributed to a combination of cheap labor, good infrastructure, medium level

of technology and skill, relatively high productivity, favorable government policy, and
some say, an undervalued exchange rate yuan having been de-pegged and risen in
value by 20% against the US dollar since2005 The state still dominates in strategic
"pillar" industries (such as energy and heavy industries), but private enterprise (30
million private businesses now accounts for approximately 70% of China's national
output, up from 1% in1978 Its stock market in Shanghai (SSE) is raising record
amounts of IPOs and its benchmark Shanghai Composite index has doubled since
2005 SSE's market capitalization reached US$3 trillion in 2007 and is the world's fifth
largest exchange. China now ranks 34 in the Global Competitiveness Index.. The
PRC's growth has been uneven when comparing different geographic regions and rural
and urban areas The urban-rural income gap is getting wider in the PRC. Development
has also been mainly concentrated in the eastern coastal regions while the remainder of
the country are left behind The economy is also highly energy-intensive and inefficient
– it uses 20% 100% more energy than OECD countries for many industrial processes.
It has now become the world's second largest energy consumer behind the US but
relies on coal to supply about 70% of its energy needs

25
ANNUAL FDI FLOWING IN TO CHINA

26
INTERPRETATION:

The above graph represents that the annual FDI inflow in to china has increased since
1993. It was 34 billion dollar in 1993 and it has increased to 75 billion dollar in 2007.

Recently released statistics from China's customs authorities reveal that Sino-Indian
trade in the first seven months of 2006 has reached $13.6 billion, up 27 per cent from
the same period the previous year. It is thus widely expected that the trade target set
27
during Chinese Premier Wen Jiabao's visit to India in April 2005, of $20 billion by
2008, will be met by theend of this year itself. Indeed, since the start of the new
century, every ambitious target set for bilateral trade has proved not to be ambitious
enough, the statistics zooming ever upwards with a momentum seemingly of their
own. In 2005, India-China trade increased by 37 per cent over 2007 to touch $18.7
billion. Just three years earlier in 2002 the total volume of bilateral trade was a paltry
$5 billion. China replaced Japan as India's top trade partner in North East Asia a few
years ago and is now on track to overtake the United States to become India's number
one trading partner within the next few years. Indo-U.S. trade stands at about $30
billion. Last year, more than 100 bilateral trade delegations crossed the Himalayas to
seek out opportunities for trade and investment. Over 80 Indian companies have
opened shop in China and some 45 Chinese firms now have operations in India. On
the surface, this is a veritable economic renaissance providing evidence for the
emergence of an economic colossus, `China India,' that brings together the might of
two of the world's fastest growing economies.

But scratching the surface reveals any celebration of `Chindia' to be chimerical.

Serious, continuing flaws in the structural composition of trade and a disappointingly
low investment engagement mean that there are many miles to go before the Sino-
Indian economic relationship can have the kind of significance that exists in China's
relations with its truly weighty trading partners. Moreover, despite considerable
improvement in political ties the lack of a final settlement on the boundary dispute
between the two neighbours makes it difficult to totally dispel the mutual suspicion
that has characterised bilateral ties for long. While burgeoning trade has helped
provide momentum to the sweetening of previously sour relations on the political
front, economic engagement can never be truly unfettered until full normalisation of
political ties is complete. In 2005, China's total trade volume was worth $1.4 trillion.
Sino-U.S. bilateral trade reached $204.7 billion and Sino-Japanese trade $189.4
billion. India was merely the 16th largest exporting nation to China in 2005,

28
In the first seven months of this year, India accounted for only 1.47 per cent of
China's total imports and 1.46 per cent of China's aggregate exports. Longer-term
commitments are even less impressive. Indian investment in China currently stands at
$130 million. By contrast, by the end of 2005, U.S. businesses had actually invested
$51.1 billion in China and set up 49,000 enterprises in the country. Last year alone,
China's total FDI inflows were worth $72 billion. Chinese investments in India are
not much cause for celebration either. According to the Indian Government, FDI
inflows to India from China between August 1991 and October 2005 worked out to a
grand total of $2.03 million. Chinese statistics put the figure considerably higher at
about $47.35 million but given that India's total inward FDI for the same period stood
at $36.2 billion, even this number is distinctly unimposing.

The fact that primary products such as iron ore and raw cotton dominate India's
exports also means that the benefits of value addition including increased
employment, higher profitability, technological upgradation, and so on are lost. By
contrast China's top exports to India include electrical machinery and machinery.
These together accounted for 43.9 per cent of total Indian imports from China in 2005
Trade associations such as CII and the Indian Embassy in Beijing have identified
certain sectors they believe have strong potential for growth in trade including dairy
products, machine tools, power and energy sector ancillaries, and certain segments of
apparel. The upcoming Made in India Show will feature products from some of these
sectors. However, trade alone cannot provide long-term stability to a bilateral
economic relationship, given that it is affected by a gamut of short-term
circumstances and can as a result prove fickle. The example of iron ore is a case in
point. Mutual investments are thus crucial to a truly sustainable economic
engagement.
Among the most encouraging recent developments in India China Economy and India-
China ties is the rapid increase in bilateral trade. A few years ago, India Inc had a fear of
being swamped by Chinese imports. Today, India enjoys a positive balance of trade with
China.In 2007, India's total trade to China crossed US $13.6 billion, with Indian exports

29
to China touching $ 7677.43 million and imports from china at US $ 5926.67 million.
But major industry players in India feel there is no need to give the Chinese a free ride
into the domestic market so early. This is particularly, when India and China have been
directly competing across several product categories.

