PROJECT REPORT

ON

“INDIA CHINA TRADE RELATIONS

AND PERCEPTION OF INDIAN

PEOPLE’S”

Submitted in partial fulfillment of the requirement for the degree of

MASTERS OF BUSINESS ADMINISTRATION

SUBMITTED TO:-

PUNJAB TECHINCAL UNIVERSITY,

JALANDHAR

SUBMITTED BY:

Pardeep Sharma

MBA(4th Sem.)

Roll No.7116223083

RIMT-IMCT ,MANDI GOBINDGARH

1

CERTIFICATE

This is to certify that Mr. Pardeep Sharma has completed her project report titled

“INDIA CHINA TRADE RELATIONS AND PERCEPTION OF INDIAN

PEOPLE’S” under my supervision. To the best of my knowledge and belief this is his

original work and this, wholly or partially, has not been submitted for any degree of this

or any other University.

Date: Mr. G.P.S.Bakshi

(Prof. RIMT-

IMCT)

2

DECLARATION

I hereby declare that this project work entitled INDIA CHINA TRADE RELATIONS

AND PERCEPTION OF INDIAN PEOPLE’S is my work, carried out under the

guidance of my guide MR. G.P.S.Bakshi . My report neither fully nor partially has ever

been submitted for award of any other degree to either this university or any other

university.

PARDEEP SHARMA

3

ACKNOWLEDGMENT

Heartfelt thanks to those who support me……………

“If words are considered as symbol of Approval and Taken of appreciation then let the

words play the heralding role of expressing my sincere gratitude and thanks”.

Any accomplishment requires the effort of many people and this work is no different. I

am indebted to Prof .G.P.S Bakshi ( RIMT-IMCT) for whose guidance and patience I

would have not been able to accomplish this task.

My topic of the report is “India china trade tade relations and Perception of Indian people’s” I thoroughly enjoyed with many fine people of Chandigarh. I have tried to collect secondary as well as primary data for my research project.

I appreciate the contribution of each and hope that I have accurately incorporated their considerable knowledge.

Last but not the least I am also thankful to my parents and friends who provided me with their full cooperation for successfully completion of my project.

And I thank “The Almighty” who is always with me

Pardeep Sharma

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PREFACE

I am lucky that I got an opportunity for making the project report on India China trade

relations and perception of the Indian people’s from my own interest. This study has

been carried out to study the present Scenario of India china trade, and different

patterns of India china trade relations. Goldman sachs a famous Economist has

argued that the economic potential of Brazil, Russia, India, and China is such that

they may become among the four most dominant economies by the year 2050. The

thesis was proposed by Jim O'Neill, global economist at Goldman Sachs. These

countries encompass over twenty-five percent of the world's land coverage, forty

percent of the world's population and hold a combined GDP (PPP) of 15.435 trillion

dollars. On almost every scale, they would be the largest entity on the global stage.

These four countries are among the biggest and fastest growing Emerging Markets.

He has used word BRIC nations for this and my aim is to know the emerging trade

relations between the two Asian giants.However, it is important to note that it is not

the intent of Goldman Sachs to argue that these four countries are a political alliance

(such as the European Union) or any formal trading association, like ASEAN.

Nevertheless, they have taken steps to increase their political cooperation, mainly as a

way of influencing the United States position on major trade accords, or, through the

implicit threat of political cooperation, as a way of extracting political concessions

from the United States, such as the proposed nuclear cooperation with India.

I visited the various concerns for the preparation my project report on the topic

“INDIA CHINA TRADE RELATIONS AND PEOPLE’S PEREPTION” and the

study is divided into various chapters to get knowledge OF various aspects of trade

relations.

5

I also considered some published material as secondary data as well as primary data

on the particular topic as well as about the concern. This helps me in boosting up my

confidence and determination for the accomplishment of my project. This report is

written account of what I learnt and experienced during our survey. I wish, those

going through it will not only find it readable but also get as useful information.

The main limitation that our experienced was that I did not get the full and correct

Information from the market, as many of the respondents did not answer to our

Questionnaire correctly completely.

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CONTENTS

TITLE CERTIFICATEDECLARATIONACKNOWLEDGEMENTPREFACE

1. INTRODUCTION TO THE STUDY 1-10

INTRODUCTION 1-3

TRADE HISTORY 3-10

2. ECONOMY OF CHINA AND INDIA 11-40

ESTABLISHMENT OF DIPLOMATIC RELATIONS 12-13 ECONOMY OF CHINA 14-26 ECONOMY OF INDIA 27-37 CONCEPT OF SPECIAL ECONOMIC ZONES 38-40

3. RESEARCH METHODOLOGY 41-43

4. SECONDARY DATA 44-63

5. DATA ANALYSIS AND INTERPRETATION 63-79

6. FINDINGS 80

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7 . BIBLIOGRAPHY 81

8. ANNEXURE 82-85

CHAPTER-1

INTRODUCTION TO THE STUDY

8

INTRODUCTION

Hardly a day passes without a newspaper article, television show, or Internet blog story

about the rise of China and India in the global economy. There are many reasons for

this public interest. Never before have such large economies—with a combined

population of 2.5 billion—grown so fast for so long: GDP growth in China averaged

9.1 percent over the last decade, and India averaged 6.percent. Some people are fearful:

Will China and India dominate the world economy? Will they consume the earth’s

scarce resources? Will they bid down wages elsewhere? Others are curious: Can China

and India sustain such impressive growth rates, especially in light of perceived

fragilities (China’s financial sector and India’s public debt being notable examples)?

Others seek lessons: Noting that neither China nor India is pursuing an “orthodox”

model of development, they want to know how these economies did it,and whether

there are lessons for other developing countries .Because of this heightened interest

among the general public, media coverage of China and India tends to emphasize the

human dimension—stories comparing a factory worker in China with a software

designer in India, interviews with foreign investors comparing the two countries’

prospects, or pictures contrasting the booming worlds of Shanghai and Mumbai with

abject poverty in rural China and India

This project considers the story from a different vantage point. By bringing to bear the

best available data and analytical tools, the study can provide answers that are much

more nuanced than the typical news story. To take one example, the study demonstrates

that, despite their similar size, the two Giants are not the same—China’s role in the

9

global economy is much greater than India’s, with important implications for other

countries China and India share at least two characteristics: their populations are huge

and their economies have been growing very fast for at least 10 years. Already they

account for nearly 5 percent and 2 percent of world gross domestic product (GDP),

respectively, at current exchange rates. Arguably, China’s expansion since 1978 already

has been the largest growth “surprise” ever experienced by the world economy; and if

we extrapolated their recent growth rates for half a century, we would find that China

and India—the Giants—were among the world’s very largest economies. Their vast

labor forces and expanding skills bases imply massive productive potential, especially

if they continue (China) or start (India) to invest heavily in and welcome technology

Inflows .Low-income countries ask whether there will be any room for them at the

bottom of the industrialization ladder, whereas high- and middle-income countries fear

the erosion of their current advantages in more sophisticated fields.

All recognize that a booming Asia presages strong demands, not only for primary

products but also for niche manufactures and services and for industrial inputs and

equipment. But, equally, all are eager to know which markets will expand and by how

much. Moreover, the growth of these giant economies will affect not only goods

markets but also flows of savings, investment, and even people around the world, and

will place heavy demands on the global commons, such as the oceans and the

atmosphere. This book cannot answer all these questions, but it contains six essays on

important aspects of the growth of the Giants that will, at least, aid thinking about

them. Its principal aim is to highlight some of the major implications of the Giants’

growth for the world economy and hence for other countries, drawing on new

research and on the burgeoning literature concerning China and India: it is about

dancing with the Giants without getting one’s toe steppedon.

Three study focus on the Giants’ interactions with other countries (via the evolution

of the industrial capabilities, their international trade, and the international financial

system.

10

INDIA CHINA TRADE HISTORY

China and India are separated by the formidable geographical obstacles of the Tibetan

Plateau and the Himalayan mountain chain, with Tibet serving as a buffer region

between the two. China and India today share a border along the Himalayas and

Nepal and Bhutan, two states lying along the Himalaya range, and acting as buffer

states. In addition, the disputed Kashmir province (jointly claimed by India and

Pakistan) borders both the PRC and India. As Pakistan has tense relations with India,

Kashmir's state of unrest serves as a natural ally to the PRC.

Two territories are currently disputed between the People's Republic of China and

India: Aksai Chin and Arunachal Pradesh. Arunachal Pradesh is located near the far

east of India, while Aksai Chin is located near the northwest corner of India, at the

junction of India, Pakistan, and the PRC. However, all sides in the dispute have

agreed to respect the Line of Actual Control and this border dispute is not widely seen

as a major flashpoint.

AFTER INDEPENDENCE

Jawaharlal Nehru based his vision of "resurgent Asia" on friendship between the

two largest states of Asia; his vision of an internationalist foreign policy governed by

the ethics of the Panchsheel, which he initially believed was shared by China, came

to grief when it became clear that the two countries had a conflict of interest in Tibet,

which had traditionally served as a geographical and political buffer zone, and where

India believed it had inherited special privileges from the British Raj.However, the

initial focus of the leaders of both the nations was not the foreign policy, but the

11

internal development of their respective states. When they did concentrate on the

foreign policies, their concern wasn’t one another, but rather the United States of

America and the Union of Soviet Socialist Republics and the alliance systems which

dominated by the two superpowers.

