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Indo China Bilateral Economic Relations Role In Asean Economics Essay

In the present era trade has come to be a dynamic factor in relations between nations. Trade is not limited only to commodities but embraces various factors of nations. This has not only since overtaken the pace of political confidence-building but also has a substantial impact on their mutual perceptions. This boom in trade has also introduced new trends. The two states (India &China) are no longer only recipients of foreign direct investment but have entered into a new phase of bilateral trade in the region. In this new context, the increasing deficit in the energy sector and the competition to capture new markets present major challenges to sustaining this boom in their bilateral trade. In this paper the bilateral trade relations have been measured and the role of the two economies in the Asian region has been presented. The bilateral trade between the two nations in context of an emerging trading block ASEAN (Association of South East Asian Nations) has also been reviewed in the study.

Apart from the bilateral trade between India and China, we need to focus on the historical background of trade relations of both the countries. In the past trade relations between India and China were not very good. Another factor which has significance and can exert an impact on the India -ASEAN relations is the China Factor .Initially, India’s involvement in East Asia was a cause for concern for China. “The Chinese leadership viewed India’s rise and engagement with Southeast Asia with a measure of apprehension. They were worried that it would allow New Delhi to win recognition as a political and military power in Asia, and that the US might manipulate India’s evolving relations with ASEAN to contain China.

“From the Indian perspective, it needs to divert its trade and economic ties away from its traditional trade partners, such as the European Union and the United States, growing influence in Southeast Asia. In the Cold War era, India perceived China as a dangerous country because of its high military expenditure and ambitious plans in this field. With the emergence of China as an economic dynamo, with increasing trade linkage and cooperation with ASEAN, the same has been another motivating force for India to enhance its own linkage with ASEAN countries. However, India’s engagement with ASEAN is geopolitically motivated and only a part of its Look-East policy.

From the perspective of ASEAN member, India has the potential to be an alternative market, a source of capital, professionals, and technology to rival China. On ASEAN’s part, developing relations with India is also to balance its relations with big powers to promote peace, stability and prosperity in Southeast Asia. Based on this and other reasons, ASEAN’s current policies are not likely to change: the development of its relations with US, China, and Japan will remain ahead of its relations with India. 1&2

As China’s perceptions and policies towards multilateralism changed from being cautious to being confident, China began to view India as a new contributor to East Asian cooperation, strengthening the trend of multi-polarity in Asia and Asia-Pacific. Nevertheless, differences in perceptions and interests are apparent in the recent times between China and India mutually and in their ties with ASEAN. The geo-political factors and simultaneous rise of China and India have made them competitors for ASEAN’s favors: from visible trade and investment for their domestic modernization to invisible cooperation and support for their increasing international influence.3

China wants itself to be seen as an economic powerhouse. To gain confidence and to build trust among the Asian countries Chinese Premier Wen Jiabao, said in a speech during the last ASEAN Summit that "China will continue to seek peace and development through cooperation and will strive to achieve development that will bring about peace, openness, cooperation and harmony as well as benefit to it and other countries".4

Despite the remarks of the Chinese Premier some analysts are of the opinion that China preferred a smaller Asian grouping (without U.S., India, Australia and New Zealand) that can integrate quickly on the economic front and which China can influence more significantly. Perhaps it is this increasing influence of China and its motives that had prompted countries like Singapore and Indonesia to cooperate with India, Australia and New Zealand into the EAS (East Asian Summit).5

REVIEW OF LITERATURE:

Several studies have been undertaken using the concept of revealed comparative advantage. A majority of these studies use data on comparative study of ASEAN region between India and China.

According to the Article (1) “India and China's Institutional Engagements with ASEAN: A Comparison” by Dr. Vibhanshu Shekhar, Research Associate, School of International Studies, Jawaharlal University.

The discussion in the study is over institutional engagement covers two time-frames. These are - the formative phase (1992-2001) and the Summit Phase (2002 onwards). Three institutional engagements can be identified through which both India and China have been proactively engaged with ASEAN. These are ASEAN Regional Forum (ARF), ASEAN+1 Framework (summit level meetings between ASEAN and India and ASEAN and China), and the East Asia Summit.