TRADE PATTERN (value in USD millions)

China's Exports to China's Imoprts from

Year
India India
2003 1560.75 1353.48
2007 1896.27 1699.97
Percent Growth 21.5 25.6
2005 2617.73 2274.18
Percent Growth 40.9 33.8
2006 3343.59 4251.49
Percent Growth 22.2 87
2007 5926.67 7677.43

Percent Growth 77.3 80.6

According to a CII study, special focus on investments and trade in services and
knowledge-based sectors, besides traditional manufacturing, must be given, in view
of the dynamic comparative advantage of India. Indian companies could enter the
$615 billion Chinese domestic market by using it as a production base. Presently, Iron

30
ore constitutes about 53% of India's total exports to China. Among the potential
exports to China, marine products, oil seeds, salt, inorganic chemicals, plastic, rubber,
optical and medical equipment and dairy products are the important ones. The study
said that services and knowledge trade between India and China have significant
potential for growth in areas like biotechnology, IT and ITES, health, education,
tourism and financial sector.

China’s Exports to India

31
 Chinese exports to India focuses on resource based exports as well as the
exports of manufactured products. China has emerged as a global manufacturing
center and India as the most lucrative market in the world. In 2005, the Chinese
exports to India stood at US$ 5926.67 million. However, it industrialists in India
were not in favor of China being given free access to the domestic markets. But
bilateral trade relations between India and China have increased over the years,
reaching US$18.7 billion in 2007 from US$ 4.8 billion in 2002. However, the
bilateral trade is to be increased further to US$ 20 billion by 2010 and further to
US$30 billion by 2012

INDIA IMPORT DATA

Major items of Import into India are Dry Fruits, Almonds, Chocolates, Palm Oil,
Palm Fatty, Paraffin Wax, Inorganic Chemicals & Compound, Carbon Black,
Hydrazine Hydrate, Oxide, Iodine, Acid, Resin, Organic Chemicals, Leather
Chemicals,Phosphorus, Plastics, PVC, EVA, Rubber Tyre & Tubes, EVA
Compound, PU Leather, Timber Logs, Wooden Laminate Flooring, Printing Paper,
Newsprint, Raw &Combed Wool, Polyester Filament Yarn, Staple Fibre, Glass
Fiber, Steel Scraps, Sheet & Coils, HMS, Ferro Alloys, Welded & Seamless Pipe,
Nut Bolts, Fasteners,Copper Cathode, Nickel Waste, Aluminium Foil, Zinc Metal,
Molybdenum, Tungsten, Hand Tools, Blade, Bearing, Electrical & Home
Appliances, Used Machine, Computer Parts & Peripherals, Printers,
Electronics, Mobile Phone, Monitors,Telecom, Meters & Measuring Instruments,
and Toys The main items to be exported from China to India are electrical
machinery and equipment, organic chemicals, nuclear reactors, boilers, machinery,
silk, mineral fuels, and oils. Value added items also dominate

RECENET DEVELOPMENTS REGARDING CHINA’S

32
 INDIAN ECONOMY

Republic of India

India, officially the Republic of India is a south asian country seventh-largest country
by geographical area. second-most populous country and the most populous
democracy in the world Bounded by the Indian Ocean on the south, the Arabian Sea on
the west, and the Bay of Bengal on the east Coastline of 7500 kms, is bordered by
Pakistan in west, by Nhina, Nepal and Bhutan in the north, and Bangladesh and
Myanmar in the east India is a republic consisting of 28 states and seven union
territories With world's third largest army with the ninth largest Defence budget. It has
the world's twelfth largest economy at market exchange rates and the fourth largest in
purchasing power. Market based economic reforms were from 1991. The nation has
moved towards a market-based system The policy change in 1991 came after an acute
balance of payments crisis, and the emphasis since then has been to use foreign trade
and foreign investment as integral parts of India's economy With an average annual
GDP growth rate of 5.8% for the past two decades, the economy is among the fastest
growing in the world It has the world's second largest labour force, with 516.3 million
people In terms of output, the agricultural sector accounts for 28% of GDP; the service
and industrial sectors make up 54% and 18% respectively .

33
 STATSTICS

 Currency 1 Indian Rupee (INR) ( ) = 100

 Fiscal year April 1–March 31
 Trade organisations WTO, SAFTA
 GDP growth 9% (2007)
 GDP per capita $2,600 (PPP
 GDP by sector agriculture: 17.8%, industry29.4%, services: 52.8% (2007 est.)
 Population below poverty line 27.5% (2008 est
 Labour force 516.4 million (2007 est.)
 Labour force by occupation: agriculture: 60%, industry: 12%, services: 28%
 Unemployment 7.2% (2007 est.)
 Main industries: textiles, chemicals, food processing steel, transportation equipment,
steel, transportation equipment, cement , mining, petroleum machinery, software,
services
 Exports: $163 billion2007-2008
 Export goods: petroleum products, textile goods, gems and jewelry, engineering goods,
chemicals, leather manufacture.
 Main export partners: US 15%, the People's Republic China 8.7%, UAE 8.7%, UK
4.4% 2007
 Imports: $230.5 billion f.o.b. (2007 est.)
 Import goods:: crude oil, machinery, gems, fertilizer, chemicals
 Main import partners: the People's Republic of China10.6%, US 7.8%, Germany
4.4%, Singapore 4.4%
 Public Debt: $149.2 billion (2007)
 Revenues: $141.2 billion (2007 est.)