1950s

On October 1, 1949 the People’s Liberation Army defeated the Kuomintang

(Nationalist Party) of China in a civil war and established the People's Republic of

China. On August 15, 1947, India became an independent dominion under British

Commonwealth and became a federal, democratic republic after its constitution came

into effect on January 26, 1950. Mao Zedong, the Commander of the Liberation Army

and the Chairman of the Communist Party of China viewed Tibet as an integral part

of the Chinese State. Mao was determined to bring Tibet under direct administrative

and military control of People’s Republic of China and saw Indian concern over Tibet

as a manifestation of the Indian Government in the internal affairs of the People’s

Republic of China. The PRC sought to reassert control over Tibet and to end

Lamaism (Tibetan Buddhism) and feudalism, which it did by force of arms in 1950.

To avoid antagonizing the People's Republic of China, Nehru informed Chinese

leaders that India had neither political nor territorial ambitions, nor did it seek special

privileges in Tibet, but that traditional trading rights must continue. With Indian

support, Tibetan delegates signed an agreement in May 1951 recognizing PRC

sovereignty but guaranteeing that the existing political and social system of Tibet

would continue. Direct negotiations between India and the PRC commenced in an

atmosphere improved by India's mediation efforts in ending the Korean War (1950-

1953).

In April 1954, India and the PRC signed an eight-year agreement on Tibet that set

forth the basis of their relationship in the form of the Five Principles of Peaceful

Coexistence (or Panch Shila). Although critics called the Panch Shila naive, Nehru

12

calculated that in the absence of either the wherewithal or a policy for defense of the

Himalayan region, India's best guarantee of security was to establish a psychological

buffer zone in place of the lost physical buffer of Tibet. Thus the catch phrase of

India's diplomacy with China in the 1950s was Hindi-Chini bhai-bhai, which means,

in Hindi, "Indians and Chinese are brothers". Up until 1959, despite border skirmishes

and discrepancies between Indian and Chinese maps, Chinese leaders amicably had

assured India that there was no territorial controversy on the border though there is

some evidence that India avoided bringing up the border issue in high level meetings.

In 1954, India published new maps that included the Aksai Chin region within the

boundaries of India (maps published at the time of India's independence did not

clearly indicate whether the region was in India or Tibet).When an Indian

reconnaissance party discovered a completed Chinese road running through the Aksai

Chin region of the Ladakh District of Jammu and Kashmir, border clashes and Indian

protests became more frequent and serious. In January 1959, PRC premier Zhou Enlai

wrote to Nehru, rejecting Nehru's contention that the border was based on treaty and

custom and pointing out that no government in China had accepted as legal the

McMahon Line, which in the 1914 Simla Convention defined the eastern section of

the border between India and Tibet. The Dalai Lama, spiritual and temporal head of

the Tibetan people, sought sanctuary in Dharmsala, Himachal Pradesh, in March

1959, and thousands of Tibetan refugees settled in northwestern India, particularly in

Himachal Pradesh. The People's Republic of China accused India of expansionism

and imperialism in Tibet and throughout the Himalayan region. China claimed

104,000 km² of territory over which India's maps showed clear sovereignty, and

demanded "rectification" of the entire border.

1970s

In August 1971, India signed its Treaty of Peace, Friendship, and Cooperation with

the Soviet Union, and the United States and the PRC sided with Pakistan in its

13

December 1971 war with India. By this time, the PRC had just replaced the Republic

of China in the UN where its representatives denounced India as being a "tool of

Soviet expansionism."

India and the PRC renewed efforts to improve relations after the Soviet Union

invaded Afghanistan in December 1979. The PRC modified its pro-Pakistan stand on

Kashmir and appeared willing to remain silent on India's absorption of Sikkim and its

special advisory relationship with Bhutan. The PRC's leaders agreed to discuss the

boundary issue, India's priority, as the first step to a broadening of relations. The two

countries hosted each others' news agencies, and Mount Kailash and Mansarowar

Lake in Tibet, the mythological home of the Hindu pantheon, were opened to annual

pilgrimages from India.

1990s

As the mid-1990s approached, slow but steady improvement in relations with China

was visible. Top-level dialogue continued with the December 1991 visit of PRC

premier Li Peng to India and the May 1992 visit to China of Indian president R.

Venkataraman. Six rounds of talks of the Indian-Chinese Joint Working Group on the

Border Issue were held between December 1988 and June 1993. Progress was also

made in reducing tensions on the border via confidence-building measures, including

mutual troop reductions, regular meetings of local military commanders, and advance

notification of military exercises. Border trade resumed in July 1992 after a hiatus of

more than thirty years, consulates reopened in Bombay (Mumbai) and Shanghai in

December 1992, and, in June 1993, the two sides agreed to open an additional border

trading post. During Sharad Pawar's July 1992 visit to Beijing, the first ever by an

Indian minister of defence, the two defense establishments agreed to develop

academic, military, scientific, and technological exchanges and to schedule an Indian

port call by a Chinese naval vessel. .

14

The 1993 Chinese military visit to India was reciprocated by Indian army chief of

staff General B. C. Joshi. During talks in Beijing in July 1994, the two sides agreed

that border problems should be resolved peacefully through "mutual understanding

and concessions." The border issue was raised in September 1994 when PRC minister

of national defense Chi Haotian visited New Delhi for extensive talks with high-level

Indian trade and defense officials. Further talks in New Delhi in March 1995 by the

India-China Expert Group led to an agreement to set up two additional points of

contact along the 4,000 km border to facilitate meetings between military personnel.

The two sides also were reported as "seriously engaged" in defining the McMahon

Line and the line of actual control vis-à-vis military exercises and prevention of air

intrusion. Talks in Beijing in July 1995 aimed at better border security and combating

cross-border crimes and in New Delhi in August 1995 on additional troop

withdrawals from the border made further progress in reducing tensions.

Possibly indicative of the further relaxation of India-China relations, at least there was

little notice taken in Beijing, was the April 1995 announcement, after a year of

consultation, of the opening of the Taipei Economic and Cultural Center in New

Delhi. The center serves as the representative office of the Republic of China

(Taiwan) and is the counterpart of the India-Taipei Association in Taiwan; both

institutions have the goal of improving relations between the two sides, which have

been strained since New Delhi's recognition of Beijing in 1950.

.

2000s

With Indian President K. R. Narayanan's visit to China, 2000 marked a gradual re-

engagement of Indian and Chinese diplomacy. In a major embarrassment for China, the

17th Karmapa, Urgyen Trinley Dorje, who was proclaimed by China, made a dramatic

escape from Tibet to the Rumtek Monastery in Sikkim. Chinese officials were in a

quandary on this issue as any protest to India on the issue would mean an explicit

15

endorsement on India's governance of Sikkim, which the Chinese still hadn't recognised.

In 2002, Chinese Premier Zhu Rongji reciprocated by visiting India, with a focus on

economic issues. 2003 ushered in a marked improvement in Sino-Indian relations

following Indian Prime Minister Atal Bihari Vajpayee's landmark June 2003 visit to

China. China officially recognized Indian sovereignty over Sikkim as the two nations

moved toward resolving their border disputes. 2007 also witnessed a gradual

improvement in the international area when the two countries proposed opening up the

Nathula and Jelepla Passes in Sikkim which would be mutually beneficial to both

countries. 2007 was a milestone in Sino-Indian bilateral trade, surpassing the $10 billion

mark for the first time. In April 2005, Chinese Premier Wen Jiabao visited Bangalore to

push for increased Sino-Indian cooperation in high-tech industries. In a speech, Wen

stated "Cooperation is just like two pagodas (temples), one hardware and one software.

Combined, we can take the leadership position in the world." Wen stated that the twenty-

first century will be "the Asian century of the IT industry." The high-level visit was also

expected to produce several agreements to deepen political, cultural and economic ties

between the two nations. Regarding the issue of India gaining a permanent seat on the

UN Security Council, on his visit, Wen Jiabao initially seemed to support the idea, but

had returned to a neutral position on the subject by the time he returned to China. In the

South Asian Association for Regional Cooperation (SAARC) Summit (2005) China was

granted an observer status. While other countries in the region are ready to consider

China for permanent membership in the SAARC, India seems reluctant.

