China and India between trade cooperation and competition

China and India, have come to play an increasingly relevant role in the world to the extent that they are about to change the geopolitical equilibrium in Asia and upset the world order established at the end of the Cold War.China and India share a lot of the same history: they are both two of the world’s oldest
civilisations that have been linked by religion and commerce thanks to Buddhism and the Silk Road. In the 1700s their economies were the richest and the most developed, far ahead of Europe and the newly born United States. In the 18th and 19th century they both experienced the Western colonial influence and colonial trading regimes that slowed down their growth and marked a setback in their relation. After India’s independence and the establishment of the People’s Republic of China, exchanges
started again based on the Five Principles of Peaceful Coexistence and summarized by the catch phrase “Hindi-Chini bhai-bhai”, Hindi for “Indians and Chinese are brothers”.
2010 has marked the 60th anniversary of the establishment of diplomatic relations between China and India.
The Sino-India relationship hasn’t always been positive: India and China share a long and disputed border that had been cause of many controversies in the recent year. After a bloody war fought in 1962, the rapprochement was slow and prude. Many meetings had been held and agreements had been signed, but concerning the border disputes, little tangible progress has been made.
Trade is a key element in the modern relationship between China and India. In the past twenty years improving bilateral trade has been the main cause of interaction and cooperation between China and India.
After a brief stall in 1998 due to India’s nuclear testing, trade figures rapidly picked up with growth rates of 45% per year. Currently India is China’s tenth trading partner while China is India’s top trading partner. In 2008 their bilateral trade amounted to US$ 51 billion and the trade target of US$ 60 billion established for 2010 has been reached despite the world financial crisis. Considering the trade figures, Sino-India trade partnership seems strong and stable, but analyzing the trade composition it is clear that the relation is uneven, and highly in favour of China. India lags far behind China in both
world commerce and bilateral trade.
Considering bilateral trade composition and volume, India is much more dependent on China than vice versa. China’s imports from India are mainly composed of raw materials, which China takes away from India’s industries, because India lacks a strong and competitive manufacturing sector and is bound to import value added products, such as electrical and electronic products and machineries from China. Therefore India’s exports of low value added products and imports of high value added products show its subordinate position in bilateral trade. Trade deficit between the two is also
another indicator of China’s dominance; in 2008 it amounted at 11.2 billion. Before assessing trade cooperation or the realization of a Free Trade Area between China and India, the issue of trade deficit needs to be solved.
Also analyzing the performance of China and India in the world economy, it is clear how China ranks far ahead of India for volume and composition of trade. China is now the second largest economy behind the United States, having passed Japan in 2010. In comparison to India, China is more open to international commerce, has been able to strengthen his position in many market sectors, is a best recipient for Foreign Direct Investment and has suffered less from the world financial crisis. Except for the size of the software industry, India lags behind on most developmental indicators.
By retracing the history of trade between China and India in the first chapter, and through an analysis of China and India bilateral trade and their performance in world trade in the following chapters, this thesis aims at demonstrating that the relationship between the two countries could be considered one of cooperation. However, a deepen analysis shows that the partnership is not balanced: China clearly holds a favourable position in bilateral and world trade and is not willing to let India catch up with it.