34
 Expenses: $172.6 billion (2007 est)

INDIA EXPORT DATA

India Export data is based on shipping bills filed at Indian customs at the time of
export clearance. This data is released regularly, on monthly basis, by individual
custom houses. We collect Export statistics from all the major Ports, ICDs, Airports,
and CFS, of India. Our team of experts process each & every records of Export
Import data and present in a very user friendly format. Details of Indian Export data
includes: Date of Shipment, HS Code, Item Description, Quantity, Unit, FOB Value,
Foreign Country, Indian port & Indian Exporter Name Major items of Export from
India are Live Animals, Dairy Products, Milk Products, Human Hair, Tea, Coffee,
Spices, Wheat, Rice, Tamarind Powder, Cummin Seed, Sesame Seed, Gum,
Herbal Extract, Henna, Sugar, Tobacco, Stone, Cashew Kernel, Ground
Nuts, Beverages & Liquor, Packaged foods, Salt, Minerals, Iron Ores,
API, Medicines, Chemical & Fertilizers, Bulk Drugs, Dyes & Pigments,
Masterbatch, Cosmetic, Skimmed Milk, Plastic, Packaging Films, Rubber
Items, Finished Leather, Saddlery, Leather Products, Books, Magazines,
Textile, Silk, Polyester Yarn, Embroidery & Zari, Cotton, Carpet & Rugs, Bathmat,
Readymade Garment, Stole, Shawl, Home Furnishing, Cushion Cover, Bed
Spread, Quilts, Throws, Blanket, Shoes, Sandal, Footwear, Ceramic,
Sanitary Ware, Glassware, Artificial & Imitation Jewellery, Gems &
Stones, Flanges & Fittings, Pipe & Pipe Fittings, Steel & Iron, S.S. Utensils,
UPS, Items made up of Brass & Aluminium, Handicraft, Hand Tools, Coils,
Builder Hardware, Agri Equipments, Machine & Machinery parts, Inverter,
Electric parts, Cables, Fan, Engineering products, Electrical items, Capacitor,

35
CFL, Public Address System, Writing Instruments, Auto parts, Automobile
Components, Tractor Parts, Medical Disposables, Surgical & Laboratory
Equipments, Wooden Furniture, and Sports products.

China, India, and the Future of the World Economy

The rapid economic growth of China and India has been associated with much more
rapid growth in their trade. In some cases, this has created enormous opportunities for
their trading partners. In others, it has created strong competition either in home
markets, or in third markets. Those who face increases in competition are frequently
more vocal, but a balanced assessment is needed to help develop appropriate policy
responses
A key determinant of the distributional implications of global competition is the
extent to which countries’ baskets of goods overlap. Traditional trade models where
comparative advantage follows from countries’ relative endowments imply that
extremely labor-abundant countries like China and India will manufacture and export
labor-intensive goods, while skill- and capital-abundant developed countries will
specialize in skill- and capital-intensive products. According to these models,
developed economies have little reason to be concerned by the emergence of China
and India as global economic powers.

However, other labor-abundant developing economies

have much to lose as traditional theory. highlights
expansion of existing products (the intensive margin) as
the only source of export growth. Many of these
expectations about the potential impact of the expansion of
exports from China and India may be biased or exaggerated. The expansion of China

36
and India’s trade is quite different from the expansion of developing country exports
considered in much of the development literature. It involves, for instance, two-way
trade in manufactures and services, which make the recipient countries the
beneficiaries of improvements in efficiency in their trading partners (Martin 1993). It
also involves fragmentation and global production sharing, where part of the
production process is undertaken in one economy, and subsequent stages are
undertaken in another (Ando and Kimura 2003; Gaulier, Lemoine and Unal-Kesenci
2007). This makes participants in this process beneficiaries from, rather than victims
of, improvements in the competitiveness of their partners. And new trade theory now
recognizes that export expansion does not involve just increases in exports of the
same products.
Complicating the analysis is the fact that, while both China and India are more labor-
abundant than developed economies, relative factor endowments and income levels
vary substantially across regions within these economies. China’s coastal areas may
place it in a different category compared to the much more labor-abundant inland
provinces. This heterogeneity can influence the range of goods China produces and
exports, and therefore helps explain the disproportionate similarity of China’s export
bundle with that of the developed countries (Schott, 2007). India’s large number of
skilled workers also implies that there may be a lot more competition between India
and developed economies than suggested by its relative endowment shares.

Much can be learned by examining China’s and India’s trading patterns. Although it
turns out that both have been quite successful in expanding their exports and imports,
they have done this in very different ways. Broadly, China has relied primarily on
exports of manufactures, frequently as part of an East Asian production sharing
network. By contrast, India has concentrated more heavily on services. Within
manufactures, China has relied heavily on exports of finished goods, while India has
focused much more on exports of intermediate inputs. India’s exports are frequently
of capital- and skill-intensive goods, while China has emphasized exports of labor-
intensive goods — although these are increasingly sophisticated (Rodrik 2006).

37
Indeed recent research suggests that China’s export bundle overlaps with that of
developed countries much more substantially than one would expect given either its
level of development or its size, and this excess similarity has increased with time
(Schott 2007). China’s rank in terms of the similarity of its export bundle with the
OECD jumped from nineteen in 1972 to four in 2004. No other country’s growth in
product penetration comes close to the increase observed for China. Quality
differences between Chinese and developed country exports however suggest that
competition between China and developed countries may not be as direct as suggested
by the overlap of their export baskets. Although China and India do not appear to be
in direct competition, reforms under way in India may intensify competition between
them as well as intensify competition between these two giants and the rest of the
world. Accelerated growth in China and India may create opportunities for some and
threaten others and the outcomes may differ depending on whether this growth is
accompanied by quality improvements and variety expansion, and whether it is
driven by physical or capital accumulation. Whowill win and who will lose from
these developments? We undertake the analysis in this paper with thesequestions in
mind No analysis of potential future developments can reliably be undertaken without
an examination of the key features of the current situation, and how it arose.
Therefore, this paper first reviews some key features of China’s and India’s trade, in
particular, the recent rapid export growth; the changing relativeimportance of goods
and services; and the changing composition of exports within merchandise and
services. With this as background, we use a global economy-wide modeling approach
to take into account all of the potential impacts of a number of policy reforms and
likely scenarios. First, the implications of the reforms under way in India are
examined to see if they might result in greater competition between China and India.
Then, we generate a baseline and examine the potential global implications of higher-
than-expected growth rates in these two economies. We consider first the impact of
more driven by increased accumulation of physical and human capital.
Unlike other approaches used to analyze these issues,1 the global applied general
equilibrium model used in this paper ensures consistency while including important