On July 6, 2006, China and India re-opened Nathula, an ancient trade route which was

part of the Silk Road. Nathula is a pass through the Himalayas and it was closed 44 years

prior to 2006 when the Sino-Indian War broke out in 1962. The initial agreement for the

re-opening of the trade route was reached in 2003, and a final agreement was formalized

on June 18th, 2006. Officials say that the re-opening of border trade will help ease the

economic isolation of the region.]In November 2006, China and India had a verbal spat

over claim of the north-east Indian state of Arunachal Pradesh. India claimed that China

was occupying 38,000 square kilometres of its territory in Kashmir, while China claimed

16

the whole of Arunachal Pradesh as its own. In May 2007, China denied the application

for visa from an Indian Administrative Service officer in Arunachal Pradesh. According

to China, since Arunachal Pradesh is a territory of China, he would not need a visa to

visit his own country. Later in December 2007, China appeared to have reversed its

policy by granting a visa to Marpe Sora, an Arunachal born professor in computer

science. In January 2008, Prime Minister Manmohan Singh visited China and met with

President Hu Jintao and Premier Wen Jiabao and had bilateral discussions related to

trade, commerce, defense, military, and various other issues.[citation needed] In July 2008, at

the 34th G8 summit in Japan, Hu Jintao and Manmohan Singh had a friendly meeting In

the wake of the 2008 Sichuan earthquake, India offered aid to help the earthquake victims

17

CHAPTER-2

ECONOMY OF INDIA

AND CHINA

18

ESTABLISHMENT OF DIPLOMATIC RELATIONS

China and India established diplomatic relations on April 1, 1950. India was the

second country to establish diplomatic relations with China among the non-socialist

countries. In 1954, Chinese Premier Zhou Enlai and Indian Prime Minister Nehru

exchanged visits and jointly initiated the famous Five Principles of Peaceful

Coexistence. Indian Prime Minister, Rajiv Gandhi's visit to China in December 1988,

facilitated a warming trend in relations. The two sides issued a joint statement that

stressed the need to restore friendly relations on the basis of the Panch Sheel and

noted the importance of the first visit by an Indian prime minister to China since

Nehru's 1954 visit. India China Economy agreed to broaden bilateral ties in various

areas, working to achieve a "fair and reasonable settlement while seeking a mutually

acceptable solution" to the border dispute.

Rajiv Gandhi signed bilateral agreements on science and technology cooperation, on

civil aviation to establish direct air links, and cultural exchanges. The two sides also

agreed to hold annual diplomatic consultations between foreign ministers, and to set

up a joint ministerial committee on economic and scientific cooperation and a joint

working group on the boundary issue. The latter group was to be led by the Indian

foreign secretary and the Chinese vice minister of foreign affairs. As the mid-1990

approached, slow but steady improvement in relations with China was visible. Top-

level dialogue continued with the December 1991 visit of Chinese premier Li Peng to

India and the May 1992 visit to China of Indian president Ramaswami Venkataraman.

Border trade resumed in July 1992 after a hiatus of more than thirty years, consulates

reopened in Bombay (or Mumbai in the Marathi language) and Shanghai in December

1992, and, in June 1993, the two sides agreed to open an additional border trading

post. Though, Rajiv Gandhi's visit to China in December 1988 is usually identified as

a turning point and break-through in India-China relations, it should also be noted that

many years of previous effort had a contribution to it.. In 1976, the two countries

19

decided to restore ambassadorial-level diplomatic ties after a gap of 15 years. The

next major step was foreign minister Vajpayee's visit to China in February 1979 The

first high-level visit between the two countries since 1960. In 1984 India & China

signed a Trade Agreement,providing for Most Favoured Nation Treatment. In 1994

the two countries signed the agreements on avoiding double taxation. Agreements for

cooperation on health and medical science, MOUs on simplifying the procedure for

visa application and on banking cooperation between the two countries have also been

signed.

The Chinese economy was decentralized in 1978 and major economic reforms were

introduced which created conditions for rapid economic growth and structural

changes in China. In 1980, China's share in world trade was less than one percent, and

it started permitting foreign direct investment (FDI). In 1999, China had grown to

become the world's second largest economy after US in terms of GDP. The high

growth rate of China is attributed to high levels of trade and greater investment effort.

Strong exports growth from China has helped push China's economy to 9.1% growth

rate in 2003-2007. China is the world's second largest recipient for FDI with total FDI

inflows crossing US $ 53 billion in 2003. Growth in Special Economic Zones (SEZ)

has also helped China increase its productivity.

20

ECONOMY OF CHINA

Market liberalization in the Chinese Economy has brought its huge economy forward

by leaps and bounds but rural China still remains poor, even as its cities increase in

affluence. China economy is huge and expanding rapidly. In the last 30 years the rate

of Chinese economic growth has been almost miraculous, averaging 8% growth in

Gross Domestic Product (GDP) per annum. The economy has grown more than 10

times during that period, with Chinese GDP reaching 3.42 trillion US dollars by 2007.

In Purchasing Power Parity GDP, China already has the biggest economy after the

United States. Most analysts project China to become the largest economy in the world

this century using all measures of GDP.

However, there are still inequalities in the income of the Chinese people, and this

income disparity has increased in the recent times, in part due to a liberalization of

markets within the country. The per capita income of China is only about 2,000 US

dollars, which is fairly poor when judged against global standards. In per capita income

terms, China stands at a lowly 107th out of 179 countries. The Purchasing Power Parity

figure for China is only slightly better at 7,800 US dollars, ranking China 82nd out of

179 countries.

Economic reforms started in China in the 70s and 80s. The initial focus of these reforms

was on collectivizing the agricultural activities of the country. The leaders of the

21

Chinese economy, at that point in time, were trying to change the center of agriculture

from farming to household activities. At later stages the reforms extended to the

liberalization of prices, in a gradual manner. The process of fiscal decentralization soon

followed.

As part of the reforms, more independence was granted to the business enterprises that

were owned by the state government. This meant that government officials at the local

levels and the managers of various plants had more authority than before. This led to

the creation of a number of various types of privately held enterprises within the

services sector, as well as the light manufacturing sectors. The banking system was

diversified and the Chinese stock markets started to develop and grow as economic

reforms in China took hold.

The economic reforms made in China in the 70s and 80s had other far reaching effects

as well. The sectors outside the control of the state government of China grew at a rapid

pace as a result of these reforms. China also opened its economy to the world for the

purposes of trade and direct foreigninvestment. China has adopted a slow but steady

method in implementing their economic reforms. It has also sold the equity of some of

the major Chinese state banks to overseas companies and bond markets during the

middle phase of the first half of the 21st century. In recent years the role played by

China in international trade has also increased. PRC- people’s republic of China, is the

largest country in East Asia and the most populous in the world with over 1.38 billion

people.(20% of world’s population)

It is a socialist republic ruled by the Communist Party of China under a single-party

system and has jurisdiction over twenty-two provinces, five autonomous regions, four

municipalities, and two largely self-governing Special Administrative Regions. China's

importance in the world today is reflected through its role as the world's third largest

economy nominally (or second largest by PPP) a permanent member of the UN Security

Council as well as being a member of several other multilateral organizations including

22

the WTO, APEC, East Asia Summit.

Collectivization of the agriculture was dismantled and farmlands were privatized to

increase productivity A wide variety of small-scale enterprises were allowed to flourish

while the government relaxed price controls and promoted foreign investment. Foreign

trade was focused upon as a major vehicle of growth, which led to the creation of

Special Economic Zones (SEZs) first in Shenzhen (near Hong Kong) and then in other

Chinese cities

Nominal GDP from 1952 to 2005

23

Statistics GDP (Nominal) (2007) $3.42 trillion (ranked 3rd)

GDP (PPP) (2008) $7.8 trillion (ranked 2nd)

GDP per capita (Nominal 2008: $3,180 (ranked 104th)

GDP per capita (PPP) (2008) $6,100 (ranked 105th)

GDP growth rate (2008) 9.0% (official data

GDP by sector (2008) agriculture (primary) (11.3%) industry (secondary) (48.6%)

services (tertiary) (40.1%) note: industry includes construction (5.5%)

GDP by components, % (2006) Private consumption (36.4)

Government consumption (13.7)

Gross fixed investment (40.9

Exports of goods/services (39.7

Imports of goods/services (-31.9)

Interest rates (2007-12-20) One-year benchmark deposit rate: 4.14% One-year lending

rate: 7.47%

Inflation rate (CPI) 4.9% (CPI: 8.7%, Feb 07 - Feb 08)

Population below poverty line (2007) 10%

Labor force (2008) 807.7 million

Labor force by occupation (2006) agriculture (43%), industry (25%), services (32%)

Unemployment rate (2006) 4.3% (official); 17% (unofficial)

Industrial production growth rate (2006) 22.9%

Main industries:: mining and ore processing, iron, steel, aluminum, andther metals,

coal; machine building; armaments; textiles and apparel; petroleum; cement;

chemicals; fertilizers; consumer products, including footwear, toys and electronics;

food processing; transportation equipment, including automobiles, rail cars and

locomotives, ships, and aircraft; telecommunications equipment, commercial space

launch vehicles, satellites

Public debt (2006) 22.1% of GDP

External debt (2006) $315 billion

24

Since economic liberalization began in 1978, the PRC's investment- and export-led

economy has grown 70 times bigger The primary, secondary, and tertiary industries

contributed 11.3%, 48.6%, and 40.1% respectively to the total economy It is a member

of the WTO and is the world's third largest trading power behind the US and Germany

Its foreign exchange reserves have reached US$1.9 trillion, making it the world's

largest. The PRC's success has been primarily due to manufacturing as a low-cost

producer.

This is attributed to a combination of cheap labor, good infrastructure, medium level

of technology and skill, relatively high productivity, favorable government policy, and

some say, an undervalued exchange rate yuan having been de-pegged and risen in

value by 20% against the US dollar since2005 The state still dominates in strategic

"pillar" industries (such as energy and heavy industries), but private enterprise (30

million private businesses now accounts for approximately 70% of China's national

output, up from 1% in1978 Its stock market in Shanghai (SSE) is raising record

amounts of IPOs and its benchmark Shanghai Composite index has doubled since

2005 SSE's market capitalization reached US$3 trillion in 2007 and is the world's fifth

largest exchange. China now ranks 34 in the Global Competitiveness Index.. The

PRC's growth has been uneven when comparing different geographic regions and rural

and urban areas The urban-rural income gap is getting wider in the PRC. Development

has also been mainly concentrated in the eastern coastal regions while the remainder of

the country are left behind The economy is also highly energy-intensive and inefficient

– it uses 20% 100% more energy than OECD countries for many industrial processes.

