China, India and the promise of the power of two



    • China and India have far more common interests than differences.

    China and India coming together

    • Representatives of developing countries:
      • As two neighbouring and ancient civilisations, with a combined population of 2.8 billion, China and India are representatives of developing countries and emerging economies. 
    • Crucial period of modernisation for both:
      • India and China are both in the process of national rejuvenation and a crucial period of modernisation where challenges need to be overcome and problems need to be solved. 
    • China’s path of modernization:
      • China is advancing modernisation on all fronts. Here, the path to modernisation is based on China’s practices with a focus on high-quality development. 
        • It means the modernisation of a huge population, where there is 
          • Common prosperity for all, 
          • Material and cultural-ethical advancement, 
          • Harmony between humanity and nature, and 
          • Peaceful development. 
    • Significance:
      • In his recent meeting with India’s External Affairs Minister & Chinese Foreign Minister stated that the development and revitalisation of China and India embody a boost to the force of developing countries; it is one that will change the destiny of a third of the world’s population and having bearing on the future of Asia and beyond. 
        • This will spell new opportunities to all countries in the world, especially neighbouring countries.
      • This echoes what India’s External Affairs Minister had expressed in 2022, that the Asian Century will happen when China and India come together.

    China’s focus areas

    • Steady growth:
      • In 2022, China’s economy grew by 3% with a total of 12.06 million urban jobs added. China’s GDP registered an annual growth rate of 5.2% over the past five years and an annual growth of 6.2% over the past decade. China’s economic strength is steadily reaching new heights.
    • People’s well-being: 
      • As a result of continued efforts of the past eight years, China has historically resolved absolute poverty, with the alleviation of close to 100 million rural residents from poverty. 
      • Over 70% of the government’s expenditure went toward ensuring people’s well-being. Basic old age insurance covers 1.05 billion people, an increase of 140 million. 
      • Living standards continue to witness new improvements.
    • Opening up:
      • In 2022, China’s total volume of trade in goods exceeded 40 trillion yuan, registering an annual growth rate of 8.6%. 
      • China’s actual use of foreign capital was up by 8% and the country remained one of the top destinations for foreign investors. 
      • The overall tariff level continues to fall, from 9.8% to 7.4%. China’s doors to the outside world are opening even wider.
    • Win-win cooperation:
      • In the period 2013-2021, China’s contribution to global economic growth averaged 38.6%, higher than that of G7 countries combined (25.7%). 
      • Ever since the Chinese President, Xi Jinping, proposed the Global Development Initiative (GDI) in a speech at the United Nations General Assembly in 2021, more than 100 countries have expressed their support and over 60 countries have joined the Group of Friends of the GDI.

    China-India trade

    • Significance:
      • China and India are important trading partners, with bilateral trade volume reaching $135.984 billion in 2022. 
      • The Chinese market is open to India and the Investments by Chinese enterprises have created jobs for the Indian people and contributed to India’s economic development.
    • Challenges:
      • Tariffs and non-tariff steps:
        • India is considering a number of tariffs and non-tariff steps to cut imports of non-essential consumer and electronic goods, including from China, as trade imbalances concern policymakers.
      •  Limited participation for industries:
        • A section of the industry has opined that some of the conditions like requirements of local experience, are limiting their participation in the Chinese procurement process.
      • China’s dumping practices:
        • India’s domestic industry has suffered material injury due to dumping. Against this, India has imposed antidumping duties on a few Chinese products.
      • Geopolitical constraints:
        • India is also suspicious about the strong strategic bilateral relations between China and Pakistan. The border dispute between the two countries is also causing hindrances. 

    Indian Government’s steps to reduce the trade deficit & way ahead

    • Buyers – Sellers meets:
      • The Government of India has taken various measures to extend support to exporters by facilitating Buyers – Sellers meets between potential Chinese importers and Indian exporters to increase exports of sugar, oil meals, Indian rice and grapes
    • Promoting domestic manufacturing:
      • Government has been implementing various schemes and programmes to help the domestic industries compete effectively with imports. 
      • To promote the domestic manufacturing, schemes like ‘Make in India, ‘Digital India’, Software Technology Parks, Electronics Hardware Technology Park Scheme/ Export Oriented Unit Scheme and Special Economic Zone Scheme provide support for promoting domestic manufacturing in the country.
    • The Foreign Trade Policy:
      • The Foreign Trade Policy 2015-20 has mechanisms such as Merchandise Exports from India Scheme, Advance Authorisation Scheme, Export Promotion Capital Goods Scheme, Interest Equalization Scheme to provide an enabling framework for businesses to make their exports competitive.  
      • Active interventions, in terms of policy and procedural changes, are regularly undertaken by the Government so that businesses can cope with the dynamic international trade scenario.

    Trade Deficit

    • About: 
      • A trade deficit occurs when a country’s imports exceed its exports during a given time period. 
      • It is also referred to as a negative balance of trade (BOT).
    • Advantages of Trade Deficits:
      • It allows a country to consume more than it produces. In the short run, trade deficits can help nations to avoid shortages of goods and other economic problems.
      • It creates downward pressure on a country’s currency under a floating exchange rate regime. Domestic currency depreciation also makes the country’s exports less expensive and more competitive in foreign markets.
      • Trade deficits can also occur because a country is a highly desirable destination for foreign investment.
    • Disadvantages of Trade Deficits:
      • It can facilitate a sort of economic colonization. 
        • If a country continually runs trade deficits, citizens of other countries acquire funds to buy up capital in that nation. 
        • That can mean making new investments that increase productivity and create jobs. 
        • However, it may also involve merely buying up existing businesses, natural resources, and other assets. 
        • If this buying continues, foreign investors will eventually own nearly everything in the country.
      • Trade deficits are generally much more dangerous with fixed exchange rates. 
        • Under a fixed exchange rate regime, currency devaluation is impossible, trade deficits are more likely to continue, and unemployment may increase significantly. 


    Daily Mains Question

    [Q] The Asian Century will happen when China and India come together. Examine. What can India learn from China’s path of modernization?