38
industry detail – each region’s exports of particular goods equal total imports of these
goods into other regions (less shipping costs); global investment equals the sum of
regional savings; regional output determines regional income; global supply and
demand for individual goods balance; and in each country/region demand for a factor
equals its supply. These accounting relationships and the behavioral linkages in the
model constrain the outcomes in important ways not found in partial equilibrium
analyses—increased exports from one country must be accommodated by increased
imports by other countries; broad-based increases.

OVERVIEW OF MANUFACTURING IN CHINA

China has experienced spectacular economic growth, quadrupling its GDP to

become the second largest economy in the world based on its purchasing power
parity . Much of this growth is driven by manufacturing. Today, China has
become the manufacturing center of the world. Exports of manufactured goods
have risen at a rate of 15 percent per year to about $730 billion in 2007 China
now makes 50 percent of theworld's telephones, 17 percent of refrigerators, 41
percent of video monitors, 23 percent of washing machines, 30 percent of air
conditioners, and 30 percent of color TVs (Rowen, 2003).

China’s Key Manufacturing Sectors: Electronics and Automotive

Components

China no longer is merely a place to churn out low-tech, high-labor components.

In recent years, China has been especially prominent in developing its electronics
and automotive component industries. The Chinese electronics industry has
become the leading export industry in China, and has a significant presence

39
globally across a wide spectrum of electronics products, from household electrical
appliances to semiconductors. Today China makes $60 billion worth of consumer
electronics goods a year . China is also fast becoming an important source of
automotive electronics for the global market. According to figures by Chinese
supplier Asimco Technologies, in 2005, China exported $1.49 billion worth of
automotive electronics and electrical instruments. Moreover, last year, General
Motors moved its global electronics purchasing office to Shanghai. Visteon
Corporation has also announced that its global electronics group will be
headquartered in Shanghai as well.
The combination of preferential government policies, foreign direct investment,
great infrastructure, and human capital has contributed to the success in Chinese
electronics and automotive component manufacturing.

40
 Factors Leading to China’s Success in Manufacturing

Preferential Government Policy

Among developing countries, the openness of China’s trade and industrial policy are
often cited as its comparative advantage. While interventionist government policies are often
noted as adversely affecting economic efficiency, these policies have worked for China’s
manufacturing sector. The manufacturing sector requires large provision of investment
capital,coordination of the localization process and the monitoring of technology transfer.
More specifically, in the automotive and electronic sectors, the emphasis is on promotion of
learning rather than innovation . To further develop these industries, the government needs to
be more interventionist. Local governments such as Shanghai have been very successful in
coordinating investments across firms in the automotive industry to ensure a smooth supplier
network . To date, the Shanghai area is considered one of the most robust manufacturing
centers for electronics and automotive parts.

The Chinese government has led investment in the manufacturing sector by giving
preferential loans to targeted industries. In recent years, the government has promoted growth
in the value added manufacturing industries such as electronics and automotive components.
Tools used to promote the electronics industry include public research, trade protection, sector-
specific financial incentives, selective government procurement, and control of foreign
participation, relaxed antitrust regulation, and the provision of training and education for
sector-specific skills
.

41
 OVERVIEW OF
MANUFACTURING IN INDIA

While India’s Information Technology services sector has been credited with much of
India’s economic growth (in 2007 51.1% of GDP), experts predict that manufacturing
(in 2007 16% of GDP) will fuel India’s next era of growth . India’s manufacturing sector
has lagged behind those of China, Thailand, Malaysia, and Mexico. The main reasons
multinational companies have not invested in India results from the lack of infrastructure
including electricity, roads, and sea and air ports as well as government regulation and
corruption. Despite these obstacles to growth, electrical and electronic components
manufacturers ABB, Honeywell, and Siemens and automotive manufacturers
DaimlerChrysler and Toyota Motor have started operations in India. Their incentives for
starting production in India are low labor costs and the availability of high levels of
technical expertise. Industry trends show an increase in skill-intensive manufacturing
sectors. Approximately 50% of U.S. offshore is manufacturing in skill-intensive sectors,
and this number is expected to increase to 70% by 2007 . Industry growth alone will not
continue to attract multinational companies to India. If lessons learned from China’s
success are applied to India, it becomes evident that India mimics China’s success in
developing human capital and providing some preferential treatment. However, India
needs to continue to take steps to improve its infrastructure and government regulation in
order to increase FDI flows. A further examination of the electronic components and
automotive manufacturing sectors will provide insight on what factors are spurring
growth in these sectors and what government regulationsneed to be leveraged to increase
growth.

42
 India Lifts Ban On The Import Of Chinese Toys

Owing to pressure from the government of China, India withdrew the ban on imports of
Chinese toys. China warned that India's ban on Chinese toy might demolish the bilateral
trade ties existing between the two countries. Media reports say that Beijing was also
considering to drag India to WTO on the ban issue. According to Indian ministry of
commerce, the import of toys from China will be allowed if they conform to the international
safety standards.

The government of India imposed a ban on the import of Chinese toys on January 2009 this
year citing concerns over the safety standards of Chinese-made products. The Directorate
General of Foreign Trade, India had notified that the restriction will remain valid for six
months. Chinese toy industry came under scanner after the news of using toxic lead paints in
manufacturing the products. The Indian government had imposed the ban on import after that
report.

