India and China resumed trade officially in 1978. In 1984, the two sides signed the Most Favoured Nation Agreement. Presently, China is India’s largest trading partner having overtaken the United States in 2007.
i) Bilateral Institutional Mechanisms
There are several institutional mechanisms for India’s economic and commercial engagement with China. India-China Joint Economic Group on Economic Relations and Trade, Science and Technology (JEG) is a ministerial-level dialogue mechanism established in 1988 during the visit of former Prime Minister Rajiv Gandhi to China. A Joint Study Group (JSG) was set up after former Prime Minister Vajpayee’s visit to China in June 2003 to examine the potential complementarities between the two countries in expanded trade and economic cooperation. As per its recommendation, a Joint Task Force (JTF) was set up to study the feasibility of an India-China Regional Trading Arrangement. JTF Report was completed in October 2007. There are also Joint Working Groups on Trade, Agriculture and Energy. The two countries also cooperate in the WTO. There is a bilateral financial dialogue.
ii) Bilateral Trade
In 2006, bilateral trade registered a year-on-year growth of 33.87% to reach US$ 25.05 billion. This expanded further to US$ 38.69 billion in 2007 (growth of 54.42% over 2006). In 2007, India’s exports grew by 40% to reach US$14.65 billion, while imports from China increased by 64.77% to reach US$24.03 billion.
India-China bilateral trade in 2008 totalled US$ 51.8 billion, which was an increase of 34% year-on-year. In 2008, Indian exports to China touched US$ 20.3 billion, rising by 39% over the figure for 2007. Chinese exports in the same period have expanded by 31% to reach US$ 31.5 billion. In the first three months of 2009, bilateral trade stood at US$9.32 billion. Indian exports to China in Jan-Mar 2009 stood at US$3.31 billion and Chinese exports to India during the same period stood at US$6.01 billion.
For the period 1997-2002, the trade balance remained in China’s favour. In 2003, the balance of trade shifted in India’s favour to the tune of US$ 908 million. This trade surplus in India’s favour widened to US$ 1.7 billion in 2004. However in 2005, this surplus contracted to US$ 843.2 million. In the year 2006, India recorded a trade deficit of US$ 4.12 billion with China, which increased further to US$ 9.38 billion in 2007. In 2008, India’s trade deficit with China stood at US$11.2 billion.
India’s major exports include iron ore, cotton, organic chemicals, copper and precious stones etc. China’s major exports to India include electrical machinery, machinery, organic chemicals, iron & steel and steel products.
Border Trade with China resumed (the 1954 agreement had expired in 1962) following the signing of an MOU during the visit of Chinese Premier Li Peng in December 1991. This covered two border trading points- Lipulekh pass in Uttaranchal and Shipki La in Himachal Pradesh. In 2003, the two sides agreed to add a third border trading point at Nathu La in Sikkim which was operationalized in July 2006.
iii) Bilateral investments
According to the figures provided by the Chinese Ministry of Commerce, the cumulated value of Contractual Chinese investment (Projects) till Dec 2008 is US$24.4 Billion. The contractual Chinese investment (Projects) in India in 2007 stood at US$4.56 billion and the turnover realized from the contractual Investment (Projects) in 2007 was US$1.99 billion. The cumulative realized value till 2008 of the contractual investment in projects is US$8.4 Billion. In 2008, the value of contractual Chinese projects in India is US$12.9 billion and turnover realized from these projects during 2008 is US$4.3 billion.
As far as Chinese Investments in India for the year 2007 is concerned, it stood at US$16 million and Cumulative investment till Dec 2008 is US$91.1 million. In 2008, the Chinese investments stood at US$49.1 million.
According to the Chinese Ministry of Commerce, the total amount FDI from India to China in the form of projects during 2007 is US$ 34 million in 78 Projects. In 2006, 60 projects involving US$52 million were added. The cumulative FDI from India into China in the projects till 2008 is US$898 million in 426 projects. The cumulative turnover realized during this period is US$295.1 million. In 2008, the total FDI from India to China in 92 projects is US$257 million and turnover realized is US$88.1 million.
iv) Indian Companies in China
Indian business presence in China is in a range of operations including manufacturing (pharmaceuticals, refractories, laminated tubes, auto-components, wind energy etc.), IT and IT-enabled services (including IT education, software solutions, and specific software products), trading, banking sector (major Indian banks from the public and private sector are present in China), and trade and industry associations including CII and FICCI. Air India also has an online station in China. The vehicles for the presence of Indian companies in China are joint ventures with the Chinese partners, wholly owned foreign subsidiaries or through contract manufacturing. Some of the prominent Indian companies in China include Ranbaxy, Orchid Pharmaceuticals, Dr. Reddy Laboratories, Aurobindo Pharma, NIIT, Bharat Forge, Infosys, TCS, Satyam Computers, APTECH, Orind Refractories, Essel Packaging, Suzlon Energy, State Bank of India, Bank of India, Punjab National Bank, Canara Bank, ICICI Bank, Bank of Baroda, Reliance Industries, KGK Diamonds, Sundaram Fasteners etc. The total number of Indian companies is slightly over 100.
