Chindia: A cooperation between two giants

The expanding relationship between China and India will be a defining trend in Asia for years to come, according to Aneish Kumar and SW Chu of Bank of New York.
As the worldÆs largest developing nations, China and India continue to fuel AsiaÆs economic growth, which the Asia Development Bank estimates at 7.2% for 2006. The rise of these two giants within the global economy has led to healthy competition between the two countries. But as their economies emerge, they also are finding common ground from which to cooperate.

Increasingly, regional, political, economic, and business leaders are pointing out that Sino-India relations are at their best and getting even better. The extent to which China and India can strengthen and expand cooperation will be a key factor in their ability to succeed in the global marketplace.

Aneish Kumar and SW Chu, based in Bank of New York offices in India and China respectively, have been long watching the changing dynamic towards cooperation from on the ground. They offer their perspectives on where cooperation is taking place, the implications of these developments, and what the future might hold.

Why is cooperation beneficial to China and India?

Kumar: What makes cooperation powerful is that each country complements the otherÆs strengths. Collaborating in areas of complementary strength mutually enhances competitiveness.

Chu: We see this pattern of complementing strengths emerge on multiple levels in the areas of sourcing, selling, and investing. The information technology (IT) industry is one area where weÆve been witnessing it. The Chinese excel at hardware manufacturing, while IndiaÆs strength is software development. The two countries have been working together to build synergies.

Where is cooperation between India and China happening today?

Kumar: Among recent developments, the two countries have engaged in a rapid increase in bilateral trade. In the past, India feared being inundated with Chinese imports. Bilateral trade has grown from less than $1 billion ten years ago to $14 billion today and should more than double in the next five years. Most recently, the two governments have set a target for 2010 of $50 billion in bilateral trade. China would surpass the U.S. to become IndiaÆs largest trading partner if the two countries were to reach this goal.

Chu: In bilateral trade the countries complement each other where they have natural resource shortages. For example, China imports commodities such as iron ore and other mining products from India and exports coal-related products to India. Both trade flows support the iron and steel industries. There is also some import of raw materials to add value for re-export.

What are the near-term opportunities for expanding cooperation?

Kumar: There are opportunities not only to source and sell as trading partners but also to leverage respective manufacturing strengths to jointly explore growing markets in the region. For example, IndiaÆs comparative advantage lies in complex, integral manufacturing, whereas China has mastered standardised design and mass production.

Human resources is another area of opportunity. ChinaÆs demand for software educational services represents a significant opportunity for Indian IT training companies. Sharing experience in vocational training at the university level also could be of mutual advantage.

Chu: We are witnessing an increase in infrastructural projects. China has spent 40% of its annual GDP on infrastructureùcompared to 19% by Indiaùresulting in a world-class system of roads, airports, ports, and urban development. Chinese companies have gained expertise that could be successfully applied to India.

More generally, a number of Chinese firms have established a physical presence in India over the last decade, as have Indian companies planted roots in China. These include companies operating in software development, telecommunications, pharmaceuticals, and banking.

What recent developments evidence the move towards expanded collaboration?

Kumar: Both countries agree that their relations have acquired strategic importance. China and India have agreed to promote cooperation in many disciplines, including: education, science, technology, healthcare, dairy development, information, tourism, youth exchange, and sports.

A number of initiatives are building on this agreement. For example, a joint study group has recommended a regional trading arrangement for identified sectors. China and India also plan to enhance direct air and shipping links, as well as tourism. In the area of science and technology, a joint steering committee will be consulting on how to mutually recognise academic degrees and qualifications.

Indian and Chinese banks are also following their corporate customers across the border. Foreign banks such as The Bank of New York are advancing the process by providing information, financing, matchmaking and transactional services to companies interested in taking advantage of this trend.

What are the challenges to furthering cooperation?

Chu: Of course there are challenges to broadening economic cooperation, including differences in business practices; market conditions; legal, regulatory and tax environments; as well as language and cultural differences. India and China can overcome these concerns.

The private sector in both countries is actively pursuing business ventures, and both governments are establishing policies for tax, customs, border trade, and travelùas well as investment guidance and incentivesùthat facilitate further expansion of the relationship.

A key challenge has been mutual suspicion. As this dissolves, investment between the two countries can substantially increase. There is an effort underway for increased cultural exchange. China is establishing a Confucian College at a leading Indian university, and a similar center for Indian studies is intended for China.

What might the future hold?

Chu: China and India have agreed to reopen border trade at historic Nathu La after a 40-year hiatus. The route will cater to trade between Sikkim, Tibet, and the rest of China and India.

How will the two countries develop the infrastructure to facilitate expanded trade and investment? Perhaps the newly completed railroad between Beijing and Tibet will extend to India, or a highway could connect the countries. Will we see an oil pipeline from Russia or the Middle East that connects India and China? The reopening of the South Silk Road symbolises the next phase of development.

Kumar: The concept of æChindiaÆ is emerging as an intriguing possibility. With 40% of the worldÆs population, Chindia represents the worldÆs second largest economy with an estimated 20% of global GDP. The two economies will account for up to 50 % of global consumption of basic commoditiesùincluding 35% of incremental global demand for energy. Combined, China and India will be the largest worldwide producers and consumers of coal, steel, cement, and non-ferrous materials. Technical and managerial skills in both countries are becoming more prized than cheap labor. Chindia will compete on a broad spectrum of low- and high-value-added goods and services.

The expanding cooperative relationship between China and India will be a defining trend in Asia for years to come.
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