While informing about the safety standards that are needed to be followed by Chinese toy
industry, ministry of commerce informed that, it is important that the toy industry should
procure certificates from safety bodies such as the International Organisation for
Standardization (ISO) or the American Society for Testing and Materials. The Chinese toy
export also suffered the brunt of global financial crisis in addition to the decline in demand of
toys in key US and European markets

43
 CONCEPT OF SPECIAL ECONOMIC ZONES

A Special Economic Zone (SEZ) is a geographical region that has economic laws that are
more liberal than a country's typical economic laws. The category 'SEZ' covers a broad range
of more specific zone types, including Free Trade Zones (FTZ), Export Processing Zones
(EPZ), Free Zones (FZ), Industrial Estates (IE), Free Ports, Urban Enterprise Zones and
others. Usually the goal of a structure is to increase foreign investment. One of the earliest
and the most famous Special Economic Zones were found by the government of the People's
Republic of China under Deng Xiaoping in the early 1980s. The most successful Special
Economic Zone in China, Shenzhen, has developed from a small village into a city with a
population over 10 million within 20 years. Following the Chinese examples, Special
Economic Zones have been established in several countries, including Brazil, India, Iran,
Jordan, Kazakhstan, Pakistan, the Philippines, Poland, Russia, and Ukraine. North Korea has
also attempted this to a degree, but failed.

India

Considering the need to enhance foreign investment and promote exports from the country
and realising the need that a level playing field must be made available to the domestic
enterprises and manufacturers to be competitive globally, the Government of India had in
April 2000 announced the introduction of Special Economic Zones policy in the country,
deemed to be foreign territory for the purposes of trade operations, duties and tariffs. As of
2009, more than 500 SEZs have been proposed, 220 of which have been created. This has
raised the concern of the World Bank, which questions the sustainability of such a large
number of SEZs. The Special Economic Zones in India closely follow the PRC model. India
passed special economic zone act in 2007.

44
Can India Revitalize its Special Economic Zones to Rival Those in China?

The World Economic Forum (WEF) meetings that took place in Davos over the past week
offered an interesting contrast between the growth challenges that face China and India in
the coming decade. The China Business Summit at the WEF was concerned with the social,
political and economic risks faced by China internally and China’s impact (both positive
and negative) on the world economy. The India Economic Summit, on the other hand,
focused on how India can achieve Chinese growth rates while at the same time avoiding
China’s model of “growth first, equity later” -- the very source of the risks many see facing
China. As the Indian Prime Minister, Dr. Manmohan Singh, put it, “we have today a broad-
based national consensus that the process of economic growth must enhance both equity
and efficiency.”
Yet there are lessons for India in China’s rise. One important aspect of China’s spectacular
rise as the world’s workshop that India hopes to emulate has been Beijing’s policies toward
foreign investments in Special Economic Zones (SEZs) and Free Trade Zones (FTZs). In
August 1980, China’s National People’s Congress passed what was to become an historic
act, the Regulations for the Special Economy Zone of Guangdong Province. In that year,
China established three SEZs in Guangdong -- Shenzhen, Zhuhai and Shantou -- aimed
explicitly at attracting foreign investments, especially from nearby Hong Kong.
Guangdong’s SEZs were the precursor to four more SEZs -- Xiamen (in Fujian province
opposite Taiwan), Hainan (the entire island province), Hunchun (adjacent to North Korea),
and the Pudong Development Zone (across the river from old Shanghai
The Indian variants tend to be smaller than their Chinese equivalents, sectorally focused (in
such sectors as handicrafts, leather products, auto parts, apparel, electronics and IT
services, gems and jewelry, food processing) and separated from their surrounding
communities. Chinese SEZs are large, multi-sectoral, and no longer have formal
boundaries separating them from surrounding communities. This points up another
difference between the Chinese and Indian approaches: in China the SEZs have been used
to test reforms that have subsequently been adopted nationwide, with the result that today
45
there is very little difference in policies within the SEZs and the general economy. In India,
on the other hand, reform generally has moved ahead much slower and the SEZs have not
been seen as the leading edge of reform.

India: A much favoured destination

India has been rated as the fourth most attractive investment destination in the world, according
to a global survey conducted by Ernst and Young in June 2008. India was after China, Central
Europe and Western Europe in terms of prospects of alternative business locations. With 30 per
cent votes, India emerged ahead of the US and Russia, which received 21 per cent votes each.

As per the global survey of corporate investment plans carried out by KPMG International,
released in June 2008, (a global network of professional firms providing audit, tax, and
advisory services), India will see the largest overall growth in its share of foreign investment,
and it is likely to become the world leader for investment in manufacturing. Its share of
international corporate investment is likely to increase by 8 per cent to 18 per cent over the
next five years, helping it rise to the fourth, from the seventh position, in the investment league
table, pushing Germany, France and the UK behind

46
 CHAPTER-3
RESEARCH METHODOLOGY

47
 RESEARCH METHODOLOGY

OBJECTIVES OF THE STUDY

 To know the trade relations between two Asian giants, India and China.
 To know the critical features of both economies.
 To know the perception of people’s for Chinese products.
 To know the perception of people’s for Indian products.

RESEARCH DESIGN

Defining Research Problem

Problem definition is the first & foremost part of the research process, without this research
cannot be completed until and unless there is a problem or objective, the research cannot be
initiated. Problem definition refers to the objective on which research has to be done, so
problem definition in my project work is India China trade relations and people’s perception.

Research Methodology
Type of Study: Study is Descriptive in nature.
Source of Data:
Two types of data sources will be taken into consideration
 Primary Data

For the collection of primary data survey method has been used.
Secondary Data: Under this project secondary data is been collected from Books, magazines,
& web sites.