It has now become the world's second largest energy consumer behind the US but

relies on coal to supply about 70% of its energy needs

25

ANNUAL FDI FLOWING IN TO CHINA

INTERPRETATION:

The above graph represents that the annual FDI inflow in to china has increased since

1993. It was 34 billion dollar in 1993 and it has increased to 75 billion dollar in 2007.

26

Recently released statistics from China's customs authorities reveal that Sino-Indian

trade in the first seven months of 2006 has reached $13.6 billion, up 27 per cent from

the same period the previous year. It is thus widely expected that the trade target set

during Chinese Premier Wen Jiabao's visit to India in April 2005, of $20 billion by

2008, will be met by theend of this year itself. Indeed, since the start of the new

century, every ambitious target set for bilateral trade has proved not to be ambitious

enough, the statistics zooming ever upwards with a momentum seemingly of their

own. In 2005, India-China trade increased by 37 per cent over 2007 to touch $18.7

billion. Just three years earlier in 2002 the total volume of bilateral trade was a paltry

$5 billion. China replaced Japan as India's top trade partner in North East Asia a few

years ago and is now on track to overtake the United States to become India's number

one trading partner within the next few years. Indo-U.S. trade stands at about $30

27

billion. Last year, more than 100 bilateral trade delegations crossed the Himalayas to

seek out opportunities for trade and investment. Over 80 Indian companies have

opened shop in China and some 45 Chinese firms now have operations in India. On

the surface, this is a veritable economic renaissance providing evidence for the

emergence of an economic colossus, `China India,' that brings together the might of

two of the world's fastest growing economies.

But scratching the surface reveals any celebration of `Chindia' to be chimerical.

Serious, continuing flaws in the structural composition of trade and a disappointingly

low investment engagement mean that there are many miles to go before the Sino-

Indian economic relationship can have the kind of significance that exists in China's

relations with its truly weighty trading partners. Moreover, despite considerable

improvement in political ties the lack of a final settlement on the boundary dispute

between the two neighbours makes it difficult to totally dispel the mutual suspicion

that has characterised bilateral ties for long. While burgeoning trade has helped

provide momentum to the sweetening of previously sour relations on the political

front, economic engagement can never be truly unfettered until full normalisation of

political ties is complete. In 2005, China's total trade volume was worth $1.4 trillion.

Sino-U.S. bilateral trade reached $204.7 billion and Sino-Japanese trade $189.4

billion. India was merely the 16th largest exporting nation to China in 2005,

In the first seven months of this year, India accounted for only 1.47 per cent of

China's total imports and 1.46 per cent of China's aggregate exports. Longer-term

commitments are even less impressive. Indian investment in China currently stands at

$130 million. By contrast, by the end of 2005, U.S. businesses had actually invested

$51.1 billion in China and set up 49,000 enterprises in the country. Last year alone,

China's total FDI inflows were worth $72 billion. Chinese investments in India are

not much cause for celebration either. According to the Indian Government, FDI

inflows to India from China between August 1991 and October 2005 worked out to a

grand total of $2.03 million. Chinese statistics put the figure considerably higher at

about $47.35 million but given that India's total inward FDI for the same period stood

28

at $36.2 billion, even this number is distinctly unimposing.

The fact that primary products such as iron ore and raw cotton dominate India's

exports also means that the benefits of value addition including increased

employment, higher profitability, technological upgradation, and so on are lost. By

contrast China's top exports to India include electrical machinery and machinery.

These together accounted for 43.9 per cent of total Indian imports from China in 2005

Trade associations such as CII and the Indian Embassy in Beijing have identified

certain sectors they believe have strong potential for growth in trade including dairy

products, machine tools, power and energy sector ancillaries, and certain segments of

apparel. The upcoming Made in India Show will feature products from some of these

sectors. However, trade alone cannot provide long-term stability to a bilateral

economic relationship, given that it is affected by a gamut of short-term

circumstances and can as a result prove fickle. The example of iron ore is a case in

point. Mutual investments are thus crucial to a truly sustainable economic

engagement.

Among the most encouraging recent developments in India China Economy and

India-China ties is the rapid increase in bilateral trade. A few years ago, India Inc had

a fear of being swamped by Chinese imports. Today, India enjoys a positive balance

of trade with China.In 2007, India's total trade to China crossed US $13.6 billion, with

Indian exports to China touching $ 7677.43 million and imports from china at US $

5926.67 million. But major industry players in India feel there is no need to give the

Chinese a free ride into the domestic market so early. This is particularly, when India

and China have been directly competing across several product categories.

29

TRADE PATTERN (value in USD millions)

YearChina's Exports to

India

China's Imoprts from

India

2003 1560.75 1353.48

2007 1896.27 1699.97

Percent Growth 21.5 25.6

2005 2617.73 2274.18

Percent Growth 40.9 33.8

2006 3343.59 4251.49

Percent Growth 22.2 87

2007 5926.67 7677.43

Percent Growth 77.3 80.6

According to a CII study, special focus on investments and trade in services and

knowledge-based sectors, besides traditional manufacturing, must be given, in view

of the dynamic comparative advantage of India. Indian companies could enter the

$615 billion Chinese domestic market by using it as a production base. Presently, Iron

ore constitutes about 53% of India's total exports to China. Among the potential

exports to China, marine products, oil seeds, salt, inorganic chemicals, plastic, rubber,

optical and medical equipment and dairy products are the important ones. The study

said that services and knowledge trade between India and China have significant

potential for growth in areas like biotechnology, IT and ITES, health, education,

tourism and financial sector.

30

China’s Exports to India

Chinese exports to India focuses on resource based exports as well as the exports

of manufactured products. China has emerged as a global manufacturing center and

India as the most lucrative market in the world. In 2005, the Chinese exports to

India stood at US$ 5926.67 million. However, it industrialists in India were not in

favor of China being given free access to the domestic markets. But bilateral

trade relations between India and China have increased over the years, reaching

US$18.7 billion in 2007 from US$ 4.8 billion in 2002. However, the bilateral trade

is to be increased further to US$ 20 billion by 2010 and further to US$30 billion by

2012

INDIA IMPORT DATA

Major items of Import into India are Dry Fruits, Almonds, Chocolates, Palm Oil,

Palm Fatty, Paraffin Wax, Inorganic Chemicals & Compound, Carbon Black,

Hydrazine Hydrate, Oxide, Iodine, Acid, Resin, Organic Chemicals,

Leather Chemicals,Phosphorus, Plastics, PVC, EVA, Rubber Tyre &

Tubes, EVA Compound, PU Leather, Timber Logs, Wooden Laminate Flooring,

Printing Paper, Newsprint, Raw &Combed Wool, Polyester Filament Yarn, Staple

Fibre, Glass Fiber, Steel Scraps, Sheet & Coils, HMS, Ferro Alloys, Welded &

Seamless Pipe, Nut Bolts, Fasteners,Copper Cathode, Nickel Waste, Aluminium

Foil, Zinc Metal, Molybdenum, Tungsten, Hand Tools, Blade, Bearing,

Electrical & Home Appliances, Used Machine, Computer Parts &

Peripherals, Printers, Electronics, Mobile Phone, Monitors,Telecom, Meters &

Measuring Instruments, and Toys The main items to be exported from China to

India are electrical machinery and equipment, organic chemicals, nuclear reactors,

31

boilers, machinery, silk, mineral fuels, and oils. Value added items also dominate

RECENET DEVELOPMENTS REGARDING

CHINA’S EXPORT

In the beginning, Chinese firms were keen on exporting cheap electronic items,

garments, and toys to the Indian markets. But recently, Chinese exporters have

been focusing on the cement market. Two Chinese cement companies, Yingde

Dragon Mountain Cement company Ltd. and Longkou Fanlin Cement Company

have been authorized to sell cement in Indian market. The reasons behind the

sudden interest of the Chinese cement companies in penetrating the Indian market

are that China is the world's largest cement producer and that the per capita cement

consumption is relatively low in India – around 150 kilogram per annum, less than

one-third of China's per capita consumption, as in 2006. An Ahmadabad-based

textile company is acting as the local agent of the Chinese firms in India.

The prospects for Chinese exports to India have been enhanced from 2006, with

the opening of the prospective Indo China border trade. Trade has been initiated

between Tibet, an autonomous region of China, and India through Nathu La Pass,

reopened after 44 years. From then onwards, nearly 15 items are being exported

from China to India.

At present, iron ore constitutes about 53% of the total Indian exports to China. The

other items that have potentials are marine products, oil seeds, salt, inorganic

chemicals, plastic, rubber, optical and medical equipment, and dairy products. Not

only this, great potential exists in areas like biotechnology, IT and ITES, health,

education, tourism, and the financial sector – all of which will contribute to the

services and knowledge based sectors.

