In a matter of just five days, two indifferent neighbours have transformed themselves into partners in a quest for the growth of their economies. The mood is upbeat, and businessmen on both sides of the Himalayas are gearing up to exploit the opportunities arising as a result of renewed mutual trust.

The Prime Minister Atal Behari Vajpayee’s visit to China from June 22 to 27 has given a great fillip to trade and business relations between the two countries. Border trade has been resumed through Nathula and there is a proposal to open another pass on the India China border, as a beginning of a series of confidence building measures between the two countries. The seriousness of the two countries to take on the role of partners in trade could be gauged from the fact, that just a day after Prime Minister Atal Behari Vajpayee’s return from China, India announced its decision to give tariff concessions to China on 182 items in response to Beijing’s offer of tariff preferences on 217 items under the "Bangkok Agreement," to which Beijing acceded recently.

The change in mood reflects the desire of the respective governments in two countries to side step the contentious geo-political issues and to focus on the bilateral trade. The increase in trade activities could also act as a catalyst to bring the people of the two countries closer. This becomes important, if one considers that not too long ago India felt threatened due to the China’s aggressive dumping of cheap goods in India. In 2000, FICCI and CII had taken up the issue of cheap Chinese imports with the government through official and unofficial channels. The Indian industry also felt concerned over growing competition from China in exports to neighbouring markets in the subcontinent and the ASEAN region. Indian government even imposed anti-dumping duties against several Chinese products. Slowly but surely, the realisation is setting in that rise of the Chinese dragon is not a threat. The tremendous growth that India has seen in the last year in manufacturing and service sectors has helped boost Indian confidence. The strides made in Information Technology by Indian companies have contributed no less in instilling a desire to raise and achieve standards within the other sectors of the economy.

The optimism is also reflective of the realities of the liberalised economy, where the ‘quality of product’ and not the ‘price’ determines the fate of an industry. Dr. Biswajeet Nag, (IIFT) an academician in the field of foreign trade, believes that Indian Industry is waking up to the fact that ‘cheap is sometimes more expensive’. He argues that Chinese products though cheap would eventually find it tough to survive in India. Moreover, there is great potential for growth in trade between the two countries. The combined size of the two markets is large enough to help the business community in both countries to grow manifolds.

For India, China could be a model to learn vital lessons in development in the liberalised economy, as well as provide opportunities to invest and trade. The rise of the Chinese dragon comes as a good omen. In 2002, a year marked with depressed global economic growth, China’s progress US$1.23 simply astounding. China’s GDP hit US$1.23 trillion and is likely to grow further. China’s total foreign trade volume was more than US$600 billion and foreign direct investment (FDI) exceeded US$50 billion. The figures are encouraging not just for a Chinese globetrotting businessman but even for the fastidious Indian business tycoon. Just Imagine, a huge, stable, liberalised market is waiting to be tapped in our neighbourhood. The biggest corporations in the world are doing business in China and still feel secure. India has the capacity and the resources to make best use of the opportunities in a business-friendly environment in China.

India seems confident enough to take on the challenges of increasing bilateral trade with China. The official trade between the two countries has grown more than tenfold over the past decade to nearly US$5 billion in 2002 from US$338.5 million in 1992. The bilateral trade for the period of Jan – April 2003 increases by nearly 71 percent compared to the same period in 2002. Indian exports to China increased by more than 100 percent, and for the first three months of 2003 the trade balance was in India’s favour to the extent of US$354 million. The two countries look all set to double their trade to US$10 billion by 2005. The signs are all there, and not too difficult to decipher. India and China are headed on a course towards greater achievements in bilateral trade.

Presently, A lot of Indian companies are exploring possibilities to invest and to establish manufacturing facilities in China. Dr Reddy’s Laboratories Ltd. has set up a joint venture in Shanghai to develop drugs for the Chinese market as well as conducting trials on drugs for sale worldwide. On the other hand Ranbaxy Laboratories Ltd has established itself in the southern city of Guangzhou. Like Dr. Reddy’s and Ranbaxy, Indian companies producing a wide range of goods are developing China strategies to gain sales in the mainland, enhance their positions back home, and become more competitive players worldwide. Satyam Computer Services has opened a facility in Shanghai, with a development center due by yearend. Software companies like Infosys and Satyam, other Indian IT companies such as Zensar Technologies Ltd. are looking at China’s domestic market as an opportunity to provide their expertise. Companies like NIIT have built training centres and established partnership with Chinese universities to help the Chinese to become software literate. NIIT Ltd., presently has 42 training centres in China and expects to raise the number to 500 by 2005. Tata Group, a business house with $8 billion in sales, wants to sell steel to Chinese auto makers. Tata already produces ferro chrome, a key steel ingredient, in China. The company also exports leather to Chinese shoemakers and now plans to open a factory in China, where it will make shoes for the West and India.