48
 Type of universe: The universe is the entire group of items the researcher wishes to study
and about which they plan to generalize. Under this project type of universe include people
residing in Chandigarh city.

 Sampling Unit: Who is to be surveyed generally large sample Give more reliable results than
small samples. My sample units include students and employees and other citizens of
Chandigarh.
 Size of Sample: Number of people surveyed. Generally large Sample more reliable result than
small sample. The sample Consist of 100 respondents.
 Sampling Technique: Sampling procedure refers to technique Used in selecting the items for
the sample. Under this project selection of respondents is on the basis of convenience
sampling.
 Tools and Techniques: Likert Scale, open ended questions.
 Scope of Study: This study is mainly confined to the customer of Chandigarh City.

Limitations of the study

• Sample size of 100 respondents was not enough for this study.
• The study was conducted in Chandigarh so there can be difference in opinions.
• Time constraint was also one of the limitations.
• Lack of experts view’s.

49
SECONDARY DATA

50
Figure . The composition of services’ exports, China.

100%

80% Financial

Communication
60%

Travel
40%
Transport

20

0%
1994 1995 1996 1997 1998 1999 2000 2004 2002 2003 2007 2005 2006 07

51
Figure. The composition of Services’ Exports, India.

100%

90%

80%

70%

60%

50%

40%

FINANCIAL
30%

20%

COMMUNICATION
10%

TRAVEL
0%
1994 1995 1996 1997 1998 1995 1999 12000 2004 2003 2007 2005 2006 2007

COMMUNICATION

52
Table 2. Top 25 exports for China and India, 2007
China HS- % India
HS- %

Product 88/92 Share Product 88/92 Share

Parts of automatic data processing 847330 4.0 Diamonds non-industrial nes 710239 12.7

Digital auto data processing machinery 847120 4.0 Petroleum oils, etc, (excl. 271000 9.7
crude) ;

Input or output units 847192 4.2 Art. of jewellery and parts thereof 711319 4.6

Transmission apparatus 852520 3.1 Non-agglomerated iron ores and conc 260111 4.5

Parts suitable for use solely or pr 852990 2.3 Semi-milled or wholly milled rice 100630 2.6
Monolithic integrated circuits 854211 1.9 Other organic compounds, nes 294200 2.1
Storage units, whether or not prese 847193 1.5 Flat rolled prod, i/nas, plated or 721049 2.0

Video recording or reproducing appa 852190 1.5 Other medicaments of mixed or unmix300490 1.9

Optical devices, appliances 901380 1.4 T-shirts, singlets and other vests, 610910 1.4
Video recording or reproducing appa 852110 1.2 Women’s or girls’ blouses, shirts, 620630 1.4
Television receivers including vide 852810 1.2 Frozen shrimps and prawns 030613 1.5
Cargo containers 860900 1.1 Men’s or boys’ shirts of cotton 620520 1.3
Static converters, nes 850440 0.9 Imitation jewellery nes of base mtl 711719 1.2
Parts and accessories of apparatus 852290 0.9 Furnishing articles, nes, of cotton 630492 1.2
Petroleum oils, etc, (excl. crude) ; 271000 0.9 Oil-cake and other solid residues, 230400 1.1
Coke and semi-coke of coal, of lign 270400 0.9 Cashew nuts, fresh or dried 080130 1.1

Printed circuits 853400 0.9 Made up articles (incl. dress patterns) 630790 1.1

Footwear with rubber… soles 640399 0.9 Motor vehicle parts nes 870899 1.0
Automatic data processing machines 847199 0.9 Polypropylene, in primary forms 390210 0.9
Bituminous coal, not agglomerated 270112 0.8 Copper cathodes and sections of cat 740311 0.9

Footwear, nes, not covering the ankle 640299 0.8 Agglomerated iron ores and concentr 260112 0.9

Trunks, suit-cases…, etc 420212 0.8 Men’s or boys’ shirts of cotton, knit 610510 0.9

Digital process units

847191 0.8 Automobiles with reciprocating piston 870321 0.8
Sound reproducing apparatus, not in 851999 0.7 Woven fabrics of high tenacity yarn 540710 0.8
Jerseys, pullovers, etc, of man-made 611030 0.7 Collages and similar decorative 970190 0.8
Total 38.4 58.4
CHINA’S GOOD EXPORT AND INDIA’S SERVICE EXPORT 1990-2007
COMPARISON OF GDP BASED ON PPP AS % OF WORLD TOTAL IN 2004

INTERPRETATION:-

This graph includes countries of the world sorted by their gross domestic product (GDP)
at purchasing power parity (PPP) per capita, the value of all final goods and services
produced within a nation in a given year divided by the average (or mid-year) population for
the same year.

GDP dollar estimates here are derived from purchasing power parity (PPP) calculations. Such
calculations are prepared by various organizations, including the International Monetary Fund
and the World Bank. As estimates and assumptions have to be made, the results produced by
different organizations for the same country tend to differ, sometimes substantially. PPP figures
are estimates rather than hard facts, and should be used with caution. INDIA is having the part
of 6% as comparing to china’s 13%.
 COMPARISION OF COMPOSITION OF GDP

INTERPRETATION:-
The above graph shows that in the composition of china’s GDP
32% Services, 15% agriculture, and 53 % industry. In India’s GDP composition 56% is
of services, 22% industry and 22% agriculture in 2003.
COMPARISON OF GROSS DOMESTIC SAVING AND INVESTMENTS

INTERPRETATION:-
The above graph shows that china’s gross domestic savings
were 50% of the total GDP IN 2004 and India’s GDS were 24% of the GDP, as in investments
china’s total gross domestic investments were 45% of the GDP and India’s GDI was 24% in
2007.
COMPARISON OF PART IN WORLD TRADE OF CHINA AND INDIA