Notwithstanding simultaneous entry of India and China into ASEAN, and India's diplomatic edge due to prevailing 'China-threat theory,' this study also mentions that India was not a confident player during the first phase of its engagement with ASEAN, which can be termed as a 'phase of experimentation, confidence building, and learning.' The Indian economic policies were largely protectionist and it failed to offer any viable option in time of economic crisis facing ASEAN in the late 1990s.6

(2)ASEAN's Economic Relations with India and China: Beyond the FTA's

Debashis Chakraborty Dr. Debashis Chakraborty, Assistant Professor, Indian Institute of Foreign Trade

This article clearly gives useful insights on India –ASEAN FTA. India has begun pursuing a full-fledged regional trading agreements (RTA) approach since 2004. However, India does not stand to gain too much economically from ASEAN-India FTA because of the already low tariff levels maintained by ASEAN with respect to India. Being part of an FTA with ASEAN would also offer India greater bargaining power at multilateral negotiations by tying with partner countries through regional commitments. An important aspect of India's approach towards the FTA is its inclusion of a shorter negative list of goods than China. This element highlights a soft approach followed by India towards the FTA. It is also possible to perceive China's inclusion of a larger negative list as an example of its superior negotiating capabilities as compared to India. This article shows a perfect comparative view of INDIA, CHINA & ASEAN.7

(3) INDIA-ASEAN RELATIONS ANALYSING REGIONAL IMPLICATIONS by MOHIT ANAND Former Research Officer, IPCS, New Delhi

This study indicates that the India has shared a close relationship with ASEAN countries since the time of its independence. It started expanding its influence in the Southeast Asian region during the 1950s by supporting the Indonesian struggle for independence and involving itself in the Indochina crisis in the 1960s. This paper presents India’s role in the ASIAN region. India also signed friendship treaties with Indonesia, Myanmar and the Philippines and consolidated its bilateral and diplomatic relations with them. However, with the signing of an “India- Soviet Peace and Friendship Cooperation Treaty”, relations between India and ASEAN took a downturn.

Through the 1980s, relations between India and ASEAN were uncertain and plagued by various political and diplomatic differences which resulted in a compromise of economic relations between them. However, with the collapse of the Soviet Union, India embarked on re-orienting its foreign policy priorities. India initiated its Look-East policy and began reviving its economic relations with Southeast Asia. ASEAN too realized the importance of India as the third-largest economy in Asia and an emerging regional power and saw its significance for ASEAN’s political and economic future. The growing complementarily of views led to the acceptance of India as ASEAN’s sectoral partner in early 1992 and its full dialogue Partner in July 1996.8

(4) ASEAN- INDIA ECONOMIC RELATIONS: CURRENT STATUS AND FUTURE PROSPECTS by Rahul Sen, Mukul G. Asher and Ramkishen S. Rajan

This article presents a roadmap called “Vision 2020” which is expected to be adopted at the Third ASEAN-India Summit in Laos in 2004 (Gaur, 2003). Issues of importance to both the sides like, undertake common efforts to help fight international terrorism and transnational crime, particularly the trafficking of drugs, weapons and humans have been mentioned. The significant complementarities that exist between ASEAN and India which can only be realized if and when these ideological and informational blinders are lifted have been presented in the article.9

OBJECTIVES OF THE STUDY:

The key objectives of the study are

To compare and contrast the high growth rates in the two countries i,e. India and China regarding bilateral trade and

To assess the likely outcomes and impact of bilateral trade in the ASEAN trading block.

RESEARCH METHODOLOGY:

Study is descriptive in nature. Basically secondary data sources will be taken into consideration. In this paper secondary data is been collected from Books, magazines and websites.

INDO-CHINA (Bilateral Trade Relations)

In this section the bilateral trade of both the countries is presented and the business dimension has been studied. At the outset it can be said that the India –China trade has travesed through many stages the trade relation initiating at a very slow pace was only a few million dollars in post 1962 era, then stabilized and was at reasonable margins for much of 1980s. The consideration of the present situation indicates that it can be said that the trade relations have come to occupy the center stage of the two nations’ interactions. Though India has made well-publicized progress in technical and business education in the past twenty to thirty years, China has not held back. Starting more recently, the level and pace of investment have been breathtaking.  However there are significant differences in the approach.  Where India has developed through its internal resources, China has undertaken rapid transfer of best practice and has adapted this quickly to the Chinese culture.  Additionally the spread of best practice has affected a very wide range of sectors of the economy.” 10

In the bilateral trade of both the countries there are various commodities traded between the two nations. the major items of export from India to China are iron ore, plastic and linoleum, marine products, cotton yarn and fabrics, organic and inorganic chemicals, dye intermediates, drugs and pharmaceuticals, tobacco and tea, construction quality wire rods while China’s exports to India include items like raw silk and silk yarn, some types of chemicals, pulses, coal, mercury and antimony, newsprint freshwater pearls, pig iron and several low-technology consumer items. These are the major commodities traded between the two nations. Apart from commodity trade many new sectors have also evolved as medium of trade between India and China. Sectors like technology, border trade are also being explored while sectors like infrastructure and real estate development, and information technology are already main areas of trade and co-operation between the two nations. 11&12

To encapsulate the senario of trade it can be said that there are positive trends seen in the bilateral trade between the two nations. These trends have been shaped due to trade conducive economic reforms undertaken at both ends. Both nations are constantly on the look out of new business partners. However it can be mentioned that the complicated political equations and strategies followed by both the nations have come to slow down the enthusiasm at both ends.