The need is to shift the focus from primary exports to the export of diverse range of

32

high value added products, including –

Auto engine components and automobiles

Organic and inorganic products

Pharmaceuticals

Metal and metal based products like alloy steel bars and rods

Agricultural products like grains, tobacco and oilseeds

Engineering goods like diesel engines and compressors

Marine foods

Fresh and processed fruits and vegetables

Medical and optical diagnostic equipment and laboratory equipment

Consumer durables

Textile yarns

Such diversification of Indian exports to China clearly indicates that there exists

a steady demand for these products in the Chinese market.

INDIAN ECONOMY

33

Republic of India

India, officially the Republic of India is a south asian country seventh-largest country

by geographical area. second-most populous country and the most populous

democracy in the world Bounded by the Indian Ocean on the south, the Arabian Sea

on the west, and the Bay of Bengal on the east Coastline of 7500 kms, is bordered by

Pakistan in west, by Nhina, Nepal and Bhutan in the north, and Bangladesh and

Myanmar in the east India is a republic consisting of 28 states and seven union

territories With world's third largest army with the ninth largest Defence budget. It has

the world's twelfth largest economy at market exchange rates and the fourth largest in

purchasing power. Market based economic reforms were from 1991. The nation has

moved towards a market-based system The policy change in 1991 came after an acute

balance of payments crisis, and the emphasis since then has been to use foreign trade

and foreign investment as integral parts of India's economy With an average annual

GDP growth rate of 5.8% for the past two decades, the economy is among the fastest

growing in the world It has the world's second largest labour force, with 516.3 million

people In terms of output, the agricultural sector accounts for 28% of GDP; the service

and industrial sectors make up 54% and 18% respectively .

STATSTICS

34

Currency 1 Indian Rupee (INR) ( ) = 100

Fiscal year April 1–March 31

Trade organisations WTO, SAFTA

GDP growth 9% (2007)

GDP per capita $2,600 (PPP

GDP by sector agriculture: 17.8%, industry29.4%, services: 52.8% (2007 est.)

Population below poverty line 27.5% (2008 est

Labour force 516.4 million (2007 est.)

Labour force by occupation: agriculture: 60%, industry: 12%, services: 28%

Unemployment 7.2% (2007 est.)

Main industries: textiles, chemicals, food processing steel, transportation equipment,

steel, transportation equipment, cement , mining, petroleum machinery, software,

services

Exports: $163 billion2007-2008

Export goods: petroleum products, textile goods, gems and jewelry, engineering

goods, chemicals, leather manufacture.

Main export partners: US 15%, the People's Republic China 8.7%, UAE 8.7%, UK

4.4% 2007

Imports: $230.5 billion f.o.b. (2007 est.)

Import goods:: crude oil, machinery, gems, fertilizer, chemicals

Main import partners: the People's Republic of China10.6%, US 7.8%, Germany

4.4%, Singapore 4.4%

Public Debt: $149.2 billion (2007)

Revenues: $141.2 billion (2007 est.)

Expenses: $172.6 billion (2007 est)

INDIA EXPORT DATA

35

India Export data is based on shipping bills filed at Indian customs at the time of

export clearance. This data is released regularly, on monthly basis, by individual

custom houses. We collect Export statistics from all the major Ports, ICDs, Airports,

and CFS, of India. Our team of experts process each & every records of Export

Import data and present in a very user friendly format. Details of Indian Export data

includes: Date of Shipment, HS Code, Item Description, Quantity, Unit, FOB Value,

Foreign Country, Indian port & Indian Exporter Name Major items of Export from

India are Live Animals, Dairy Products, Milk Products, Human Hair, Tea, Coffee,

Spices, Wheat, Rice, Tamarind Powder, Cummin Seed, Sesame Seed, Gum,

Herbal Extract, Henna, Sugar, Tobacco, Stone, Cashew Kernel, Ground

Nuts, Beverages & Liquor, Packaged foods, Salt, Minerals, Iron Ores,

API, Medicines, Chemical & Fertilizers, Bulk Drugs, Dyes & Pigments,

Masterbatch, Cosmetic, Skimmed Milk, Plastic, Packaging Films, Rubber

Items, Finished Leather, Saddlery, Leather Products, Books, Magazines,

Textile, Silk, Polyester Yarn, Embroidery & Zari, Cotton, Carpet & Rugs,

Bathmat, Readymade Garment, Stole, Shawl, Home Furnishing, Cushion

Cover, Bed Spread, Quilts, Throws, Blanket, Shoes, Sandal, Footwear,

Ceramic, Sanitary Ware, Glassware, Artificial & Imitation Jewellery, Gems

& Stones, Flanges & Fittings, Pipe & Pipe Fittings, Steel & Iron, S.S.

Utensils, UPS, Items made up of Brass & Aluminium, Handicraft, Hand Tools,

Coils, Builder Hardware, Agri Equipments, Machine & Machinery parts,

Inverter, Electric parts, Cables, Fan, Engineering products, Electrical items,

Capacitor, CFL, Public Address System, Writing Instruments, Auto parts,

Automobile Components, Tractor Parts, Medical Disposables, Surgical &

Laboratory Equipments, Wooden Furniture, and Sports products.

36

37

China, India, and the Future of the World Economy

The rapid economic growth of China and India has been associated with much more

rapid growth in their trade. In some cases, this has created enormous opportunities for

their trading partners. In others, it has created strong competition either in home

markets, or in third markets. Those who face increases in competition are frequently

more vocal, but a balanced assessment is needed to help develop appropriate policy

responses

A key determinant of the distributional implications of global competition is the

extent to which countries’ baskets of goods overlap. Traditional trade models where

comparative advantage follows from countries’ relative endowments imply that

extremely labor-abundant countries like China and India will manufacture and export

labor-intensive goods, while skill- and capital-abundant developed countries will

specialize in skill- and capital-intensive products. According to these models,

developed economies have little reason to be concerned by the emergence of China

and India as global economic powers.

However, other labor-abundant developing economies have much to lose as

traditional theory. highlights expansion of existing products (the intensive margin) as

the only source of export growth. Many of these expectations about the potential

impact of the expansion of exports from China and India may be biased or

exaggerated. The expansion of China and India’s trade is quite different from the

expansion of developing country exports considered in much of the development

literature. It involves, for instance, two-way trade in manufactures and services,

which make the recipient countries the beneficiaries of improvements in efficiency in

their trading partners (Martin 1993). It also involves fragmentation and global

production sharing, where part of the production process is undertaken in one

economy, and subsequent stages are undertaken in another (Ando and Kimura 2003;

Gaulier, Lemoine and Unal-Kesenci 2007). This makes participants in this process

38

beneficiaries from, rather than victims of, improvements in the competitiveness of

their partners. And new trade theory now recognizes that export expansion does not

involve just increases in exports of the same products.

Complicating the analysis is the fact that, while both China and India are more labor-

abundant than developed economies, relative factor endowments and income levels

vary substantially across regions within these economies. China’s coastal areas may

place it in a different category compared to the much more labor-abundant inland

provinces. This heterogeneity can influence the range of goods China produces and

exports, and therefore helps explain the disproportionate similarity of China’s export

bundle with that of the developed countries (Schott, 2007). India’s large number of

skilled workers also implies that there may be a lot more competition between India

and developed economies than suggested by its relative endowment shares.

Much can be learned by examining China’s and India’s trading patterns. Although it

turns out that both have been quite successful in expanding their exports and imports,

they have done this in very different ways. Broadly, China has relied primarily on

exports of manufactures, frequently as part of an East Asian production sharing

network. By contrast, India has concentrated more heavily on services. Within

manufactures, China has relied heavily on exports of finished goods, while India has

focused much more on exports of intermediate inputs. India’s exports are frequently

of capital- and skill-intensive goods, while China has emphasized exports of labor-

intensive goods — although these are increasingly sophisticated (Rodrik 2006).

Indeed recent research suggests that China’s export bundle overlaps with that of

developed countries much more substantially than one would expect given either its

level of development or its size, and this excess similarity has increased with time

(Schott 2007). China’s rank in terms of the similarity of its export bundle with the

OECD jumped from nineteen in 1972 to four in 2004. No other country’s growth in

product penetration comes close to the increase observed for China. Quality

differences between Chinese and developed country exports however suggest that

competition between China and developed countries may not be as direct as suggested

39

by the overlap of their export baskets. Although China and India do not appear to be

in direct competition, reforms under way in India may intensify competition between

them as well as intensify competition between these two giants and the rest of the

world. Accelerated growth in China and India may create opportunities for some and

threaten others and the outcomes may differ depending on whether this growth is

accompanied by quality improvements and variety expansion, and whether it is

driven by physical or capital accumulation. Whowill win and who will lose from

these developments? We undertake the analysis in this paper with thesequestions in

mind No analysis of potential future developments can reliably be undertaken without

an examination of the key features of the current situation, and how it arose.

Therefore, this paper first reviews some key features of China’s and India’s trade, in

particular, the recent rapid export growth; the changing relativeimportance of goods

and services; and the changing composition of exports within merchandise and

services. With this as background, we use a global economy-wide modeling approach

to take into account all of the potential impacts of a number of policy reforms and

likely scenarios. First, the implications of the reforms under way in India are

examined to see if they might result in greater competition between China and India.

