India vs China

China is in a tearing hurry to tap the Indian market and the CCPIT’s assistant chairman Wang Jinzhen lost no time in putting his cards on the table.

China would like India to accord it market economy status as quickly as possible. It would like clarity on foreign direct investment in the retail sector, and it would be helpful if India’s infrastructure sector could be opened up to Chinese companies without further ado.

Additionally, it would also like the controversy surrounding its telecom giant Huawei Technologies resolved quickly, so that new investment in India could be speeded up, as the record on investments has been fairly dismal so far (see ‘Needles of Suspicion’).
But whatever the misgivings on either side, trade is booming —even if there is no agreement on who is gaining. According to the latest statistics released by China Customs, two-way trade grew 79 per cent to touch $13.5 billion in 2004, and reached $18.7 billion in 2005. This means the target, set three years ago, of reaching $20 billion by 2008 could be met two years before schedule. It also means that China will soon be overtaking the US as India’s main trading partner.

Why does Indian industry blanch at the idea of an FTA with China? The answer lies in the structure of their economies and their relative strengths. Slightly over 50 per cent of China’s GDP comes from manufacturing and construction, 34.5 per cent from services and just under 15 per cent from agriculture. The fear is that the world’s factory will be flooding India with its products.

Compare this with India’s profile. More than half of its GDP (52.2 per cent) comes from services, while industry contributes just 26 per cent. As one businessman points out, “What will we gain from an FTA with China? Not lower tariffs because their tariffs are already low. All it will do is open the floodgates. Just look at what it has done to the big economies. Both the US and Japan have a huge trade deficit with China and we are pygmies compared to them.”
Ready or not, Indian industry will have to learn to tango with the dragon. China is here and it means business.