INTERPRETATION:-
Above graph shows that China’s part in the world trade in 2004
was 6% where India was far behind with 1%.USA with 10% and with 6% part in the world
trade.
 EXPORT PARTNERS OF CHINA IN 1994 AND 2004

INTERPRETATION:-
Above graph shows that China’s top five export partners in
1994.were USA with 20.5% Japan with 20.6% Hong Kong with 31.1% and others were south
Korea and Germany, in 2004 USA with 25.8%, Hong Kong with 20.9% Japan with 15.2% and
others were south Korea and Germany with 5.7% and 4.9% share in trade.
 EXPORT PARTNERS OF INDIA IN 1994 AND 2003

INTERPRETATION:-
Above graph shows that India’s export partners in 1994 were USA,
Hong Kong, UK, Germany, Japan, in 2003share of USA decreased form 19 to 18% and China
and UAE has emerged new partners for India.
COMPARISON OF KEY EXPORT PRODUCT OF INDIA AND CHINA

INTERPRETATION:-
Above graph shows that china’s key export products are bectrical
machinery, clothing and garments yarn and textiles India’s key export products are clothing,
textiles yarn, nonmetallic mineral manuf.
COMPARISON OF KEY IMPORT PRODUCT OF INDIA AND CHINA

INTERPRETATION:-
Above graph shows that china’s key import products are bectrical
machinery, crude oil and yarn and textiles, India’s key import products are basic manufacturer,
mineral and machine transport equipments.
 COMPARISON OF FOREIGN RESERVES OF INDIA AND CHINA

INTERPRETATION:-
Above graph shows that china’s foreign reserves was 700 billion
US dollar and India’s foreign reserves were 120 billion dollar.
 COMPARISON OF EXTERNAL DEBT OF INDIA AND CHINA

INTERPRETATION:-
Above graph shows that china’s external debt is 25 billion US
dollar, India’s external debt is 37billion dllar.
COMPARISON OF INFLATION TRENDS OF INDIA AND CHINA

INTERPRETATION:-
The above graph shows that female annual inflation of china is less than India. It a almost 3 in
2007 and India is almost 5.In the recent trend graph china’s inflation is less than 2 India’s
inflation was still 4%.
PARTICIPATION OF FEMALE LABOUR FORCE AND COMPARISON
OF SKILLED LABOUR…

INTERPRETATION:-
The above graph shows that female labour force participation in china is more than India it was
45% for India and 79% for China in 2003.
In other graph there are two comparison one is of skilled labour and other is of qualified
engineers both the comparison are in favour of India
 DATA ANALYSIS AND INTERPRETATIONS
DEMOGRAPHIC FEATURES

1.GENDER OF THE RESPONDENTS

GENDER MALE FEMALE

Percentage 60 40

INTERPRETATION:-
Out of total respondents 60% were male and 40% were female.
2.AGE OF THE RESPONDENTS

Age Upto 18 18 to 35 35 to 50 Above 50

Percentage 6% 64% 22% 8%

INTERPRETATION:-
Out of total respondents 6% were up to 18 years, 64% were up to 18-
35 years 22% 33-50and rest were above 50 years.
3.EDUCATION OF THE RESPONDENTS

EDUCATION UNDER GRADUATE POST- OTHERS

LEVEL GRADUATE GRADUATE
%AGE 12% 62% 18% 8%

INTERPRETATION
The above graph represents the education level of the
respondents 12% were undergraduate, 62% were graduate, 18% postgraduate and 8% others.
4.OCCUPATION OF THE RESPONDENTS

OCCUPATION STUDENT EMPLOYEE BUSINESSMAN OTHERS

%AGE 41% 27%% 24% 8%

INTERPRETATION
The above graph represents that 41% respondents were
students,27% employee,24% businessman, 8% were others.
5.INCOME OF THE RESPONDENTS

INCOME LESS THAN 1 TO 2 LAKH 2 TO 3 MORE THAN

1 LAKH LAKH 3LAKH
%AGE 48% 36% 10% 6%

INTERPRETATION:
The above graph represents that out of total respondents
48% were earning less than one lakh because most of them were students, 36%1-
2 lakh, 2-3lakh10% and 6% above 3 lakh.
6.AREA TO WHICH RESPONDENTS BELONG

AREA RURAL URBAN

%AGE 29% 71%

INTERPRETATION
29% of the respondents rural,and 71 % from urban
background.
7.KNOWLEDGE OF INDO-CHINA TRADE
SAMPLE SIZE-100
YES NO
90% 10%

INTERPRETATION
Out of total respondents 90% were aware of India
China trade and 10% was not aware.
8.SOURCE OF INFORMATION
SAMPLE SIZE-90

SOURCE T.V. MAGZINES RADIO NEWSPAPER ACQUAINTANCES

%AGE 42% 14% 7% 26% 11%

INTERPRETATION:
Out of total respondents 42% get knoweldge from t.v ,
14% from magzines, 7% from radio, 26% from newspapers. 11% frm known
ones.
9.DO YOU BUY CHINESE PRODUCTS?
SAMPLE SIZE-90
YES NO
65% 35%

INTERPRETATION:
Out of total 90 respondents 65% said yes they buy and
rest 35% said no.
10.CHINESE PRODUCTS BETTER THAN INDIAN PRODUCTS
SAMPLE SIZE-58

STRONGLY AGREE CAN’T SAY DISAGREE STRONGLY

AGREE DISAGREE
13 15 7 13 10

INTERPRETATION:
Out of total respondents 13 were strongly agree
15 were agree, 7can’t say, 13 disagree, 10 strongly disagree.
11.WHAT DO YOU LIKE IN CHINESE PRODUCTS?
SAMPLE SIZE-58

