The Hindu Business Line : India-China bilateral trade yet to pick up pace

INDIA and China may have caught the fancy of the global investor in the past few years, but the India-China bilateral economic story is not yet a big one. Bilateral trade is growing; up from $339 million in 1992 to $8 billion in 2003 and Chinese customs statistics show that it scaled an even higher peak at $13.6 billion in 2004. Despite this rapid growth, the share of India in China's global imports is just one per cent (in 2003) and of China in India's imports is under five per cent.

Long-term commitments do not reflect even this level of engagement. The Indian Government has cleared a total of $67.15 billion worth of foreign direct investment (FDI) during the last 13 years (excluding ADRs/GDRs) and in this, China accounts for about 0.30 per cent with FDI approvals of $231.7 million. In terms of actual inflows, the picture is worse. Cumulative FDI inflows during 1991-2004 (up to September) worked out to $31.87 billion in which China accounted for an inflow of $0.83 million, the percentage working out to 0.001. During the last 13 years, India granted 7,878 technical collaboration approvals to different countries in which China was granted just 70.

Incidentally, figures given out by Indian and Chinese authorities do not match. While the Indian Government maintains that FDI inflow from China stands at $0.83 million, the Chinese Ministry of Commerce says that the total quantum of Chinese investment in India till 2003 was about $20.6 million, covering 97 Chinese proposals for foreign collaborations mainly in telecom, metallurgical, transportation, electrical equipment and financial sectors. One possible explanation for the divergence in statistics is that some of the Chinese investments were routed through Hong Kong and do not technically show up under the China head.

On the trade front, the product composition is concentrated in a narrow range. Just 15 products constitute 89 per cent of total Indian exports to China and include primary and semi-finished steel, iron ore, plastic and linoleum products and other ores and minerals. In other words, minerals and raw materials or low value addition products feeding the rising demand for these products in China dominate Indian exports to that country. At the same time, India's imports appear to be more diversified and dominated by high value-added manufactured products such as electronic goods which now account for almost 28 per cent of the total trade volume.

Experts, however, believe that the low volumes actually reflect the large potential that exists for trade and investment links between the two countries, particularly in areas like IT and IT enabled services, biotechnology, education, financial sector, health care, tourism etc. Both India and China can also look to having investments in the other country not only to feed the domestic market but also for exports to third countries.

For bilateral economic relations to expand, a number of issues have to be addressed. First, air and sea connectivity between the two countries is limited. Second, Indians perceive lack of transparency in regulations and bidding procedures, bureaucratic delays in clearances of contracts, frequent changes in regulations, security issues etc. to be a big hindrance. Finally, language, lack of knowledge, awareness and information of each other's market and lack of reliable data are obstacles that have to be removed. European companies and US may be inclined to face these problems when they invest in China, just to take advantage of cheap labour but for Indian companies that is not an attraction. India and China, therefore, will have to think of other "incentives" to take their bilateral economic relationship to a larger scale.

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