Bilateral trade between India and China (for last five year)-

In the following table last five year trade data for bilateral export (Growth in Export) and bilateral import (Growth in Import) between India and China has been shown

Bilateral trade between India and China (for last five year)- Values in US $ Millions

2006-07

2007-08

2008-09

2009-10

2010-2011

Value

Share%

Value

Share%

Value

Share%

Value

Share %

Value

Share %

India's Total Export from China

126,414.05

6.58

163,132.18

6.66

185,295.36

5.05

178,751.43

6.5

251,135.89

7.81

India's Total Import from China

185,735.24

9.41

251,654.01

10.79

303,696.31

10.7

288,372.88

10.69

369,769.13

11.76

India's Total Trade

312,149.29

8.26

414,786.19

9.17

488,991.67

8.56

467,124.31

9.09

620,905.02

10.16

India's Trade Balance

-59,321.19

-88,521.83

-118,400.95

-109,621.45

-118,633.24

.

Source: - Government of India (Published data) Ministry of Commerce and industry, Dept.of Commerce.

In terms of bilateral trade between India and China, we showed India’s Export / Import and total trade balance. It is clear that India’s total trade has continuously increased from 8.26% to 10.16% in 2006-07 to 2010-11, but trade balance is negative which shows that India’s Import status is higher than Export, which should not be repetitive. Apart from this the two nations need to look into the fact that the bilateral trade should form a higher percentage of their total trade respectively.

In the next part shows the key commodities of trade between the two nations have been presented over a time period of five years. India’s exports to China include cotton, chemicals iron and steel, plastic and articles thereof. Indian cotton is the key commodity of export. Apart from this iron and steel is also exported to the increasing demand of the same caused by huge infrastructural development in China. The Indian exports have been shown in the table below and the line diagram clearly depicts the trends of exports.

Commodity wise India’s Export to China data

(Values in US $ Millions)

Commodity

2006-2007

%Growth

2007-2008

%Growth

2008-2009

%Growth

2009-2010

%Growth

2010-2011

%Growth

COTTON.

757.90

47.25

1,092.47

44.14

391.25

-64.19

1,265.67

223.50

1,896.10

49.81

INORGANIC CHEMICALS; ORGANIC OR INORGANIC COMPOUNDS OF PRECIOUS METALS, OF RARE-EARTH METALS, OR RADI. ELEM. OR OF ISOTOPES.

352.95

7.39

156.91

-55.54

212.72

35.57

109.99

-48.29

169.64

54.23

IRON AND STEEL

478.48

12.65

223.83

-53.22

361.03

61.30

307.14

-14.93

1,106.13

260.13

PLASTIC AND ARTICLES THEREOF.

429.91

57.01

231.27

-46.21

146.23

-36.77

312.22

113.52

387.14

24.00

TOBACCO AND MANUFACTURED TOBACCO SUBSTITUTES.

1.66

185.24

2.11

27.45

1.80

-14.70

1.12

-37.68

0.62

-45.00

Source: - Government of India (Published data) Ministry of Commerce and industry, Dept.of Commerce.

The Indian Imports have been shown in the table below and the line diagram clearly depicts the trends of Imports.

Commodity wise India’s Import data

(Values in US $ Millions)

Commodity

2006-2007

%Growth

2007-2008

%Growth

2008-2009

%Growth

2009-2010

%Growth

2010-2011

%Growth

MINERAL FUELS, MINERAL OILS AND PRODUCTS OF THEIR DISTILLATION; BITUMINOUS SUBSTANCES; MINERAL WAXES.

1256.35

74.26

1295.01

3.08

1,275.64

-1.50

382.36

-70.03

654.3

71.12

ORGANIC CHEMICALS

1709.1

30.41

2383.55

39.46

2821.01

18.35

3009.97

6.7

3853.42

28.02

ARTICLES OF IRON OR STEEL

1005.24

416.6

1459.02

105.03

1724.03

18.16

814.44

-52.76

1986.38

143.89

NUCLEAR REACTORS, BOILERS, MACHINERY AND MECHANICAL APPLIANCES; PARTS THEREOF.

3252.68

50.43

4832.39

48.57

5509.7

14.02

6173.98

12.06

7699.90

24.72

ELECTRICAL MACHINERY AND EQUIPMENT AND PARTS THEREOF; SOUND RECORDERS AND REPRODUCERS, TELEVISION IMAGE AND SOUND RECORDERS AND REPRODUCERS,AND PARTS.

