Program & Batch:MBA General Section A

Semester:First

Course Name:Economics

Name of the faculty:Dr. Tilak Raj

Topic/ Title :Indo-China Trade Analysis

University Business School

Group Members:Pratibha Rohal and Shruti Sharma

DEFINING THE STATEMENT OF PROBLEM-To Evaluate bilateral trade arrangements between India and China in terms of import and export, their market structure and policies and predict future course of action that can be profitable for the Indian economy.

SUMMARY/ ABSTRACT-

This work presents a comparative study of the Indian economy in lieu of the Chinese economy. All the aspects of the Indian economy are viewed and presented in contrast to the Chinese model and facts and figures. A historical introduction is carried on to the recent trends, with details on the present scenario i.e. How India maintains trading with China in the now, finally concluding with a succinct on the possible course of action the Indian government can take to strengthen its interests with the Eastern Dragon neighbour, China.

PREFACE/ RELEVANCE OF TOPICIndia and China have come to play an increasingly dominant role in world economic affairs. Both nations have posted aggressive growth rates and, amongst other things. China in particular has gained a large footprint in international trade and investment flows. Today, it is the worlds largest exporting nationwhile Indias exports have grown four fold over the period of 2001-2009.Although both China and India are labor-abundant and dependant on manufactures, their export mixes are very different. Only one productrefined petroleumappears in the top 25 products for both countries, and services exports are roughly twice as important for India as for China, which is much better integrated into global production networks. Even assuming India also begins to integrate into global production chains and expands exports of manufactures, there seems to be opportunity for rapid growth in both countries. Accelerated growth through efficiency improvements in China and India, especially in their high-tech industries, will intensify competition in global markets leading to contraction of the manufacturing sectors in many countries. Improvement in the range and quality of exports from China and India has the potential to create substantial welfare benefits for the world, and for China and India, and to act as a powerful offset to the terms-of-trade losses other-wise associated with rapid export growth.

More so, India's eastern neighbor China has emerged as its biggest trading partner in the current fiscal replacing theUAEand pushing it to the third spot, according to a study conducted byPHD Chamber of Commerce. India-China tradehas reached $49.5 billion with 8.7 per cent share in India's total trade, while the US comes second at $46 billion with 8.1 per cent share and the UAE third at $45.4 billion with 8 per cent share during the first nine months of the current fiscal, the study revealed.India's trade (exports and imports) with China was only of $7 billion in 2004 which rose to $38 billion in 2008 and to $65 billion in 2013."India's direction of foreign trade has exhibited a structural shift during the last decade. Trade volume and trade share of emerging and developing economies has increased while the share of conventional trading partners has showed a declining trend,

So we can justify the need to study their mutual ties and relations and their trading patterns that can strongly affect both the economies and even the world economies.

Acknowledgement

I, Dr. Shruti Sharma and Miss Pratibha Rohal take this opportunity to express our profound gratitude and deep regards to our mentor and guide Prof. Dr. Tilak Raj for his exemplary guidance, monitoring and constant encouragement throughout the course of this assignment project. The blessing, help and guidance given by him from time to time shall carry us a long way in the journey of life on which we are about to embark, while pursuing this opportunity and further.

Sir, you gave us this golden opportunity to do this wonderful project, which also helped us in doing a lot of Research and we came to know about so many new things.Also, we are making this project not only for marks but to also increase our knowledge.Thanks again to all who helped us.

Table of Contents1. Introduction..32. Literature review3. Methodology 4. History....5. Economic Comparison.........6. India-China Bilateral Trade Relationship.7. Trade Pattern...8. Potential Areas for Enhancing Bilateral Trade....9. Recent Developments in India- China Relationship.....10. Conclusion11. References

INTRODUCTION

In demographic terms, China and India are the two most important countries in the world and they are also rapidly becoming the leading powers in economic terms. ChinaIndia relations, also calledSino-Indian relationsorIndo-China relations, refers to the bilateral relationship between the People's Republic ofChina(PRC) and the Republic ofIndia.

India China trade relationsare the most important part ofbilateral relationsbetween India and China. These are the two largest developing countries in the world and are currently the most important emerging giants in the world economy.

The two Asian giants India and China have shown several developments in different sectors from the early times, which eventually contributed towards a steep rise in the economy of the respective countries. However, when it comes to comparing the economy of both the countries, China usually stays on the top. The economists points out, Chinese Government constantly implies new, which certainly has an impact in the first rising economy. Both the countries are putting in their best efforts to analyze their core economic strengths and gradually establish themselves as the superpower in the World Economy.China and India are the twomost populous countriesandfastest growingmajor economies in the world. The resultant growth in China and India's international diplomatic and economic influence has also increased the significance of their bilateral relationship.