Other Prominent Indian companies that have set up base in China include Aurobindo Pharma, Reliance Industries, Aditya Birla Group, Sundram Fasteners, Essel Packaging, and Contest2win. The companies sourcing from China include Videocon, Onida, Tube Investments, Nitco, Apollo Tyres, JK Tyres, Aegis Safety, TVS Motors, L.M Thapar group, United Phosphorous, Hero Cycles, and Bajaj Electricals. Major exporters include Bharat Forge, Reliance Industries, Steel Authority of India, Ispat Industries, Indo Rama Synthetics, and Mamata group.

The number of Indian companies entering China is growing with each passing month. Simply, because it is easier to start a business in China and Chinese government is more than willing to roll out the red carpet for it’s foreign investors. There are a lot of possibilities in various sectors in China such as telecommunications, energy, medical equipment, automotive components, agro-chemicals, plastics and packaging equipment. There are other areas where Indian companies can reap a rich harvest. China is a giant in computer hardware but it lags far behind India in Information Technology and could gain a lot from services provided by Indian software companies.

The market size for Pharmaceuticals in China is likely to treble to over $24 billion by 2010. Also, China will have to reduce tariffs on pharmaceuticals imports from an average of 9.6 percent today to 4.2 percent by 2004. With indigenous expertise and R&D, Indian pharmaceutical companies could gain a fair share of the Chinese market. In the energy sector, there are opportunities for Indian multinationals in natural gas, infrastructure development, and offshore oil exploration and production. The Chinese offer huge incentives for investment in these sectors, including tax holidays, reduced land rentals and lower import duties.

Presently, Indian exports to China comprise mainly of primary or low value addition products. The Indian export basket is incidentally, concentrated to a few products, which determine the ebb and flow of the total exports to China. The implications are clear - India needs to diversify and increase the number of intermediary and finished goods in the basket. This is something, which has been a characteristic of Indian trade for a long time. With rapid restructuring of trading patterns and developments in the manufacturing secto, the opportunities for India could grow further. According to CII, there is a huge market for cosmetics and ladies shoes in China. Indian companies like Drish Shoes, which exports higher-end shoes to Europe, are beginning to make their presence felt in China.

While India goes bullish on China and the future looks promising, there are a few things, which might just slow down the rate at which Indian ambitions in China grow. One of the major problems faced by exporters to China is the Chinese language. Most of the official documents are in Chinese and translation is as tough a job as scaling Mt Everest. This makes business negotiations hazardous and conducting deals becomes a wee bit complicated. Another thorn in the flesh of Indian entities in China is the tight control of distribution and retail channels.

Invariably, Indian exporters find it difficult to penetrate the Chinese market because the information on the distribution structure is not readily available. So, the only recourse left is to meddle with the middlemen. Even in such areas as software and IT, companies find middlemen indispensable for the effective distribution of their products. The size and influence of the middlemen in bilateral trade was highlighted when Prime Minister Vajpayee suggested, "The Olympic games in Beijing in 2008 could provide Indian and Chinese firms the opportunity to collaborate to provide state-of-the-art solutions at cost-effective prices, thereby also cutting out the middlemen".

There is also a need for Indian banks to strengthen their presence in China and vice-versa. SBI and Bank of India could upgrade their representative offices in Shanghai and Shenzhen and other banks could also look at the opportunities to open offices in China. Recent trends indicate that a number of Indian and Chinese banking institutions are keen on cooperating with each other to provide suitable support to companies in the two countries doing business with one another. The other areas that need immediate attention, is the clarification about quality standards of products in both countries. Some Indian exporters have not been able to realize their dues from their Chinese counterparts for the same reason. Greater trade policy related discussions between the two countries are imminent and likely to encourage the trade initiatives in the two countries.

In the changed global economic scenario, India and China are more likely to bury their differences to focus on more important issues of economic development. The collaborations between the two countries in promoting the bilateral trade could possibly turn the tide in favour of the Asian economy on the whole, which has seen a downturn in recent years. When Zhu Rongzi visited India last time, he envisaged a brighter future for India and China bilateral trade. The projected target of US$10 billion could possibly be achieved earlier than the deadline of 2005. The concerted efforts of the two governments and the business representative organization like CII and FICCI have generated a lot of positive energy about the potential gains from cooperation between the two countries. Hopefully, the ‘Chinese Dragon’ and the ‘Indian Elephant’ would forge ties that will help the two countries to grow and help them shape the future of the world economy.