China-India Economic Engagement C S H O c c a s i o n a l P a p e r CHINA-INDIA ECONOMIC ENGAGEMENT Building Mutual Confidence Swaran SINGH N o . 10 Publication of the rench Research Institutes in India 2 0 0 5 1 Swaran SINGH LIST OF CSH OCCASIONAL PAPERS SENGUPTA D., Exporting through E-Commerce: How Indian Exporters have harnessed the IT Revolution, CSH Occasional Paper 9, 2004, 94p. GUENNIF S., AIDS in India: Public health related aspects of industrial and intellectual property rights policies in a developing country, CSH Occasional Paper 8, 2004, 172p. AARON S., Straddling Faultlines: India’s Foreign Policy Toward the Greater Middle East, CSH Occasional Paper 7, 2003, 111p. RUET J., SARAVANAN V.S., ZERAH M.H., The Water & Sanitation Scenario in Indian Metropolitan Cities: Resources and Management in Delhi, Calcutta, Chennai, Mumbai, 2002, CSH Occasional Paper 6, 2002, 167p. LECLERCQ F., The Impact of Education Policy Reforms on the School System: A Field Study of EGS and Other Primary Schools in Madhya Pradesh, CSH Occasional Paper 5, 2002, 170p. KUMAR G., Constitutionalising Panchayats: The Response of State Legislatures, CSH Occasional Paper 4, 2002, 104p. GHOSH D., SHUKLA P.R., GARG A., RAMANA P.V., Renewable Energy Strategies for Indian Power Sector, CSH Occasional Paper 3, 2001, 113p. TAWA LAMA-REWAL S., Women in the Calcutta Municipal Corporation: A Study in the Context of the Debate on the Women’s Reservation Bill, CSH Occasional Paper 2, 2001, 63p. RUET J., Winners and Losers of the State Electricity Board Reforms: An Organisational Analysis, CSH Occasional Paper 1, 2001, 85p. 2 China-India Economic Engagement CHINA-INDIA ECONOMIC ENGAGEMENT Building Mutual Confidence Swaran SINGH March 2005 CSH OCCASIONAL PAPER N° 10 / 2005 3 Swaran SINGH Centre de Sciences Humaines (Centre for Social Sciences): Created in New Delhi in 1989, the CSH, like its counterpart in Pondicherry (Institut Français de Pondichéry), is also part of the same network of research centres of the French Ministry of Foreign Affairs. The Centre’s research work is primarily oriented towards the study of issues concerning the contemporary dynamics relative to development in India and South Asia. The activities of the Centre are focused on four main themes, namely: Economic transition and sustainable development; Regional dynamics in South Asia and international relations; Political dynamics, institutional set-up and social transformations; Urban dynamics. [Centre de Sciences Humaines, 2, Aurangzeb Road, New Delhi 110 011 Tel.: (91 11) 30 41 00 70 Fax: (91 11) 30 41 00 79 Email: [email protected] – Website: http://www.csh-delhi.com] Institut Français de Pondichéry (French Institute of Pondicherry): Created in 1955, the IFP is a multidisciplinary research and advanced educational institute. Major research works are focussing on Sanskrit and Tamil languages and literatures – in close collaboration with the Ecole Française d’Extrême-Orient This research work has been conducted with the financial support of the Centre de Sciences Humaines (Centre for Social Sciences), New Delhi. © Centre de Sciences Humaines, 2005 All rights reserved. No part of this publication may be reproduced or transmitted, in any form or means, without prior permission of the author or the publisher Published by Raman Naahar, Rajdhani Art Press, C-166, Okhla Industrial Area, Phase I, Tel. : 98102 45301 The opinions expressed in these papers are solely those of the author(s). ISSN- 0972 - 3579 4 China-India Economic Engagement for Malti and Mini 5 Swaran SINGH 6 China-India Economic Engagement CONTENTS List of Tables/Graphs/Maps 7 Preface 9 - 13 Chapter One : The Opening Up 15-52 Big Picture is Changing Inevitability about their Partnership China’s Opening Up and Reforms Trade and FDI Driven Development Period of Internal Adjustment Transparency in Governance India’s Intermittent Economic Reforms Politics Driven Economic Reforms Collapse of Soviet State and IMF Pressures Comparative Analysis Conclusion Chapter Two : Historical Legacies 53-81 Nature of Oriental Commerce Evolution of Silk Route Colonial Interface The Opium Trade The Great Depression Period Post-liberation Policies Post-liberation Economic Engagement Conclusion Chapter Three : Bilateral Trade 83-112 Comparing Their Fundamentals Emerging Nature and Trends Institutional Arrangements Investments and Joint Ventures Mutual Investments Impact of Nuclear Tests Economic versus Strategic Priorities Conclusion 7 Swaran SINGH Chapter Four : Border Trade 113-141 China’s Border Trade Policies Opening Trade Route through Nathu La Rising Economic Significance Political Significance of Nathu La Expansion versus Consolidation Back to the Future Conclusion Chapter Five : Building Confidence 143-166 Economic Engagement as