Literature StudyIn recent years both economies have grown quite faster that have caught the attention of everybody. Huge literature has been written and is available foretelling how soon these economies will be the leading economies of the world. Earlier studies comparing the economies of India and China focused on developments in the1950s and 1960s. Examples include Chen and Uppal (1971), Swamy (1973),Harris (1974) and Bergmann(1977).Now again the interest has become more rigorous in comparative study of two giant economies largely due to their consistent growth performance in the1980s and 1990s and subsequently their rise in the world economy and political affairs.(Wu et.al.,2006) .Some authors are interested in the institutional settings and hence their impacts on economic performance in the two countries (Huang& Khanna 2003).Others are keen to compare China and Indias performance in specific areas,Such assteel industry(Etienne, Asteir,Bhushan &Zhong 1992).Some havemade trade projections particularly Boillot & Labbouz (2006). There have been. Some studies on IndiasForeign trade policy by Kanagasabapathy et.al. (2006).Arunachalaramananet.al., (2011)havetriedtorelate impactof Yuan Revaluation on Indias trade and found that despite Rupee getting depreciated with respect to Chinese Yuan our Balance of trade with neighbour country has worsened. Batra (2004) has tried to calculate the trade potential of India with all countries and found that bilateral trade with China still holds good potential. Silvio Beretta and Renata Targetti Lenti (2012) have also studied bilateral trade intensively and give a comprehensive analysis of commodities traded. This assignment gives an insight on understanding the bilateral trade that is too complex and enormous as it includes the individual interests of both the nations, along with their mutual interest keeping in mind the fact that they play a key role in Asias development as well and affect the global economic scene.

Methodology

Firstly, we examined Sino-Indian Bilateral trade from 1996 to 2013 for export and import. Next we calculated commodity share in trade composition taking data from UN Com trade database. This shows share of various commodities in trade changing in subsequent years. Trade data from 1996-2013are derived from Ministry of Commerce and Industry, Govt. of IndiaAll this data is used to construct pie charts and give a comparative view of their trading positions over the year. Then the current trends are presented and conclusions are drawn as to how India and china can grow in synergy.

HISTORY

India and China are among the oldest civilizations with long history of association. China and India are two of the worlds oldest civilisations and have co-existed in peace for millennia. Cultural and economic relations between China and India date back to ancient times. Nathu La Pass was the famous silk route.TheSilk Routenot only served as a majortrade routebetween India and China, but is also credited for facilitating the spread ofBuddhismfrom India to East Asia.

IndiaChina relations have undergone dramatic changes over the past five decades, ranging from the 1950s with a deep hostility in the 1960s and 1970s to a rapprochement in the 1980s and a readjustment since the demise of Soviet Union. The post-cold war era has offered enormous opportunities to New Delhi and Beijing to move in the direction of a productive relationship. Both countries have realized the imperative need for cooperation in diverse areas, especially in the trade and economic domains, in the long-term interest of peace and stability in Asia as well as for faster economic development and prosperity at home.

India and China are the two giants of Asia of the oldest and living civilization of the world. Sindhu and Ganges gave birth to Indian civilization, which influenced south and Southeast Asia. Similarly, Huangghe (Yellow River) and Changjiang (Yangtze River, The longest river of Asia; flows eastward from Tibet into the East China Sea near Shanghai) gave birth to the Chinese civilization, which on its part influenced northeast and Southeast Asia. Being neighbours India and China had established trade and cultural relations since time immemorial. It could be established from the records that Sino-Indian interface was always a two-way traffic and the two elements of this exchange could be categorized as material exchange and spiritual cultural exchange.

This two-faceted exchange was carried through the following four routes of communication:

1. The Central Asian Route or the so-called Silk Route, 2. Assam-Burma and Yunnan Route or the famous Southern Silk Route, 3. Tibet Nepal Route, and 4. The Sea Route or the so-called Maritime Silk Route.

The Central Asian Route was the main overland route though this was not the earliest one to be discovered. This route was especially vital for the traders and missionaries from China to India and vice-versa. The route started from Chang an (present Xian) passed through Dunhuang, and Kashgar. From Dunhuang, it bifurcated into a northern and southern route. The northern route passed through the oasis between the northern edge of Taklamaken Desert and the Tianshan mountain ranges. The southern route ran through the southern edge of the desert and Kunlun Mountain. These two smaller routes further merged at Kashgar in Xinjiang Autonomous Region.

The route further splits into two from Kashgar- the northern route passed through Kokand and Samarkand (now in Kirghizstan) and southern route which ran through modern Bectria and merged with the northern branch at Merv in Margiana (present Turkmenistan). From Bactria, the route ran through Kapisi and Kabul to Peshawar and Taxila. From Taxila it was connected to Mathura and Ujjain (both in North India). Yet another route from Kashgar ran through Gilgit in Kashmir. Assam-Burma and Yunnan route originated in Chengdu, Sichuan province of China and entered Dali, Baoshan and Tengchong of Yunnan province. From Yunnan it passed through the northern part of Burma and entered Assam in the northeast of India.

The southern silk route further ran through Bengal and then finally merged with the central Asian route. It is believed this was earliest route for the Sino-Indian interface.The Tibet and Nepal route was more difficult to access than the central Asian and Southern Silk route. This route came into being the late 7th century.