v) Chinese Companies in India
Many large Chinese State-owned companies in the field of machinery and infrastructure construction have won projects in India and most of these companies also have a presence in India. These include Sinosteel, Shougang International, Baoshan Iron & Steel Ltd, Sany Heavy Industry Ltd, Chongqing Lifan Industry Ltd, China Dongfang International, SinoHydro Corporation etc. Many Chinese companies into electronics, IT and hardware manufacturing are also based in India. These include Huawei Technologies, ZTE, TCL, Haier etc. Major Chinese projects in India are in the field of infrastructure construction, including roads and bridges, power projects, including EPC and also supply of heavy equipment, industrial projects mainly in the iron and steel sector, including boilers, turbines and pelletization plants, as well as telecommunications.
vi) Recent High Level Visits / signing of Economic and Commercial Agreements
During the visit of the Chinese President, Mr. Hu Jintao to India in November 2006, following agreements in the economic and commercial fields were also signed:
• Agreement on Bilateral Investment Protection and Promotion;
• Memorandum of Understanding on Inspection of Export Cargo (Iron Ore);
• Protocol on Phytosanitary Requirements for Exporting Rice from India to China;
• Memorandum of Understanding between Forward Markets Commission of India and China Securities Regulatory Commission regarding Commodity Futures Regulatory Cooperation;
• Memorandum of Understanding between the Indian Council of Agricultural Research and the Chinese Academy of Agricultural Sciences.
Prime Minister Dr. Manmohan Singh visited Beijing from 13-15 January 2008. Trade and commercial relations were an important component of the visit. Hon’ble Prime Minister had a meeting with the accompanying business delegation on 13th January. The business delegation included Mr. Sunil Bharti Mittal, President CII and Mr. Habil Khorakiwala, President FICCI. On 14th January Hon’ble Prime Minister addressed the India-China Economic, Trade and Investment Summit. Vice Premier Hui Liangyu, Assistant Minister of Commerce of PRC Mr. Chen Jian and Mr. Yu Ping, Vice Chairman of CCPIT and Hon’ble CIM also addressed the over 450 business delegates. The Indian Business delegation comprised of 24 leading corporate leaders belonging to FICCI and CII. Earlier on January 12th Hon’ble CIM had a meeting with the new Chinese Commerce Minister, Mr. Chen Deming.
During the visit both sides decided to increase the bilateral trade target from US$40 billion to US$60 billion by 2010. It was also announced that the Ministers of Commerce of the two countries had been mandated to examine the feasibility study on the benefits of a Regional Trading Arrangement and make suitable recommendations at an early date.
Six MoUs signed during the visit pertained to economic and commercial aspects of relations and these included:
• MoU for Cooperation between the Planning Commission of India and National Development and Reform Commission of the Peoples Republic of China.
• MOU on Cooperation between Ministry of Railways, India and Ministry of Railways, PRC
• MoU between Ministry of Housing and Urban Poverty Alleviation of India and Ministry of Construction, PRC
• MoU between the Ministry of Rural Development of the Republic of India and the Ministry of Land Resources of the PRC for Cooperation in Land Resource Management, Land Administration and Resettlement and Rehabilitation
• MoU between NABARD and Agricultural Development Bank of China on Mutual Cooperation
• Protocol of Phytosanitary Requirements for the Export of Tobacco Leaves from India to China between the General Administration of Quality Supervision, Inspection and Quarantine of the People’s Republic of China and the Ministry of Agriculture of the Republic of India
vii) Ministerial visits (2008 – till date)
The year 2008 witnessed several high level visits related to trade. Commerce & Industry Minister (CIM) Shri Kamal Nath, who accompanied the Hon’ble Prime Minister in January, 2008, met with Chinese Commerce Minister Mr. Chen Deming. Other important visits included the visit of Tourism Minister Smt Ambila Soni in 2008 to inaugurate the India Tourism office as also the visits of Minister of State for Finance Shri Pawan Kumar Bansal, Minister for Urban development Shri S Jaipal Reddy, Minister of State of Housing & Urban Poverty Alleviation Kumari Selja.
MOS Railways Shri R. Velu visited China in February 2009.