CBM Some Major Watersheds Impact on Border Communities Border Trade and Border Dispute Future of China-India Partnership New Sub-Regional Perspective Regional/Global Perspectives India’s Future Challenges Conclusion Chapter Six : Future Trends 167-182 Competitive vs. Complimentary Debate Economics driven Politics Future of Bilateral Economic Engagement Specifics of the Border Trade Conclusion Chronology on China-India Agreements 183-186 Bibliography 187-205 8 China-India Economic Engagement TABLES/GRAPHS/MAPS Graph 1.1 China-India: Comparing Their Fundamentals 26 Table 2.1 British India’s Trade with China 1829-1838 68 Table 2.2 China-India trade Agreements during early 1950s 79 Chart 3.1 China-South Asia Trade 1993, 1999 and 2003 86 Graph 3.2 Trends in China-India GDP Growth Rates 88 Graph 3.3 Trends in China-India FDI 91 Graph 3.4 Trends in China-India Bilateral Trade 96 Graph 3.5 Trends in China-India Exports Imports 106 Map 4.1 Lipulekh and Shipki La Border Trade points 121 Map 4.2 Mansarovar and Kailash route 125 Map 4.3 Nathu La Pass and Border Trade point 126 9 Swaran SINGH 10 China-India Economic Engagement PREFACE Comparisons with China and lessons to be learnt from China’s experiments in opening up and economic reforms have been a staple concern of Indian political and academic debates. Especially, those trying to project a case for India’s liberalization and integration with global economy often cite China’s success as example to follow. This excessive focus on China often overlooks the differences in both their challenges and opportunities. It also fails to underline the fundamental differences in their methodologies and mindsets. Especially, the debate on China-India ties remains thin when it comes to examining the overall and multifaceted impact of their bilateral economic engagement and debate has been rather weak, or sporadic at best, in highlighting the larger socio-political implications of their ever expanding economic interface. Surely, given the size and dynamism of their economies, this interface remains critical to the evolution of China-India ties but also integral to the overall profile of globalization and international political economy at large that surround this relationship. No doubt, China and India have lots in common: long histories, ancient civilizations, unique cultures, vast landmass, huge populations, and significant natural resources. Also, both countries have had their share of experience in colonial subjugation, and both spent their initial post-liberation decades experimenting with planned economic systems inspired by the anti-capitalist (anti-imperialist for us) Soviet model of those times. Later, both were to move (almost in tandem) towards re-structuring and opening up of their economies to the forces of free-market mechanism. However, thanks to their colonial and cold war legacies, all these experiments of opening up were to occur largely on mutually exclusive basis, and this had continued to be the case till recent years. It is only in last few years that two have begun to emphasize 11 Swaran SINGH on their mutual linkages and on their new thesis of mutual benefit and mutual accommodation. This seems to bring the focus back to their strong and regular cultural and commercial interface which had been the norm since ancient times. Especially, with China’s continuous rise during last three decades, Beijing’s focus has since come to be on moving from being big economy to stronger nation and on building links of its ‘multidimensional’ economy to its immediate periphery.1 This perhaps partly explains the recent upsurge in China-India economic ties. It is in this new phase of their expanding economic engagement and political rapprochement that both China and India have begun to conceptualize the evolving new multifaceted contours of their interactions which has since begun to move beyond their State sponsored initiatives. This, indeed, had been the norm of China- India interface until the colonial invasions of these Asian giants which was to introduce counter-trends of exclusively State censorship and control which was alien to both these civilisations. It is this deeper and holistic understanding of their past that today forms the solid premises of their new found enthusiasm and confidence in promoting their mutual economic engagement as an instrument to create atmospherics for resolving their political problems. Nevertheless, despite these positive portents, their economic engagement has long way to go to exploit their full potential and their mutual perceptions and policies remain still fairly circumscribed by their politico-strategic equations. As a result, even when both India and China have been experimenting with liberalizing their economies, their mutual interface