ECONOMIC COMPARISON

CHINA: Since the late 1970s China has moved from a closed, centrally planned system to a more market-oriented one that plays a major global role - in 2010 China became the world's largest exporter. Reforms began with the phasing out of collectivized agriculture, and expanded to include the gradual liberalization of prices, fiscal decentralization, increased autonomy for state enterprises, creation of a diversified banking system, development of stock markets, rapid growth of the private sector, and opening to foreign trade and investment. China has implemented reforms in a gradualist fashion. In recent years, China has renewed its support for state-owned enterprises in sectors it considers important to "economic security," explicitly looking to foster globally competitive national champions. After keeping its currency tightly linked to the US dollar for years, in July 2005 China revalued its currency by 2.1% against the US dollar and moved to an exchange rate system that references a basket of currencies. From mid 2005 to late 2008 cumulative appreciation of the renminbi against the US dollar was more than 20%, but the exchange rate remained virtually pegged to the dollar from the onset of the global financial crisis until June 2010, when Beijing allowed resumption of a gradual appreciation. The restructuring of the economy and resulting efficiency gains have contributed to a more than tenfold increase in GDP since 1978. Measured on a purchasing power parity (PPP) basis that adjusts for price differences, China in 2012 stood as the second-largest economy in the world after the US, having surpassed Japan in 2001. The dollar values of China's agricultural and industrial output each exceed those of the US; China is second to the US in the value of services it produces. Still, per capita income is below the world average.

The Chinese government faces numerous economic challenges, including:

(a) Reducing its high domestic savings rate and correspondingly low domestic demand (b) Sustaining adequate job growth for tens of millions of migrants and new entrants to the work force

(c) Reducing corruption and other economic crimes(d) Containing environmental damage and social strife related to the economy's rapid transformation.

Economic development has progressed further in coastal provinces than in the interior, and by 2011 more than 250 million migrant workers and their dependents had relocated to urban areas to find work. One consequence of population control policy is that China is now one of the most rapidly aging countries in the world. Deterioration in the environment - notably air pollution, soil erosion, and the steady fall of the water table, especially in the North - is another long-term problem. China continues to lose arable land because of erosion and economic development. The Chinese government is seeking to add energy production capacity from sources other than coal and oil, focusing on nuclear and alternative energy development. In 2010-11, China faced high inflation resulting largely from its credit-fueled stimulus program.

Some tightening measures appear to have controlled inflation, but GDP growth consequently slowed to under 8% for 2012. An economic slowdown in Europe contributed to China's, and is expected to further drag Chinese growth in 2013. Debt overhang from the stimulus program, particularly among local governments, and a property price bubble challenge policy makers currently. The government's 12th Five-Year Plan, adopted in March 2011, emphasizes continued economic reforms and the need to increase domestic consumption in order to make the economy less dependent on exports in the future. However, China has made only marginal progress toward these rebalancing goals.

INDIA: India is developing into an open-market economy, yet traces of its past autarkic policies remain. Economic liberalization measures, including industrial deregulation, privatization of state-owned enterprises, and reduced controls on foreign trade and investment, began in the early 1990s and have served to accelerate the country's growth, which averaged under 7% per year since 1997. India's diverse economy encompasses traditional village farming, modern agriculture, handicrafts, a wide range of modern industries, and a multitude of services. Slightly more than half of the work force is in agriculture, but services are the major source of economic growth, accounting for nearly two-thirds of India's output, with less than one-third of its labor force. India has capitalized on its large educated English-speaking population to become a major exporter of information technology services, business outsourcing services, and software workers. In 2010, the Indian economy rebounded robustly from the global financial crisis - in large part because of strong domestic demand - and growth exceeded 8% year-on-year in real terms. However, India's economic growth began slowing in 2011 because of a slowdown in government spending and a decline in investment, caused by investor pessimism about the government's commitment to further economic reforms and about the global situation. High international crude prices have exacerbated the government's fuel subsidy expenditures, contributing to a higher fiscal deficit and a worsening current account deficit.

In late 2012, the Indian Government announced additional reforms and deficit reduction measures to reverse India's slowdown, including allowing higher levels of foreign participation in direct investment in the economy.

The outlook for India's medium-term growth is positive due to a young population and corresponding low dependency ratio, healthy savings and investment rates, and increasing integration into the global economy. India has many long-term challenges that it has yet to fully address, including poverty, corruption, violence and discrimination against women and girls, an inefficient power generation and distribution system, ineffective enforcement of intellectual property rights, decades-long civil litigation dockets, inadequate transport and agricultural infrastructure, limited non-agricultural employment opportunities, inadequate availability of quality basic and higher education, and accommodating rural-to-urban migration.

Comparison between Economies

Factors IndiaChina

GDP (purchasing power parity)$4.99 trillion (2013est.)$4.833 trillion (2012est.)$4.63 trillion (2011est.)note:data are in 2013 US dollars$13.39 trillion (2013est.)$12.43 trillion (2012est.)$11.54 trillion (2011est.)note:data are in 2013 US dollars

GDP - real growth rate3.2% (2013est.)5.1% (2012est.)7.5% (2011 est.)7.7% (2013est.)7.7% (2012est.)9.3% (2011 est.)

