Pardeep Project 2003

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

4

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. 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 5

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.

6

CONTENTS TITLE CERTIFICATE DECLARATION ACKNOWLEDGEMENT PREFACE 1.

2.

INTRODUCTION TO THE STUDY

1-10

 INTRODUCTION

1-3

 TRADE HISTORY

3-10

ECONOMY OF CHINA AND INDIA  ESTABLISHMENT OF DIPLOMATIC RELATIONS  ECONOMY OF CHINA  ECONOMY OF INDIA  CONCEPT OF SPECIAL ECONOMIC ZONES

11-40 12-13 14-26 27-37 38-40

3.

RESEARCH METHODOLOGY

4.

SECONDARY DATA

5.

DATA ANALYSIS AND INTERPRETATION

6.

FINDINGS

80

7.

BIBLIOGRAPHY

81

8.

ANNEXURE

41-43 44-63 63-79

82-85 7

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 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), 9

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 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

11

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 (19501953). 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 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 12

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

13

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 reengagement 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 endorsement on India's governance of Sikkim, which the Chinese still hadn't recognised. 15

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 twentyfirst 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 the whole of Arunachal Pradesh as its own. In May 2007, China denied the application 16

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. Toplevel 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 24

 Public debt (2006) 22.1% of GDP  External debt (2006) $315 billion 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

26

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.

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 27

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 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 SinoIndian 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,

28

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 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 IndiaChina 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 29

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.

TRADE PATTERN (value in USD millions) China's Exports to

China's Imoprts from

India

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

Year

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 30

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.

China’s Exports to India

31

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

RECENET DEVELOPMENTS REGARDING CHINA’S 32

INDIAN ECONOMY

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 . 33

STATSTICS  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.) 34

 Expenses: $172.6 billion (2007 est)

INDIA EXPORT DATA 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 Herbal

Extract,

Nuts,

Beverages

Henna, &

Sugar,

Liquor,

Tobacco,

Packaged

Stone,

foods,

Seed,

Cashew Kernel,

Salt,

Minerals,

Gum, Ground

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,

Sanitary

Ware,

Blanket,

Glassware, Artificial

Shoes, &

Sandal, Imitation

Footwear, Jewellery,

Ceramic, 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, 35

CFL, Public Address System, Writing Instruments, Auto Components,

Tractor

Parts,

Medical

Disposables,

parts,

Automobile

Surgical

& Laboratory

Equipments, Wooden Furniture, and Sports products.

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 36

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 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 laborabundant 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 laborintensive goods — although these are increasingly sophisticated (Rodrik 2006). 37

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 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 higherthan-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 38

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.

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 39

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 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.

40

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, sectorspecific financial incentives, selective government procurement, and control of foreign participation, relaxed antitrust regulation, and the provision of training and education for sector-specific skills .

41

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.

42

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

43

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. 44

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 broadbased 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

45

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

46

CHAPTER-3 RESEARCH METHODOLOGY

47

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. 48

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.

49

SECONDARY DATA

50

Figure . The composition of services’ exports, China.

00%

1

Financial

80%

Communication 60%

Travel 40%

Transport

20

0% 1994 1995 1996 1997 1998 1999 2000 2004 2002 2003 2007 2005 2006 07

51

Figure. The composition of Services’ Exports, India. 100%

90%

80%

70%

60%

50%

40%

FINANCIAL 30%

20%

COMMUNICATION 10%

TRAVEL 0%

1994

1995

1996

1997

1998

1995

1999

12000 2004

2003

2007

2005

2006

2007

COMMUNICATION

52

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

HS-

%

India

Product

88/92

Share

Parts of automatic data processing

847330

4.0

Digital auto data processing machinery

HS-

%

Product

88/92

Share

Diamonds non-industrial nes

710239

12.7

271000

9.7

847120 4.0

Petroleum oils, etc, (excl.

