INDIA SHOULD OPEN UP MORE TO CHINA
Tarun Khanna
The Economic Times (India)
23 November2006
EVERYONE points out that China-India bilateral trade, at roughly
$19 billion in 2005, is a far cry from the $2 billion in 1999. Indeed,
the increase is to be celebrated . Chinese President Hu Jintao's
current visit to New Delhi cements the diplomatic and economic
bridges created by Premier Wen Jiabao last year during a similar
visit.
But $19 billion is hardly anything to write home about, even if one
were to discount the fact that much of what India exports to China is
low-valueadded commodities (notably iron ore). I asked myself what
a sensible benchmark would be to qualify as a 'sufficient' or even
'respectable' volume of bilateral trade.
There is a notion in international trade, called the gravity model,
which suggests that, ceteris paribus, countries that are larger and
more proximate tend to trade more with each other. By the model,
China and India should trade extensively with each other. That they
don't , at least not yet, is an anomaly.
Consider the US-Mexico bilateral trade as an example, an order of
magnitude bigger than China-India bilateral trade. Indeed, Mexico
and the US are among the most important trading partners of each
other. Of course, there are several ways in which the US-Mexico
example is an unfair number to use to benchmark China-India trade.
Those countries, even Mexico, are much richer than are China and
India, and this means that their trade in dollar terms will be more
voluminous.
Notwithstanding some tensions, they also haven't engaged in a
multidecade 'deep freeze' in relations recently . And there are plenty
of Spanish speakers in the US to lubricate the relationship with
Mexico, far more than Mandarin speakers in India, or Hindi
speakers in China. The Canada-US relationship is similar, as is the
relationship between Brazil and Argentina, just to pick a couple of
other examples.
Note that China is now among India's most important trading
partners, but the importance that India assigns to China has not
been reciprocated. India does not yet figure on the 10 most
important countries to China in terms of trade, recent high profile
visits on both sides notwithstanding.
Another benchmark for today's China-India trade is historical. It is
well known that the two countries have shared links over the
millennia. Indeed, the great-and-good from each country even today
start their visits by making the proverbial nods to Buddhism. In
2003, for example, the then prime minister Atal Bihari Vajpayee
visited the Baima Si, White Horse Temple, in China's Henan
province, one of the monuments that mark the arrival of Buddhism
from India to China in the third century.
It is a mistake to dismiss such cultural links as being too far back in
history to matter, since they inform historical memories in the two
countries. Scholars suggest that Buddhism and trade were mutually
reinforcing millennia ago, and reinvigorated cultural links might well
lubricate further commerce . But we remain very far from the
historical benchmark of mutual relevance.
IWOULD venture to say that China gets a lot more out of India than
India does out of China currently, both by selling more and better
things to India and by welcoming Indian investment in China, and
India has only herself to blame. The primary, perhaps only
significant , thing that India has borrowed from China lately is a
good, healthy economic scare. Indians, you will recall, were terrified
of Chinese goods coming across the border a few years ago. It
turned out that this forced several Indian companies to upgrade
their game - the well-known salubrious effects of competition
operated - and this is no bad thing in itself.
But it also clarified that Indians had nothing to fear from the
Chinese. Indian companies hardly withered away in response to the
Chinese threat. Nor have major overseas ventures by the Chinese,
in Europe and the West, been unambiguously successful.
Shenzhen-based TCL Multimedia, among the world's largest TV
makers, for instance, made the high profile acquisition of French
company Thomson's TV business, only to oversee considerable
value destruction in the years since. That is, the mere fact of
aggressive expansion should not strike fear.
The Chinese do not generally reciprocate Indians' attitudes to them.
That is, they don't fear Indian competition. In fact, they don't much
think about India at all, compared to the time that India spends
agonising over the Chinese threat. To the extent that they do think
about India, my research in China suggests that they are focused
on movies, software and Buddhism, in a constructive way, not on
cross-border hostilities.
When the Chinese do see things they would like to learn from, most
notably in recent years in software, they are quick to send
delegation after delegation to Nasscom's doors to figure it out. India
doesn't reciprocate with quite the same alacrity, and that is India's
(unnecessary ) loss.
So, why spend time putting procedural roadblocks for the likes of
Huawei, and why not facilitate Chinese entry into India? It will be a
worthy complement to continued dialogue regarding the border
disputes.
(The author is Jorge Paulo Lemann
professor, Harvard Business School)