GDP - per capita (PPP)$4,000 (2013est.)$3,900 (2012est.)$3,800 (2011est.)note:data are in 2013 US dollars$9,800 (2013est.)$9,100 (2012est.)$8,300 (2011est.)note:data are in 2013 US dollars

GDP - composition by sectoragriculture:17.4%industry:25.8%services:56.9% (2013 est.)agriculture:10%industry:43.9%services:46.1%(2013 est.)

Population below poverty line22% (2013 est.)6.1%(2013)

Household income or consumption by percentage sharelowest 10%:3.6%highest 10%:31.1% (2005)lowest 10%:1.7%highest 10%:30%note:data are for urban households only (2009)

Inflation rate (consumer prices)9.6% (2013est.)9.7% (2012 est.)2.6% (2013est.)2.6% (2012 est.)

Labor force487.3 million (2013 est.)797.6millionnote:by the end of 2012, China's population at working age (15-64 years) was 1.0040 billion (2013 est.)

Labor force - by occupationagriculture:49%industry:20%services:31% (2012 est.)agriculture:33.6%industry:30.3%services:36.1%(2012 est.)

Unemployment rate8.8% (2013est.)8.5% (2012 est.)4.1% (2013est.)4.1% (2012est.)note:data are for registered urban unemployment, which excludes private enterprises and migrants

Distribution of family income - Gini index36.8 (2004)37.8 (1997)47.3 (2013)47.4 (2012)

Budgetrevenues:$181.3 billionexpenditures:$281.6 billion (2013 est.)revenues:$2.118 trillionexpenditures:$2.292 trillion (2013 est.)

Industriestextiles, chemicals, food processing, steel, transportation equipment, cement, mining, petroleum, machinery, software, pharmaceuticalsworld leader in gross value of industrial output; mining and ore processing, iron, steel, aluminum, and other 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, aircraft; telecommunications equipment, commercial space launch vehicles, satellites

Industrial production growth rate0.9% (2013 est.)7.6% (2013 est.)

Agriculture - productsrice, wheat, oilseed, cotton, jute, tea, sugarcane, lentils, onions, potatoes; dairy products, sheep, goats, poultry; fishworld leader in gross value of agricultural output; rice, wheat, potatoes, corn, peanuts, tea, millet, barley, apples, cotton, oilseed; pork; fish

Exports$313.2 billion (2013 est.)$296.8 billion (2012 est.)$2.21 trillion (2013 est.)$2.049 trillion (2012 est.)

Exports - commoditiespetroleum products, precious stones, machinery, iron and steel, chemicals, vehicles, apparelelectrical and other machinery, including data processing equipment, apparel, radio telephone handsets, textiles, integrated circuits

Exports - partnersUAE 12.3%, US 12.2%, China 5%, Singapore 4.9%, Hong Kong 4.1% (2012)Hong Kong 17.4%, US 16.7%, Japan 6.8%, South Korea 4.1% (2013 est.)

Imports$467.5 billion (2013 est.)$488.9 billion (2012 est.)$1.95 trillion (2013 est.)$1.818 trillion (2012 est.)

Imports - commoditiescrude oil, precious stones, machinery, fertilizer, iron and steel, chemicalselectrical and other machinery, oil and mineral fuels; nuclear reactor, boiler, and machinery components; optical and medical equipment, metal ores, motor vehicles; soybeans

Imports - partnersChina 10.7%, UAE 7.8%, Saudi Arabia 6.8%, Switzerland 6.2%, US 5.1% (2012)South Korea 9.4%, Japan 8.3%, Taiwan 8%, United States 7.8%, Australia 5%, Germany 4.8% (2013 est.)

Debt - external$412.2 billion (31 December 2013 est.)$378.9 billion (31 December 2012 est.)$863.2 billion (31 December 2013 est.)$737 billion (31 December 2012 est.)

Exchange ratesIndian rupees (INR) per US dollar -58.68 (2013 est.)53.437 (2012 est.)45.726 (2010 est.)48.405 (2009)43.319 (2008)Renminbi yuan (RMB) per US dollar -6.2 (2013 est.)6.3123 (2012 est.)6.7703 (2010 est.)6.8314 (2009)6.9385 (2008)

Fiscal year1 April - 31 Marchcalendar year

Public debt51.8% of GDP (2013 est.)51.7% of GDP (2012 est.)note:data cover central government debt, and exclude debt instruments issued (or owned) by government entities other than the treasury; the data include treasury debt held by foreign entities; the data exclude debt issued by subnational entities, as well as intra-governmental debt; intra-governmental debt consists of treasury borrowings from surpluses in the social funds, such as for retirement, medical care, and unemployment; debt instruments for the social funds are not sold at public auctions22.4% of GDP (2013 est.)26.1% of GDP (2012)note:official data; data cover both central government debt and local government debt, which China's National Audit Office estimated at RMB 10.72 trillion (approximately US$1.66 trillion) in 2011; data exclude policy bank bonds, Ministry of Railway debt, China Asset Management Company debt, and non-performing loans

Reserves of foreign exchange and gold$295 billion (31 December 2013 est.)$296 billion (28 December 2012 est.)$3.821 trillion (31 December 2013 est.)$3.388 trillion (31 December 2012 est.)