4246.96

53.11

7636.05

79.8

9996.37

30.91

9667.06

-3.29

11857.72

22.66

Source: - Government of India (Published data) Ministry of Commerce and industry, Dept.of Commerce

India and China-The ASEAN Factor

After analyzing the bilateral trade situation this section presents a picture of India, china and their role and impact in trade with ASEAN. As revealed from the study the ASEAN – India relations have come a long way since their turbulent Cold War phase. The 1990s have seen a distinct rise in their interaction along with firm measures to integrate and cooperate in the economic as well as political spheres. Their partnership has progressed from a sectoral dialogue partnership to a summit level interaction within a decade i.e. 1992-2002 and is growing in the present times. With the ASEAN – India FTA in the offering, it can be remarked that this partnership only stands to be further strengthened. There is a clear sense that ASEAN intends to integrate the East Asian region into one consolidated regional block and it is certain of the importance, of having India as a part of it. ASEAN sees India as an emerging power in Asia and is keen to develop relations with it that would be beneficial to countries within ASEAN and to the region as a whole. It realizes that India possesses large strategic capabilities and can be a strong stabilizing force in the region. Economically, India, with its burgeoning middle class, can be a significant market for ASEAN manufactures and consequently, an important source of welfare for the region.13

On the other hand China is Southeast Asia’s largest trading partner, but now it has some competition. In 2009, India ran a larger trade deficit with ASEAN than China, despite the fact that China’s total trade with the grouping was almost five times India’s. As result of the significant narrowing of China’s trade deficit with ASEAN in recent years, its direct contribution to ASEAN growth has diminished. A narrowing deficit reflects an increase in Chinese-made manufactured products entering ASEAN markets, as well as China’s weakening demand for ASEAN-made components of manufactured products.14

In India’s case, faster economic growth in recent quarters and demand for raw materials have led to a considerable increase in imports from ASEAN. Given India’s lack of natural resources and the fact that its manufacturing sector will take years to develop, India may well replace China as a key source of export growth for ASEAN countries.15

Because India runs a larger trade deficit with ASEAN than China, it actually made a greater contribution to ASEAN growth in 2009 via trade in goods. Hence, on a net basis, ASEAN is selling more to India than to China. This is not to dismiss China’s importance — after all, its trade with ASEAN is still five times larger than India-ASEAN trade. Instead, it highlights India’s growing importance as a driver of growth in emerging markets.16

While financial markets in the emerging world react primarily to China’s economic data, India’s economic performance will play an increasingly important role as ASEAN countries seek to diversify their growth drivers. While manufacturers in Thailand and Malaysia are worried about the competitive threat of China’s exports, South Asia may offer new opportunities as India seeks to develop its manufacturing industries.

CONCLUSIONS:

Globalization presents us with threats and opportunities simultaneously, and the growth of China and India is a significant factor in this.  Partly through the influences of GATT/WTO and partly through advances in technology, primarily information technology, most organizations have easier access to markets than in the past.  This means inevitably that our own regional markets are also open to increased competition. The concept of globalization goes further than the product/market dimension 17

In the world scenario China and India have emerged as two unique players showcasing a combination of massive development and growth in GDP on the one hand and poverty, low per capita income showing inequality in distribution of income and wealth on the other. This unique combination raises many questions about the position of the two nations in the world economic trends. It can be however stated that both have made reasonable regional impact in trade and decision making. Their bilateral relations have also traversed in the region which has helped in the trade development of many nations in the Asian region.

It may be mentioned that there is a lot that ASEAN can gain from India’s and China’s development in its service sector and it looks to develop wide ranging economic partnerships with them. India understands that the ASEAN grouping consists of countries which have achieved significant development in the past 20 years. It is in its interest to establish beneficial linkages with the countries to benefit from their past experience and current standing. There is large potential in the synergies between its economy and that of the ASEAN countries and is keen to strengthen its economic ties with them.

ASEAN’s strategic location makes its stability crucial for India’s energy and economic security, and it looks to develop its influence in the region by forging vital ties with ASEAN. The ASEAN-India partnership holds ample potential for a successful future. As things stand, it is evident that both India and ASEAN are keen to establish a strong relationship with a long-term emphasis on greater cooperation and integration, apart from the strengthening of economic and strategic ties. While there are definite challenges to be addressed before achieving a consolidated East Asian Community, it can be seen that conscious efforts are being made on both the sides in developing and promoting synergies for the shared prosperity and mutual benefit of India, ASEAN and the Asian region at large. It is understood that this would bring about prosperity in the region. Hence it can be said that in the context of the study India –ASEAN partnership will also bear fruits of benefit for the bilateral relation between India and China and for the ASIAN region at large and as the it is rightly said that PATIENCE BRINGS REWARD all the parties need to understand this to foster regional prosperity.

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