Then, we generate a baseline and examine the potential global implications of higher-

than-expected growth rates in these two economies. We consider first the impact of

more driven by increased accumulation of physical and human capital.

Unlike other approaches used to analyze these issues,1 the global applied general

equilibrium model used in this paper ensures consistency while including important

industry detail – each region’s exports of particular goods equal total imports of these

goods into other regions (less shipping costs); global investment equals the sum of

regional savings; regional output determines regional income; global supply and

demand for individual goods balance; and in each country/region demand for a factor

equals its supply. These accounting relationships and the behavioral linkages in the

model constrain the outcomes in important ways not found in partial equilibrium

analyses—increased exports from one country must be accommodated by increased

imports by other countries; broad-based increases.

40

OVERVIEW OF MANUFACTURING IN CHINA

China has experienced spectacular economic growth, quadrupling its GDP to

become the second largest economy in the world based on its purchasing power

parity . Much of this growth is driven by manufacturing. Today, China has

become the manufacturing center of the world. Exports of manufactured goods

have risen at a rate of 15 percent per year to about $730 billion in 2007 China

now makes 50 percent of theworld's telephones, 17 percent of refrigerators, 41

percent of video monitors, 23 percent of washing machines, 30 percent of air

conditioners, and 30 percent of color TVs (Rowen, 2003).

China’s Key Manufacturing Sectors: Electronics and Automotive

Components

China no longer is merely a place to churn out low-tech, high-labor components.

In recent years, China has been especially prominent in developing its electronics

and automotive component industries. The Chinese electronics industry has

become the leading export industry in China, and has a significant presence

globally across a wide spectrum of electronics products, from household electrical

appliances to semiconductors. Today China makes $60 billion worth of consumer

electronics goods a year . China is also fast becoming an important source of

automotive electronics for the global market. According to figures by Chinese

supplier Asimco Technologies, in 2005, China exported $1.49 billion worth of

automotive electronics and electrical instruments. Moreover, last year, General

Motors moved its global electronics purchasing office to Shanghai. Visteon

Corporation has also announced that its global electronics group will be

41

headquartered in Shanghai as well.

The combination of preferential government policies, foreign direct investment,

great infrastructure, and human capital has contributed to the success in Chinese

electronics and automotive component manufacturing.

42

Factors Leading to China’s Success in Manufacturing

Preferential Government Policy

Among developing countries, the openness of China’s trade and industrial policy are

often cited as its comparative advantage. While interventionist government policies are often

noted as adversely affecting economic efficiency, these policies have worked for China’s

manufacturing sector. The manufacturing sector requires large provision of investment

capital,coordination of the localization process and the monitoring of technology transfer.

More specifically, in the automotive and electronic sectors, the emphasis is on promotion of

learning rather than innovation . To further develop these industries, the government needs to

be more interventionist. Local governments such as Shanghai have been very successful in

coordinating investments across firms in the automotive industry to ensure a smooth supplier

network . To date, the Shanghai area is considered one of the most robust manufacturing

centers for electronics and automotive parts.

The Chinese government has led investment in the manufacturing sector by giving

preferential loans to targeted industries. In recent years, the government has promoted growth

in the value added manufacturing industries such as electronics and automotive components.

Tools used to promote the electronics industry include public research, trade protection,

sector-specific financial incentives, selective government procurement, and control of foreign

participation, relaxed antitrust regulation, and the provision of training and education for

sector-specific skills

.

43

OVERVIEW OF

MANUFACTURING IN INDIA

While India’s Information Technology services sector has been credited with much of

India’s economic growth (in 2007 51.1% of GDP), experts predict that manufacturing

(in 2007 16% of GDP) will fuel India’s next era of growth . India’s manufacturing sector

has lagged behind those of China, Thailand, Malaysia, and Mexico. The main reasons

multinational companies have not invested in India results from the lack of infrastructure

including electricity, roads, and sea and air ports as well as government regulation and

corruption. Despite these obstacles to growth, electrical and electronic components

manufacturers ABB, Honeywell, and Siemens and automotive manufacturers

DaimlerChrysler and Toyota Motor have started operations in India. Their incentives for

starting production in India are low labor costs and the availability of high levels of

technical expertise. Industry trends show an increase in skill-intensive manufacturing

sectors. Approximately 50% of U.S. offshore is manufacturing in skill-intensive sectors,

and this number is expected to increase to 70% by 2007 . Industry growth alone will not

continue to attract multinational companies to India. If lessons learned from China’s

success are applied to India, it becomes evident that India mimics China’s success in

developing human capital and providing some preferential treatment. However, India

needs to continue to take steps to improve its infrastructure and government regulation in

order to increase FDI flows. A further examination of the electronic components and

automotive manufacturing sectors will provide insight on what factors are spurring

growth in these sectors and what government regulationsneed to be leveraged to increase

growth.

44

45

India Lifts Ban On The Import Of Chinese Toys

Owing to pressure from the government of China, India withdrew the ban on imports of

Chinese toys. China warned that India's ban on Chinese toy might demolish the bilateral

trade ties existing between the two countries. Media reports say that Beijing was also

considering to drag India to WTO on the ban issue. According to Indian ministry of

commerce, the import of toys from China will be allowed if they conform to the international

safety standards. 

 

The government of India imposed a ban on the import of Chinese toys on January 2009 this

year citing concerns over the safety standards of Chinese-made products. The Directorate

General of Foreign Trade, India had notified that the restriction will remain valid for six

months. Chinese toy industry came under scanner after the news of using toxic lead paints in

manufacturing the products. The Indian government had imposed the ban on import after that

report.

 

While informing about the safety standards that are needed to be followed by Chinese toy

industry, ministry of commerce informed that, it is important that the toy industry should

procure certificates from safety bodies such as the International Organisation for

Standardization (ISO) or the American Society for Testing and Materials. The Chinese toy

export also suffered the brunt of global financial crisis in addition to the decline in demand

of toys in key US and European markets

46

CONCEPT OF SPECIAL ECONOMIC ZONES

A Special Economic Zone (SEZ) is a geographical region that has economic laws that are

more liberal than a country's typical economic laws. The category 'SEZ' covers a broad range

of more specific zone types, including Free Trade Zones (FTZ), Export Processing Zones

(EPZ), Free Zones (FZ), Industrial Estates (IE), Free Ports, Urban Enterprise Zones and

others. Usually the goal of a structure is to increase foreign investment. One of the earliest

and the most famous Special Economic Zones were found by the government of the People's

Republic of China under Deng Xiaoping in the early 1980s. The most successful Special

Economic Zone in China, Shenzhen, has developed from a small village into a city with a

population over 10 million within 20 years. Following the Chinese examples, Special

Economic Zones have been established in several countries, including Brazil, India, Iran,

Jordan, Kazakhstan, Pakistan, the Philippines, Poland, Russia, and Ukraine. North Korea has

also attempted this to a degree, but failed.

India

Considering the need to enhance foreign investment and promote exports from the country

and realising the need that a level playing field must be made available to the domestic

enterprises and manufacturers to be competitive globally, the Government of India had in

April 2000 announced the introduction of Special Economic Zones policy in the country,

deemed to be foreign territory for the purposes of trade operations, duties and tariffs. As of

2009, more than 500 SEZs have been proposed, 220 of which have been created. This has

raised the concern of the World Bank, which questions the sustainability of such a large

number of SEZs. The Special Economic Zones in India closely follow the PRC model. India

passed special economic zone act in 2007.

47

Can India Revitalize its Special Economic Zones to Rival Those in China?

The World Economic Forum (WEF) meetings that took place in Davos over the past week

offered an interesting contrast between the growth challenges that face China and India in

the coming decade. The China Business Summit at the WEF was concerned with the social,

political and economic risks faced by China internally and China’s impact (both positive

and negative) on the world economy. The India Economic Summit, on the other hand,

focused on how India can achieve Chinese growth rates while at the same time avoiding

China’s model of “growth first, equity later” -- the very source of the risks many see facing

China. As the Indian Prime Minister, Dr. Manmohan Singh, put it, “we have today a broad-

based national consensus that the process of economic growth must enhance both equity

and efficiency.”

Yet there are lessons for India in China’s rise. One important aspect of China’s spectacular

rise as the world’s workshop that India hopes to emulate has been Beijing’s policies toward

foreign investments in Special Economic Zones (SEZs) and Free Trade Zones (FTZs). In

August 1980, China’s National People’s Congress passed what was to become an historic

act, the Regulations for the Special Economy Zone of Guangdong Province. In that year,

China established three SEZs in Guangdong -- Shenzhen, Zhuhai and Shantou -- aimed

explicitly at attracting foreign investments, especially from nearby Hong Kong.

Guangdong’s SEZs were the precursor to four more SEZs -- Xiamen (in Fujian province

opposite Taiwan), Hainan (the entire island province), Hunchun (adjacent to North Korea),

and the Pudong Development Zone (across the river from old Shanghai

The Indian variants tend to be smaller than their Chinese equivalents, sectorally focused (in

such sectors as handicrafts, leather products, auto parts, apparel, electronics and IT

services, gems and jewelry, food processing) and separated from their surrounding

communities. Chinese SEZs are large, multi-sectoral, and no longer have formal

boundaries separating them from surrounding communities. This points up another

difference between the Chinese and Indian approaches: in China the SEZs have been used

to test reforms that have subsequently been adopted nationwide, with the result that today

48

there is very little difference in policies within the SEZs and the general economy. In India,

on the other hand, reform generally has moved ahead much slower and the SEZs have not

been seen as the leading edge of reform.

