Tuesday 27 November 2012

Sino-Indian trade prospective gold mine (Global Times)

By M.D. Nalapat
Global Times | 2012-11-26 23:35:04

China and India held the second round of strategic economic talks in New Delhi Monday. Although there has been celebration - and surprise - at the rising level of Sino-Indian trade, the reality is that this has the potential to reach $150 billion, or double the present level, by 2016, and go even higher to $300 billion well before the current decade ends.

India is at the same stage of development that China was in the mid-1980s, and therefore has an enormous need for infrastructure and technology.

The optimal low-cost, high-quality option for sourcing such need is China, a country that has already passed through the cycle of massive infrastructure spending which India is entering upon.

Another requirement is energy, both conventional, such as thermal and hydro, as well as alternative, such as solar and wind power.

In these fields as well, Chinese companies provide options that are of the requisite quality and at a price 30 to 40 percent cheaper than the range offered by Japanese, US and European competitors. Small wonder that even after India's "Western lobby" recently slapped a 21 percent duty on Chinese power equipment, orders are still flowing in.

The third field is telecoms, where again Chinese manufacturers offer lower prices and reasonable quality.

However, trade cannot be a one-way street. Already there are murmurs of protest from manufacturers in India about the $24 billion surplus in trade that China has with India.

While the smaller economy cannot match its bigger neighbor in most lines of manufacturing, India has a competitive advantage in services and software.

One way of reducing the trade imbalance would be for State-owned enterprises in China to start buying Indian software, rather than relying only on Western software providers, most of whom then outsource their orders to Indian companies.

Chinese officials, especially those educated in the West, have an exaggerated respect for Western countries, and need to appreciate that Indian software is not just cheaper than such providers but better. Just as Europeans "buy European" whenever they can, we in Asia must "buy Asian."

Another field where India can expand its commercial operations in China is education.

Within India, nearly 300 million people speak one or the other variant of the English language, and rather than turn to high-cost and faraway locations such as the UK or Australia to get education in the international link language, India can be depended upon to provide an expanding number of teachers of the language, at a cost far below that charged by those from the UK, the US or Australia.

India has several world class institutes and universities that can set up operations in China by imparting training in engineering, medicine and management in the English language.

This would enable those Chinese youngsters who lack the funds to study in Western countries to get an equivalent education in their own country.

The "secret weapon" that China has to ensure that it becomes the biggest force in international markets is finance.

China is the only country that has huge reserves of financial capital which can be deployed to boost exports.

The Gulf Cooperation Council (GCC) is the only other source of such volumes of ready capital, although as yet this region remains tied to Western producers for most of their needs, despite the higher risk and cost.

Should China implement a strategy of deploying project finance in countries such as India order to promote exports of manufactures, the resulting boost in orders would compensate for lower volumes in Europe.

It is at such a time that the Second India-China Strategic Economic Dialogue has taken place in Delhi on November 26, with nearly 200 senior officials and businesspersons attending on each side.

The dialogue has created a mechanism to take trade between China and India forward, so that the advantages of geographical proximity, civilizational congruence and mutual economic synergy can get better tapped.

Hopefully, those in other countries who wish to see a gulf developing between China and India will be disappointed, so that their own selfish interests in both countries can be served.

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