Current Account Balance-$74.79 billion (2013 est.)-$91.47 billion (2012 est.)$182.8 billion (2013 est.)$215.4 billion (2012 est.)

GDP (official exchange rate)$1.67 trillion (2013 est.)$9.33 trillionnote:because China's exchange rate is determine by fiat, rather than by market forces, the official exchange rate measure of GDP is not an accurate measure of China's output; GDP at the official exchange rate substantially understates the actual level of China's output vis-a-vis the rest of the world; in China's situation, GDP at purchasing power parity provides the best measure for comparing output across countries (2013 est.)

Stock of direct foreign investment - at home$310 billion (30 November 2013 est.)$225.1 billion (31 December 2012 est.)$1.344 trillion (31 December 2012 est.)$1.232 trillion (31 December 2011 est.)

Stock of direct foreign investment - abroad$120.1 billion (31 December 2013 est.)$118.1 billion (31 December 2012 est.)$541 billion (31 December 2013 est.)$531.9 billion (31 December 2012 est.)

Market value of publicly traded shares$1.263 trillion (31 December 2012 est.)$1.015 trillion (31 December 2011)$1.616 trillion (31 December 2010 est.)$6.499 trillion (31 December 2013 est.)$5.753 trillion (31 December 2012)$3.389 trillion (31 December 2011 est.)

Central bank discount rate7.75% (31 December 2013 est.)8% (31 December 2010 est.)note:this is the Indian central bank's policy rate - the repurchase rate2.25% (31 December 2013 est.)2.25% (31 December 2012 est.)

Commercial bank prime lending rate10.6% (31 December 2013 est.)10.63% (31 December 2012 est.)5.73% (31 December 2013 est.)6% (31 December 2012 est.)

Stock of domestic credit$1.379 trillion (31 December 2013 est.)$1.401 trillion (31 December 2012 est.)$11.79 trillion (31 December 2013 est.)$10.02 trillion (31 December 2012 est.)

Stock of narrow money$303.1 billion (31 December 2013 est.)$317.4 billion (31 December 2012 est.)$5.532 trillion (31 December 2013 est.)$4.911 trillion (31 December 2012 est.)

Stock of broad money$1.376 trillion (31 December 2013 est.)$1.396 trillion (31 December 2012 est.)$18.15 trillion (31 December 2013 est.)$15.5 trillion (31 December 2012 est.)

Taxes and other revenues10.3% of GDP (2013 est.)19.4% of GDP (2013 est.)

Budget surplus (+) or deficit (-)-5.7% of GDP (2013 est.)-2.1% of GDP (2013 est.)

GDP - composition, by end usehousehold consumption:56.4%government consumption:12.4%investment in fixed capital:29.6%investment in inventories:8.2%exports of goods and services:25.2%imports of goods and services:-31.8%(2013 est.)household consumption:36.3%government consumption:13.7%investment in fixed capital:46%investment in inventories:1.2%exports of goods and services:25.1%imports of goods and services:-22.2%(2013 est.)

Gross national saving33.7% of GDP (2013 est.)28.8% of GDP (2012 est.)30.3% of GDP (2011 est.)50% of GDP (2013 est.)51.2% of GDP (2012 est.)50.1% of GDP (2011 est.)

India-China Bilateral Trade Relationship

Bilateral trade agreements are agreements between countries where one country gives preference to certain countries in commercial relationships, facilitating trade and investment between the home country and the foreign country by reducing or eliminating tariffs, import quotas, export restraints and other trade barriers.

Bilateral trade agreement is defined in Business dictionary as The exchange of goods between two countries, Bilateral trade agreements give preference to certain countries in commercial relationships, facilitating trade and investment between the home country and the foreign country by reducing or eliminating tariffs, import quotas, export restraints and other trade barriers. Bilateral trade agreements can also help minimize trade deficits. A bilateral trade agreement usually includes a broad range of provisions regulating the conditions of trade between the contracting parties. These include stipulations governing customs duties and other levies on imports and exports, commercial and fiscal regulations, transit arrangements for merchandise, customs valuation bases, administrative formalities, quotas, and various legal provisions.

All countries that sign a bilateral trade agreement are mutually benefitted the economic gains from international trade are improved when many countries or regions agree to a mutual reduction in trade barriers. India china bilateral trade started in 1950 and reached US$ 61.7 billion in 2010.

The China-India bilateral trade at approximately USD19 billion in 2005 is deemed to be a far cry of a respectable volume of trade for two large economies. Despite the fact that both economies have pledged to increase bilateral trade to USD40 billion by 2010, the importance that India assigns to China is yet to be reciprocated. China is Indias second largest trading partner whilst India remains a distant tenth in Chinas foreign trade. Thus, cooperation is considered limited to this date.

China has emerged as Indias largest trading partner after it replaced the United States in March 2008. When India initiated its comprehensive reforms in 1991, the level of bilateral trade between the two countries was insignificant as the trade basket was restricted to a limited number of products. However within a short period, China has become Indias single most important trading partner even though Indias bilateral trade deficit with China reached an unsustainable level of US$ 39.1 billion in 2012 (IMF, 2013b). Policy makers will have to find ways to manage this huge deficit given that India can neither afford to limit its economic engagement with China nor continue with such a huge bilateral trade asymmetry for a long period of time.