QUALITY DURABILTY LOOKS LOW PRICE

9 9 17 23

INTERPRETATION:
Out of total respondents 9 Respondents likes quality of
products, 9 durability, 17 looks, 23 low price.
12.THE PRODUCTS OF CHINA DESTROYING THE MARKET OF
INDIAN PRODUCTS
SAMPLE SIZE:90
STRONGLY AGREE CAN’T SAY DISAGREE STRONGLY
AGREE DISAGREE
35 30 11 9 5

INTERPRETATION:
Out of total respondents 35 were strongly agree
30 were agree, 11 can’t say, 9 disagree, 5 strongly disagree

13.IMPORT OF CHINESE PRODUCTS SHOULD BE BANNED

SAMPLE SIZE:-90
STRONGLY AGREE CAN’T SAY DISAGREE STRONGLY
AGREE DISAGREE
29 27 11 13 10

INTERPRETATION:
Out of total respondents 29 were strongly agree
27 were agree, 11 can’t say, 13 disagree, 10 strongly disagree

14.CAN INDIAN PRODUCTS COMPETE CHINESE?

SAMPLE SIZE:-90
STRONGLY AGREE CAN’T SAY DISAGREE STRONGLY
AGREE DISAGREE
33 29 9 9 10

INTERPRETATION:
Out of total respondents 33 were strongly agree
29 were agree, 9 can’t say, 9 disagree, 10 strongly disagree
15.EMERGING INDIA-CHINA TRADE CAN NORMALISE THE
POLITICAL CONFLICT
SAMPLE SIZE:-90
STRONGLY AGREE CAN’T SAY DISAGREE STRONGLY
AGREE DISAGREE
27 31 16 12 4

INTERPRETATION:
Out of total respondents 27 were strongly agree
31 were agree, 16 can’t say, 12 disagree, 4 strongly disagree
16.PREFERRED CHINESE PRODUCTS.
SAMPLE SIZE-90
PRODUCTS RESPONDENTS
MOBILES 20
GIFT ITEMS 11
CROCKERY 8
COMPUTER HARDWARE 7
STATIONERY ITEMS 8
HOME APPLIANCES 7
FURNITURE 2
SPORTS GOODS 9
ELECTRONIC GOODS 13
ELECTRICAL GOODS 5

INTERPRETATION:
Among the chinese products in indian market
mobiles are most preferred followed by gift items and electronic goods.
 FINDINGS
• Share of India on world trade is 1% and share of China is 6%.
• USA , Japan are the major trade partners of india.
• China’s foreign reserves are more than India’s foreign reserves.
• 90% of the respondents were aware of India China trade.
• Television and news papers are the source of information for the people.
• Respondents buy Chinese products because of Looks and low price of the
product.
• Products from China is destroying the Indian market.
• Indian products can compete Chinese products.
• Most of the respondents were in favour of increasing trade betweeen India
and China.
• Mobiles , electronoics , gift items are the most preferred among the
Chinese products.
 BIBLIOGRAPHY
Books
• Kothari, C.R., “Research Methodology: Methods and Techniques”,
Wishwa Publication, Delhi
• Alan and Yusuf,” Dancing with giants China, India and global economy”

Websites Visited
www.gtap.org
www.siteresources.com
www.impoexpo.com
www.google.com
 QUESTIONNAIRE

Dear Sir/Madam

I am the student of MBA-4 th Semester at RIMT-IMCT, Mandi Gobindgarh doing a

project “India China trade relations and people’s perception”. Please co-operate to fill this
questionnaire.

DEMOGRAPHIC FEATURES

1. Name _________________________________________

2. Sex: (a) Male (b) Female

3. Age: (a) Below 18 (b) 18-35

(c) 35-50 (d) Above 50

4. Education: (a) Under Graduate (b) Graduate

(C) Post Graduate d) others

5. Occupation: (a) Student (b) Employee

(c) Business (d) Others

6. Income: (a) Less than Rs. 100000

(b) 1lakh to 2 lakh

(c) 2 lakh to 3 lakh

(d) more than 3

7. Area from where you belong?

a) Rural b) Urban

1. Do you have the knowledge of India - china trade?

(a) Yes (b) No

If no then stop here……

2. Which source of information provides the knowledge of import- export of India?

(a) Television
(b) Magazines
(c) Radio
(d) News paperse
 (e) Acquaintances.

3. Do you use any Chinese product?

(a) Yes (b) No

If no then move to the question no 6.

4. Do you think that Chinese products are better than Indian products?

(a) Strongly agree

(b) Agree
(c) Can’t say
(d) Disagree
(e) Strongly disagree

5. What do you like in the Chinese products?

(a) Quality
(b) Durability
(c) Looks
(d) Low price

6. The products of china are destroying the market of Indian products?

(a) Strongly agree
(b) Agree
(c) Can’t say
(d) Disagree
(e) Strongly disagree

7 .Import of Chinese product should be banned.

(a) Strongly agree
(b) Agree
(c) Can’t say
(d) Disagree
(e) Strongly disagree

(8) Indian products can compete Chinese products in world market.

(a) Strongly agree
(b) Agree
(c) Can’t say
(d) Disagree
(e) Strongly disagree

(9) Emerging trade between India and China can settle the border disputes between two
nations
a) Strongly agree
(b) Agree
(c) Can’t say
(d) Disagree
(e) Strongly disagree

(11) Which of the following Chinese product do you buy?

a) Mobile b) Gift items. c) Crockery d) Computer hardware e) Stationary items
f) Home appliances g) Furniture h) Sports goods i) Electrical goods j) Electronic goods

Address __________________________________________
__________________________________________
__________________________________________
Phone no. _________________________________________
*Thanks for your valuable time and co-operation*