India: A much favoured destination

India has been rated as the fourth most attractive investment destination in the world, according

to a global survey conducted by Ernst and Young in June 2008. India was after China, Central

Europe and Western Europe in terms of prospects of alternative business locations. With 30 per

cent votes, India emerged ahead of the US and Russia, which received 21 per cent votes each.

As per the global survey of corporate investment plans carried out by KPMG International,

released in June 2008, (a global network of professional firms providing audit, tax, and

advisory services), India will see the largest overall growth in its share of foreign investment,

and it is likely to become the world leader for investment in manufacturing. Its share of

international corporate investment is likely to increase by 8 per cent to 18 per cent over the

next five years, helping it rise to the fourth, from the seventh position, in the investment league

table, pushing Germany, France and the UK behind

49

CHAPTER-3

RESEARCH METHODOLOGY

50

RESEARCH METHODOLOGY

OBJECTIVES OF THE STUDY

To know the trade relations between two Asian giants, India and China.

To know the critical features of both economies.

To know the perception of people’s for Chinese products.

To know the perception of people’s for Indian products.

RESEARCH DESIGN

Defining Research Problem

Problem definition is the first & foremost part of the research process, without this research

cannot be completed until and unless there is a problem or objective, the research cannot be

initiated. Problem definition refers to the objective on which research has to be done, so

problem definition in my project work is India China trade relations and people’s perception.

Research Methodology

Type of Study: Study is Descriptive in nature.

Source of Data:

Two types of data sources will be taken into consideration

Primary Data

For the collection of primary data survey method has been used.

Secondary Data: Under this project secondary data is been collected from Books, magazines,

& web sites.

51

Type of universe: The universe is the entire group of items the researcher wishes to study

and about which they plan to generalize. Under this project type of universe include people

residing in Chandigarh city.

Sampling Unit: Who is to be surveyed generally large sample Give more reliable results

than small samples. My sample units include students and employees and other citizens of

Chandigarh.

Size of Sample : Number of people surveyed. Generally large Sample more reliable result

than small sample. The sample Consist of 100 respondents.

Sampling Technique : Sampling procedure refers to technique Used in selecting the items

for the sample. Under this project selection of respondents is on the basis of convenience

sampling.

Tools and Techniques : Likert Scale, open ended questions.

Scope of Study : This study is mainly confined to the customer of Chandigarh City.

Limitations of the study

Sample size of 100 respondents was not enough for this study.

The study was conducted in Chandigarh so there can be difference in opinions.

Time constraint was also one of the limitations.

Lack of experts view’s.

52

SECONDARY DATA

53

Figure . The composition of services’ exports, China.

100%

80%

60%

40%

20

0%

1994 1995 1996 1997 1998 1999 2000 2004 2002 2003 2007 2005 2006 07

Financial

Communication

Travel

Transport

54

Figure. The composition of Services’ Exports, India.

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

1994 1995 1996 1997 1998 1995 1999 12000 2004 2003 2007 2005 2006 2007

FINANCIAL

COMMUNICATION

TRAVEL

COMMUNICATION

55

Table 2. Top 25 exports for China and India, 2007

China HS- % IndiaHS- %

Product 88/92 Share Product 88/92 Share

Parts of automatic data processing 847330 4.0 Diamonds non-industrial nes 710239 12.7

Digital auto data processing machinery 847120 4.0 Petroleum oils, etc,

(excl. crude) ;

271000 9.7

Input or output units 847192 4.2 Art. of jewellery and parts thereof 711319 4.6

Transmission apparatus 852520 3.1 Non-agglomerated iron ores and conc 260111 4.5

Parts suitable for use solely or pr

Monolithic integrated circuits

Storage units, whether or not prese

852990 2.3 Semi-milled or wholly milled rice

854211 1.9 Other organic compounds, nes

847193 1.5 Flat rolled prod, i/nas, plated or

100630 2.6

294200 2.1

721049 2.0

Video recording or reproducing appa 852190 1.5 Other medicaments of mixed or unmix300490 1.9

Optical devices, appliances

Video recording or reproducing appa

Television receivers including vide

Cargo containers

Static converters, nes

Parts and accessories of apparatus

Petroleum oils, etc, (excl. crude) ;

Coke and semi-coke of coal, of lign

901380 1.4 T-shirts, singlets and other vests,

852110 1.2 Women’s or girls’ blouses, shirts,

852810 1.2 Frozen shrimps and prawns

860900 1.1 Men’s or boys’ shirts of cotton

850440 0.9 Imitation jewellery nes of base mtl

852290 0.9 Furnishing articles, nes, of cotton

271000 0.9 Oil-cake and other solid residues,

270400 0.9 Cashew nuts, fresh or dried

610910 1.4

620630 1.4

030613 1.5

620520 1.3

711719 1.2

630492 1.2

230400 1.1

080130 1.1

Printed circuits 853400 0.9 Made up articles (incl. dress patterns) 630790 1.1

Footwear with rubber… soles

Automatic data processing machines

Bituminous coal, not agglomerated

640399 0.9 Motor vehicle parts nes

847199 0.9 Polypropylene, in primary forms

270112 0.8 Copper cathodes and sections of cat

870899 1.0

390210 0.9

740311 0.9

Footwear, nes, not covering the ankle 640299 0.8 Agglomerated iron ores and concentr 260112 0.9

Trunks, suit-cases…, etc 420212 0.8 Men’s or boys’ shirts of cotton, knit 610510 0.9

Digital process units 847191 0.8 Automobiles with reciprocating piston 870321 0.8

Sound reproducing apparatus, not in

Jerseys, pullovers, etc, of man-made

Total

851999 0.7 Woven fabrics of high tenacity yarn

611030 0.7 Collages and similar decorative

38.4

540710 0.8

970190 0.8

58.4

CHINA’S GOOD EXPORT AND INDIA’S SERVICE EXPORT 1990-2007

COMPARISON OF GDP BASED ON PPP AS % OF WORLD TOTAL IN 2004

INTERPRETATION:-

This graph includes countries of the world sorted by their gross domestic product (GDP)

at purchasing power parity (PPP) per capita, the value of all final goods and services

produced within a nation in a given year divided by the average (or mid-year) population for

the same year.

GDP dollar estimates here are derived from purchasing power parity (PPP) calculations. Such

calculations are prepared by various organizations, including the International Monetary Fund

and the World Bank. As estimates and assumptions have to be made, the results produced by

different organizations for the same country tend to differ, sometimes substantially. PPP

figures are estimates rather than hard facts, and should be used with caution. INDIA is having

the part of 6% as comparing to china’s 13%.

COMPARISION OF COMPOSITION OF GDP

INTERPRETATION:-

The above graph shows that in the composition of china’s GDP

32% Services, 15% agriculture, and 53 % industry. In India’s GDP composition 56% is

of services, 22% industry and 22% agriculture in 2003.

COMPARISON OF GROSS DOMESTIC SAVING AND INVESTMENTS

INTERPRETATION:-

The above graph shows that china’s gross domestic savings

were 50% of the total GDP IN 2004 and India’s GDS were 24% of the GDP, as in investments

china’s total gross domestic investments were 45% of the GDP and India’s GDI was 24% in

2007.

COMPARISON OF PART IN WORLD TRADE OF CHINA AND INDIA

INTERPRETATION:-

Above graph shows that China’s part in the world trade in 2004

was 6% where India was far behind with 1%.USA with 10% and with 6% part in the world

trade.

EXPORT PARTNERS OF CHINA IN 1994 AND 2004

INTERPRETATION:-

Above graph shows that China’s top five export partners in

1994.were USA with 20.5% Japan with 20.6% Hong Kong with 31.1% and others were south

Korea and Germany, in 2004 USA with 25.8%, Hong Kong with 20.9% Japan with 15.2% and

others were south Korea and Germany with 5.7% and 4.9% share in trade.

EXPORT PARTNERS OF INDIA IN 1994 AND 2003

INTERPRETATION:-

Above graph shows that India’s export partners in 1994 were USA,

Hong Kong, UK, Germany, Japan, in 2003share of USA decreased form 19 to 18% and China

and UAE has emerged new partners for India.

COMPARISON OF KEY EXPORT PRODUCT OF INDIA AND CHINA

INTERPRETATION:-

Above graph shows that china’s key export products are bectrical

machinery, clothing and garments yarn and textiles India’s key export products are clothing,

textiles yarn, nonmetallic mineral manuf.

COMPARISON OF KEY IMPORT PRODUCT OF INDIA AND CHINA

INTERPRETATION:-

Above graph shows that china’s key import products are bectrical

machinery, crude oil and yarn and textiles, India’s key import products are basic manufacturer,

mineral and machine transport equipments.

COMPARISON OF FOREIGN RESERVES OF INDIA AND CHINA

INTERPRETATION:-

Above graph shows that china’s foreign reserves was 700 billion

US dollar and India’s foreign reserves were 120 billion dollar.

COMPARISON OF EXTERNAL DEBT OF INDIA AND CHINA

INTERPRETATION:-

Above graph shows that china’s external debt is 25 billion US

dollar, India’s external debt is 37billion dllar.