Trade pattern of China and IndiaS.No.\Year2009-20102010-20112011-20122012-20132013-2014

1EXPORT11,617.8815,482.7018,076.5513,534.8814,824.36

2%Growth33.2716.75-25.129.53

3India's Total Export178,751.43251,136.19305,963.92300,400.68314,405.30

4%Growth40.4921.83-1.824.66

5%Share6.56.175.914.514.72

6IMPORT30,824.0243,479.7655,313.5852,248.3351,034.62

7%Growth41.0627.22-5.54-2.32

8India's Total Import288,372.88369,769.13489,319.49490,736.65450,199.79

9%Growth28.2332.330.29-8.26

10%Share10.6911.7611.310.6511.34

11TOTAL TRADE42,441.9058,962.4673,390.1365,783.2165,858.98

12%Growth38.9324.47-10.370.12

13India's Total Trade467,124.31620,905.32795,283.41791,137.33764,605.09

14%Growth32.9228.08-0.52-3.35

15%Share9.099.59.238.328.61

Chinas Trade with India

Reflecting the synergy in bilateral trade relations, total trade between the two countries has also risen more than 20-fold, from US$ 3.6 bn in 2001 to US$ 73.9 bn in 2011, underlined by rise in both Chinas exports to as also imports from India.

During the period 2001-2011, Chinas exports to India rose from US$ 1.9 bn in 2001 to touch US$ 50.5 bn in 2011, with a CAGR(Compound Annual Growth Rate) of 38.8% during the period. As a result, Indias share in Chinas global exports has risen from 0.7% in 2001 to touch 2.7% in 2011. Chinas imports from India have also risen from US$ 1.7 bn in 2001 to US$ 23.4 bn in 2011, with a CAGR of 30%. Indias share in Chinas global imports has also risen from 0.7% to 1.3% during the period.

Chinas Exports to India Major Commodities

Machinery and electrical & electronic equipments are the two largest items of Chinas exports to India, with a combined share of 45% of Chinas total exports to India during 2011 (24.4% & 21.3% share, respectively).Chinas exports of these two items to India have, in fact, registered a significant rise in recent years, with the result that Chinas trade surplus with India for these two items are as high as US$ 11.9bn in the case of machinery, and US$ 10.3 bn in the case of electrical and electronic equipment.

Other major items of Chinas exports to India include: organic chemicals, fertilizers, articles of iron and steel, iron and steel, and plastics and articles. For all these major items, India has emerged as one of the leading export destinations for China.

For instance, India is the 6th largest global market for Chinas exports of machinery (with a share of 3.5% of Chinas global exports in 2011); 8th largest global market for Chinas exports of electrical and electronic equipment (2.4% share); 2nd largest global market for Chinas exports of organic chemicals (11.8% share); largest global market for Chinas exports. of fertilizers (44.7% share); 4th largest global market for Chinas exports of articles of iron and steel, and iron and steel (5.9% & 4.6% share, respectively); 7th largest global market for Chinas exports of plastics and articles (2.5% share).

Chinas Imports from India Major Commodities

Two items, viz. ores, slag and ash, and cotton dominate Chinas imports from India, together accounting for 32% of Chinas total imports from India during 2011. Other major items of Chinas imports from India include copper and articles, pearls and precious stones, organic chemicals, and plastics and articles.As in the case with exports, India has emerged as an important global import source for China.

While India has emerged as the 3rd largest global source for Chinas imports of ores, slag and ash in 2011 (accounting for 6.9% share of Chinas imports), India is the leading global source for Chinas imports of cotton (22% share). Further, Indias is the 8th leading global source for Chinas imports of copper and articles (4% share), and the 4th largest global source for Chinas imports of pearls and precious stones (8% share).

Potential Areas for Enhancing Bilateral Trade Relations

Bilateral trade relations between India and China has witnessed a significant rise in recent years, with total trade (exports plus imports) between them having risen more than 20-fold, from US$ 3.6 bn in 2001 to as much as US$ 73.9 bn in Reflecting on the higher growth in Chinas exports to India, as compared with import growth from India, Chinas trade surplus with India has witnessed a sharp rise from a meagre US$ 0.3 bn in 2001 to touch US$ 27.2 bn in 2011. India has emerged as one of the major destinations for Chinas exports.

In 2011, India was the 7th largest export market for China, up from the 19th position in 2001. However, as regards Chinas imports, India is still a marginal partner at the 18th position in 2011, a slight improvement from the 20th position in 2001.

To enhance bilateral trade relations, and in particular to address Indias rising trade deficit with China, strategy to boost trade relations with China would entail identification of potential items of Indias exports to China, which would be based on the following analysis: Identification of major items in Chinas import basket, and share of India in each product line. Selection of potential export items, based on low share of India in Chinas import basket of major commodities, keeping in view Indias global export capabilities. This would entail identification of potential export items under each product category.