crude) ; 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

852990

2.3

Semi-milled or wholly milled rice

100630

2.6

Monolithic integrated circuits

854211

1.9

Other organic compounds, nes

294200

2.1

Storage units, whether or not prese

847193

1.5

Flat rolled prod, i/nas, plated or

721049

2.0

Video recording or reproducing appa

852190

1.5

Other medicaments of mixed or unmix300490

1.9

Optical devices, appliances

901380

1.4

T-shirts, singlets and other vests,

610910

1.4

Video recording or reproducing appa

852110

1.2

Women’s or girls’ blouses, shirts,

620630

1.4

Television receivers including vide

852810

1.2

Frozen shrimps and prawns

030613

1.5

Cargo containers

860900

1.1

Men’s or boys’ shirts of cotton

620520

1.3

Static converters, nes

850440

0.9

Imitation jewellery nes of base mtl

711719

1.2

Parts and accessories of apparatus

852290

0.9

Furnishing articles, nes, of cotton

630492

1.2

Petroleum oils, etc, (excl. crude) ;

271000

0.9

Oil-cake and other solid residues,

230400

1.1

Coke and semi-coke of coal, of lign

270400

0.9

Cashew nuts, fresh or dried

080130

1.1

Printed circuits

853400

0.9

Made up articles (incl. dress patterns) 630790

1.1

Footwear with rubber… soles

640399

0.9

Motor vehicle parts nes

870899

1.0

Automatic data processing machines

847199

0.9

Polypropylene, in primary forms

390210

0.9

Bituminous coal, not agglomerated

270112

0.8

Copper cathodes and sections of cat

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

0.9

Digital process units

610510

847191

0.8

Automobiles with reciprocating

piston

870321 0.8

Sound reproducing apparatus, not in

851999

0.7

Woven fabrics of high tenacity yarn

540710

0.8

Jerseys, pullovers, etc, of man-made

611030

0.7

Collages and similar decorative

970190

0.8

Total

38.4

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 INTERPRETATIONS DEMOGRAPHIC FEATURES 1.GENDER OF THE RESPONDENTS GENDER Percentage

MALE 60

FEMALE 40

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

2.AGE OF THE RESPONDENTS Age Percentage

Upto 18 6%

18 to 35 64%

35 to 50 22%

Above 50 8%

INTERPRETATION:Out of total respondents 6% were up to 18 years, 64% were up to 1835 years 22% 33-50and rest were above 50 years.

3.EDUCATION OF THE RESPONDENTS EDUCATION UNDER GRADUATE POSTOTHERS LEVEL GRADUATE GRADUATE %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 %AGE

STUDENT EMPLOYEE BUSINESSMAN OTHERS 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 RESPONDENTS INCOME %AGE

LESS THAN 1 LAKH 48%

1 TO 2 LAKH 2 TO 3 LAKH 36% 10%

MORE THAN 3LAKH 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%12 lakh, 2-3lakh10% and 6% above 3 lakh.

6.AREA TO WHICH RESPONDENTS BELONG

AREA %AGE

RURAL 29%

URBAN 71%

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

7.KNOWLEDGE OF INDO-CHINA TRADE SAMPLE SIZE-100 YES NO 90% 10%

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

8.SOURCE OF INFORMATION SAMPLE SIZE-90 SOURCE

%AGE

T.V.

42%

MAGZINES RADIO

14%

7%

NEWSPAPER ACQUAINTANCES

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-90 YES NO 65% 35%

INTERPRETATION: Out of total 90 respondents 65% said yes they buy and rest 35% said no.

10.CHINESE PRODUCTS BETTER THAN INDIAN PRODUCTS SAMPLE SIZE-58 STRONGLY AGREE AGREE 13 15

CAN’T SAY DISAGREE 7

13

STRONGLY DISAGREE 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 9

DURABILTY 9

LOOKS 17

LOW PRICE 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:90 STRONGLY AGREE CAN’T SAY DISAGREE STRONGLY AGREE 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 BANNED

SAMPLE SIZE:-90 STRONGLY AGREE AGREE 29 27

CAN’T SAY DISAGREE 11

13

STRONGLY DISAGREE 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:-90 STRONGLY AGREE AGREE 33 29

CAN’T SAY DISAGREE 9

9

STRONGLY DISAGREE 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 CONFLICT SAMPLE SIZE:-90 STRONGLY AGREE CAN’T SAY DISAGREE STRONGLY AGREE 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-90 PRODUCTS MOBILES GIFT ITEMS CROCKERY COMPUTER HARDWARE STATIONERY ITEMS HOME APPLIANCES FURNITURE SPORTS GOODS ELECTRONIC GOODS ELECTRICAL GOODS

RESPONDENTS 20 11 8 7 8 7 2 9 13 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:

5. Occupation:

(a) Under Graduate

(b) Graduate

(C) Post Graduate

d) others

(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*