COMPARISON OF INFLATION TRENDS OF INDIA AND CHINA

INTERPRETATION:-

The above graph shows that female annual inflation of china is less than India. It a almost 3 in

2007 and India is almost 5.In the recent trend graph china’s inflation is less than 2 India’s

inflation was still 4%.

PARTICIPATION OF FEMALE LABOUR FORCE AND COMPARISON

OF SKILLED LABOUR…

INTERPRETATION:-

The above graph shows that female labour force participation in china is more than India it was

45% for India and 79% for China in 2003.

In other graph there are two comparison one is of skilled labour and other is of qualified

engineers both the comparison are in favour of India

DATA ANALYSIS AND INTERPRETATIONSDEMOGRAPHIC FEATURES

1.GENDER OF THE RESPONDENTS

GENDER MALE FEMALEPercentage 60 40

INTERPRETATION:-Out of total respondents 60% were male and 40% were female.

Age Upto 18 18 to 35 35 to 50 Above 50Percentage 6% 64% 22% 8%

2.AGE OF THE RESPONDENTS

INTERPRETATION:- Out of total respondents 6% were up to 18 years, 64% were up to 18-35 years 22% 33-50and rest were above 50 years.

3.EDUCATION OF THE RESPONDENTSEDUCATION LEVEL

UNDER GRADUATE

GRADUATE POST-GRADUATE

OTHERS

%AGE 12% 62% 18% 8%

INTERPRETATION The above graph represents the education level of the respondents 12% were undergraduate, 62% were graduate, 18% postgraduate and 8% others.

4.OCCUPATION OF THE RESPONDENTS

OCCUPATION STUDENT EMPLOYEE BUSINESSMAN OTHERS%AGE 41% 27%% 24% 8%

INTERPRETATION The above graph represents that 41% respondents were students,27% employee,24% businessman, 8% were others.

5.INCOME OF THE RESPONDENTSINCOME LESS THAN

1 LAKH1 TO 2 LAKH 2 TO 3

LAKHMORE THAN 3LAKH

%AGE 48% 36% 10% 6%

INTERPRETATION: The above graph represents that out of total respondents 48% were earning less than one lakh because most of them were students, 36%1-2 lakh, 2-3lakh10% and 6% above 3 lakh.

6.AREA TO WHICH RESPONDENTS BELONG

INTERPRETATION 29% of the respondents rural,and 71 % from urban background.

AREA RURAL URBAN%AGE 29% 71%

7.KNOWLEDGE OF INDO-CHINA TRADE SAMPLE SIZE-100YES NO90% 10%

INTERPRETATION Out of total respondents 90% were aware of India China trade and 10% was not aware.

8.SOURCE OF INFORMATIONSAMPLE SIZE-90SOURCE T.V. MAGZINES RADIO NEWSPAPER ACQUAINTANCES%AGE 42% 14% 7% 26% 11%

INTERPRETATION: Out of total respondents 42% get knoweldge from t.v , 14% from magzines, 7% from radio, 26% from newspapers. 11% frm known ones.

9.DO YOU BUY CHINESE PRODUCTS?SAMPLE SIZE-90YES NO65% 35%

INTERPRETATION: Out of total 90 respondents 65% said yes they buy and rest 35% said no.

10.CHINESE PRODUCTS BETTER THAN INDIAN PRODUCTSSAMPLE SIZE-58

STRONGLY AGREE

AGREE CAN’T SAY DISAGREE STRONGLY DISAGREE

13 15 7 13 10

INTERPRETATION: Out of total respondents 13 were strongly agree 15 were agree, 7can’t say, 13 disagree, 10 strongly disagree.

11.WHAT DO YOU LIKE IN CHINESE PRODUCTS?SAMPLE SIZE-58

QUALITY DURABILTY LOOKS LOW PRICE9 9 17 23

INTERPRETATION: Out of total respondents 9 Respondents likes quality of products, 9 durability, 17 looks, 23 low price.

12.THE PRODUCTS OF CHINA DESTROYING THE MARKET OF INDIAN PRODUCTS

SAMPLE SIZE:90STRONGLY AGREE

AGREE CAN’T SAY DISAGREE STRONGLY DISAGREE

35 30 11 9 5

INTERPRETATION: Out of total respondents 35 were strongly agree 30 were agree, 11 can’t say, 9 disagree, 5 strongly disagree

13.IMPORT OF CHINESE PRODUCTS SHOULD BE BANNEDSAMPLE SIZE:-90STRONGLY AGREE CAN’T SAY DISAGREE STRONGLY

AGREE DISAGREE29 27 11 13 10

INTERPRETATION: Out of total respondents 29 were strongly agree 27 were agree, 11 can’t say, 13 disagree, 10 strongly disagree

14.CAN INDIAN PRODUCTS COMPETE CHINESE?SAMPLE SIZE:-90STRONGLY AGREE CAN’T SAY DISAGREE STRONGLY

AGREE DISAGREE33 29 9 9 10

INTERPRETATION: Out of total respondents 33 were strongly agree 29 were agree, 9 can’t say, 9 disagree, 10 strongly disagree

15.EMERGING INDIA-CHINA TRADE CAN NORMALISE THE POLITICAL CONFLICTSAMPLE SIZE:-90STRONGLY AGREE

AGREE CAN’T SAY DISAGREE STRONGLY DISAGREE

27 31 16 12 4

INTERPRETATION: Out of total respondents 27 were strongly agree 31 were agree, 16 can’t say, 12 disagree, 4 strongly disagree

16.PREFERRED CHINESE PRODUCTS.

SAMPLE SIZE-90PRODUCTS RESPONDENTSMOBILES 20GIFT ITEMS 11CROCKERY 8COMPUTER HARDWARE 7STATIONERY ITEMS 8HOME APPLIANCES 7FURNITURE 2SPORTS GOODS 9ELECTRONIC GOODS 13ELECTRICAL GOODS 5

INTERPRETATION: Among the chinese products in indian market mobiles are most preferred followed by gift items and electronic goods.

FINDINGS

Share of India on world trade is 1% and share of China is 6%. USA , Japan are the major trade partners of india. China’s foreign reserves are more than India’s foreign reserves. 90% of the respondents were aware of India China trade. Television and news papers are the source of information for the people. Respondents buy Chinese products because of Looks and low price of the

product. Products from China is destroying the Indian market. Indian products can compete Chinese products. Most of the respondents were in favour of increasing trade betweeen India

and China. Mobiles , electronoics , gift items are the most preferred among the

Chinese products.

BIBLIOGRAPHY

Books

Kothari, C.R., “Research Methodology: Methods and Techniques”,

Wishwa Publication, Delhi

Alan and Yusuf,” Dancing with giants China, India and global economy”

Websites Visited

www.gtap.org

www.siteresources.com

www.impoexpo.com

www.google.com

QUESTIONNAIRE

Dear Sir/Madam

 

I am the student of MBA-4 th Semester at RIMT-IMCT, Mandi Gobindgarh doing a

project “India China trade relations and people’s perception”. Please co-operate to fill this

questionnaire.

DEMOGRAPHIC FEATURES

1. Name _________________________________________

2. Sex: (a) Male (b) Female

3. Age: (a) Below 18 (b) 18-35

(c) 35-50 (d) Above 50

4. Education: (a) Under Graduate (b) Graduate

(C) Post Graduate d) others

5. Occupation: (a) Student (b) Employee

(c) Business (d) Others

6. Income: (a) Less than Rs. 100000

(b) 1lakh to 2 lakh

(c) 2 lakh to 3 lakh

(d) more than 3

7. Area from where you belong?

a) Rural b) Urban

1. Do you have the knowledge of India - china trade?

 

(a) Yes (b) No

If no then stop here……

2. Which source of information provides the knowledge of import- export of India?

(a) Television

(b) Magazines

(c) Radio

(d) News paperse

(e) Acquaintances.

3. Do you use any Chinese product?

(a) Yes (b) No

If no then move to the question no 6.

4. Do you think that Chinese products are better than Indian products?

(a) Strongly agree

(b) Agree

(c) Can’t say

(d) Disagree

(e) Strongly disagree

5. What do you like in the Chinese products?

(a) Quality

(b) Durability

(c) Looks

(d) Low price

6. The products of china are destroying the market of Indian products?

(a) Strongly agree

(b) Agree

(c) Can’t say

(d) Disagree

(e) Strongly disagree

7 .Import of Chinese product should be banned.

(a) Strongly agree

(b) Agree

(c) Can’t say

(d) Disagree

(e) Strongly disagree

(8) Indian products can compete Chinese products in world market.

(a) Strongly agree

(b) Agree

(c) Can’t say

(d) Disagree

(e) Strongly disagree

(9) Emerging trade between India and China can settle the border disputes between two

nations

a) Strongly agree

(b) Agree

(c) Can’t say

(d) Disagree

(e) Strongly disagree

(11) Which of the following Chinese product do you buy?

a) Mobile b) Gift items. c) Crockery d) Computer hardware e) Stationary items

f) Home appliances g) Furniture h) Sports goods i) Electrical goods j) Electronic goods

Address __________________________________________

__________________________________________

__________________________________________

Phone no. _________________________________________

*Thanks for your valuable time and co-operation*