Recent developments in India- China relations

India- china strategic 2nd economic dialogue, 20121. The 2nd India-China Strategic Economic Dialogue (hereinafter referred to as the Dialogue) took place in New Delhi on 26 November, 2012. The Indian side was led by H.E. Mr. Montek Singh Ahluwalia, Deputy Chairman, Planning Commission, Republic of India and the Chinese side was led by H.E. Mr. Zhang Ping, Chairman, National Development and Reform Commission, Peoples Republic of China (hereinafter referred to as the two sides).

2. Established during the visit to India of H.E. Mr. Wen Jiabao, Premier of the State Council of the Peoples Republic of China in December 2010, the Dialogue is aimed at improving macro-economic policy coordination, promoting exchanges on economic issues and enhancing India-China economic cooperation. The 1st Dialogue had been successfully held at Beijing in September 2011 where the two sides agreed to constitute five Working Groups on policy coordination, infrastructure, energy, environment protection and high-technology. A working level delegation from China visited New Delhi in March 2012 following which the five Working Groups met in Beijing in the months of August and September 2012. This preparatory work has contributed immensely to the successful deliberations in and outcomes of the 2nd Dialogue.

3. During the 2nd meeting of the Dialogue, the two sides discussed a wide range of topics including greater cooperation at the global level, strengthening communication on macro-economic policies, deepening and expanding trade and investment and promoting bilateral cooperation in the financial and infrastructure sectors. The proposals and recommendations made by the five Working Groups were considered during the 2nd Dialogue and directions given for their future activities.4. The two sides agreed that in the current global economic situation it was important to raise the level of economic engagement between India and China. The two sides agreed on the following:(i) Cooperation at the global level:Exchanging views on current global economic and developmental challenges, the two sides recognized that as major developing economies, they needed to maintain close coordination and communication to pursue their common interests. Among them is the reform of international monetary and financial systems, stabilizing the volatility in global commodity markets, working towards sustainable development and climate change goals, and ensuring food and energy security.

(ii) Strengthening communication on macroeconomic policies: Following detailed discussions on the global and national economic situations, the two sides agreed that development growth trends globally have weakened as a result of a number of factors since the onset of the global financial crisis. This included weakening demand in the developed markets, the ongoing Eurozone crisis, lower business confidence, and growing inflationary trends. Both sides seek to maintain continued economic growth while adjusting manufacturing and services, upgrading levels of technologies and skills, while developing the hard and soft infrastructure for encouraging economic growth. The two sides agreed that they would regularly conduct joint studies on issues of mutual interest, focusing on benefits of bestpractices.

(iii) Deepening and expanding trade and investment:With a view to promoting greater economic and commercial engagement, both sides recognized the need to explore potential synergies in areas where the two sides have mutual complementarities, improve trade and investment environments, work towards removing market barriers, enhance cooperation in project contracting, deepen business to business exchanges, improve transportation links, encourage greater bilateral investment and work towards achieving a more balanced and sustainable bilateral trade.

(iv)Expanding cooperation in the financial and infrastructure sectors:Both sides have agreed to intensify the cooperation in the financial sector by encouraging financial institutions of the two countries to set up operations in either country to support enterprises of the two countries to establish / expand commercial operations. Both sides agree to undertake studies in related areas including innovative financial methods to support the requirements of priority sectors particularly the infrastructure sector having significant scope for furthering economic development.

5. The main outcomes of the Working Groups are as follows:6. (a) In thePolicy Coordination Working Group,both sides discussed plan priorities and ways and means of achieving plan targets recently unveiled in their 12th Five Year Plans. They exchanged views on skills development and industrial park development. The two sides also submitted assessment reports on the investment environments in each others country based on the experiences of the enterprises of the two countries and discussed possible solutions to improve the investment environment. The two sides have also agreed to carry out joint studies on planning cooperation and skills development for employability,and entered into related MoUs.

(b) In theInfrastructure Working Group,with its focus on enhancing railway cooperation, both sides exchanged views on the broad policies and plans for railway development in each others country. The two sides also discussed high-speed rail development programme, heavy haul and station development and entered into an MoU to exchange views and other related information in these areas.

(c) In theEnergy Working Group,both sides briefed each other on the development of the power sector in the two countries, the ongoing cooperation in the power equipment sector, opportunities and challenges in the wind energy sector, the possibility of Chinese power equipment manufacturers setting up service centres in India and relevant policy environment to support the ongoing cooperation, and reviewed the small hydro power workshop that was successfully held in Beijing in October 2012.d) In theEnvironmental Protection Working Group,the two sides agreed to enhance cooperation in the implementation of energy efficiency projects through energy service companies (ESCOs), encouraging visits to industrial and manufacturing centres excelling in energy efficient initiatives, cooperate and jointly develop testing protocols and standards and have entered into a related MoU. The two sides also exchanged views on enhancing cooperation in water-saving technologies covering the areas of waste water recycling and water-efficient irrigation systems.

(e) In theHi-Technology Working Group,the two sides agreed to enhance cooperation in the Information Technology and Information Technology Enabled Services (IT/ITES). Both sides also agreed to carry out / support joint studies to better understand the IT/ITES markets of each country and have entered into a related MoU in this area. The two sides also reached a consensus to explore the possibility of working together for developing common standards for digital TV, audio and video codec standards and mobile communication technology.

