China's Yin, India's Yang

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Lee Hudson Teslik
Council on Foreign Relations
Monday, January 28, 2008; 2:36 PM

Much has been made of the rivalry between China and India, Asia's emerging economic powers. For the most part, analysts frame discussion of the two countries in competitive terms -- we did just this at CFR.org in June 2007, when Manjeet N. Kripalani and Adam Segal debated whether India is likely to eclipse China. There is no denying the competition between Beijing and New Delhi, particularly when national pride comes into play. But on a practical level, recent economic relations stand out more for cooperation than competitiveness. This new cordiality was on display January 14, when India's economist-turned-Prime Minister Manmohan Singh and Chinese Premier Wen Jiabao announced plans to work toward a $60 billion trade pact by 2010 (Times of India).

News of the possible trade deal stands out as the latest in a series of developments tightening bonds between Beijing and New Delhi. In 2006, China's President Hu Jintao became the first Chinese leader in a decade to visit India. The countries recently began holding regular joint military exercises (AFP), and China supports India's bid (Hindu) to become a permanent member of the UN Security Council. These political advances come amid marked economic gains. Bilateral trade between India and China has skyrocketed, increasing over tenfold since 2002 (NDTV). Total bilateral trade between the countries, which amounts to roughly $34 billion, remains slightly smaller than total trade between India and the United States (a little over $38 billion), and substantially smaller than total U.S.-China trade (over $354 billion). But the trade targets agreed to by Singh and Wen seem likely to substantially broaden China-India bilateral relations -- even if the countries don't meet their $60 billion target.

China and India both hope to become major global trade powers. In this way, they more directly compete with one another, as outlined in a recent World Bank report about efforts in Beijing and New Delhi to win contracts in Latin America and the Caribbean. Yet even when they compete for resources abroad, experts say China and India have much to gain through cooperation. Writing in the December 2007 Harvard Business Review, one expert points out that the very different paths the countries have taken toward economic liberalization -- with intensive government oversight in China's case, versus a more bottom-up approach in India's -- have left India and China with complementary economies. The article argues that businesses gain from cross-border cooperation when they leverage China's superior manufacturing plants and cheap labor, and then make good on India's advantages in product design and development, sales, and services.

Despite the gains to be had, several obstacles stand in the way of more fluid economic relations between the countries. A recent article in the Washington Quarterly, while lauding improved China-India relations, notes several lingering challenges (PDF). First and most basically, the countries still dispute the contours of their Himalayan border, a relic of a 1962 war (GlobalSecurity.org). In 2005, Singh and Wen signed an agreement aimed at resolving the dispute (China Daily), but the specifics have yet to be hammered out, and regionally the issue remains prickly. More generally, the Washington Quarterly article adds that each government remains suspicious of the other's intentions, particularly when it comes to regional power dynamics. Still, the economic stakes are high enough that businesses find a way to blast through cultural suspicions. As the Harvard Business Review article puts it: "They have too much to lose by not working together."


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