7. The following Memorandums of Understanding were signed by the two sides in the presence of the delegation leaders:

(a) Memorandum of Understanding between the Planning Commission of the Government of the Republic of India and National Development and Reform Commission of the Government of the Peoples Republic of China on Undertaking Joint Studies.

(b) Memorandum of Understanding between the Bureau of Energy Efficiency, Ministry of Power, Government of the Republic of India and National Development and Reform Commission of the Government of the Peoples Republic of China on Enhancing Cooperation in the Field of Energy Efficiency.

(c) Memorandum of Understanding between the Ministry of Railways of the Government of the Republic of India and Ministry of Railways of the Government of the Peoples Republic of China on enhancing technical cooperation in the railway sector.

(d) Memorandum of Understanding between the National Association of Software and Services Companies (NASSCOM), India and the China Software Industry Association (CSIA) on Enhancing Cooperation in the IT/ITES Sector.8. The two sides agreed that the 3rd India-China Strategic Economic Dialogue will be convened in China in 2013. They also agreed that prior to the 3rd Dialogue, the Working Groups would meet to implement the consensus and decisions agreed to by the two sides at the 2nd Strategic Economic Dialogue.

The 5th India-China Strategic DialogueOn August 20, 2013, The 5th round of the India-China Strategic Dialogue was held in New Delhi by Indian Foreign Secretary Sujatha Singh and Chinese Vice Foreign Minister Liu Zhenmin. During the 4-hour meeting, the two delegations discussed bilateral, regional, and global issues, and exchanged ideas for improving trade relations, reducing the Indian trade deficit, and boosting cultural cooperation, people-to-people exchanges and the expansion of scientific and technological cooperation. The two sides discussed the use of ways trans-border river waters, and ways to maintain peace along the Line of Actual Control (LAC), and planned for the China visit by Indian Prime Minister Manmohan Singh by the end of the year.Future cooperation in the BRICS framework, ways of ensuring an open, inclusive and transparent architecture in the Asia-Pacific region and the outlook for Afghanistan in 2014 and beyond were other areas of discussion between the two sides.

Chinese President Xi Jinping visits India, 2014:China's President Xi Jinping has begun his first official visit to India for talks expected to focus on improving trade and boosting Chinese investment. He is expected to pledge billions of dollars in investment, including plans for Chinese-funded industrial parks.President Xi's plane landed in Gujarat, home state of India's PM Narendra Modi, who has also vowed to deepen ties. China is one of India's top trading partners but they vie for regional influence and dispute their border. Mr Xi's visit comes amidunconfirmed reports in the Indian mediaof a new face-off on the border.The reports said Indian troops had spotted their Chinese counterparts trying to construct a temporary road into Indian territory across the Line of Actual Control (the de facto boundary) in the Ladakh region.Despite the continuing tensions, trade between India and China has reached close to $70bn (43bn) a year, although India's trade deficit has climbed to more than $40bn from $1bn in 2001-2002.Ahead of his visit, Mr Xi said he appreciated Mr Modi's comment that "China and India are two bodies, one spirit"."The combination of the 'world's factory' and the 'world's back office' will produce the most competitive production base and the most attractive consumer market," he wrote.

Conclusion/ InferencesPositive evaluation-1. Bilateral trade is an important indication of international economic relations. Although both countries are yet to resolve their boundary dispute but they have fared exceptionally very well in economic relations. 2. Bilateral trade rose to $ 72Billion in 2012, highest ever. China has been exploring options to diversify its exports as its major clients in Europe and North America are yet to recover from recession completely. China is in search of next big consumer that can remain reliable and consistent in the long run. That bulk Buyer is India with 1.2billion populations with enormous young age population. It can continue to remain a major market for Chinese manufacturers. 3. This opportunity has to be seen vis-a-vis China how India can benefit from mutual cooperation. In our analysis we have observed that this incremental trade accrued to China significantly resulting in huge trade deficit for India. 4. Trade intensity figures show that India and China are not still trading at high level as expected. There is scope for increase in bilateral trade. Next, Growth in trade is also possible if we can exploit our comparative advantage as shown in many commodities by the data. There is an overlap in few commodities, so the two countries can trade in areas where there is no overlap in comparative advantage. 5. There is also scope for increased intra-industry trade in some areas where the two countries compete with each other (WU and Zhou 2006).Both countries can exchange valuable experiences given different growth strategy they have adopted. India has been able to sustain high growth rate with few investment in Infrastructure while China has made enormous investment in manufacturing and allied investment and has become factory of the world. After slow down, it can still accelerate its economy if service sector gets a stimulus. India can be of significant contribution in this area. 6. Indias manufacturing sector is still very small. Its contribution in GDP growth has been small. India has to learn from China in this field how to harness the cheap labour available here and generate a numberof jobs.7. Both countries canregain theshare of WorldGDP asthey have in 1820 that was two third of whole. It is possible only when both learn mutually from each other with synergy and then this deadline can be achieved very soon. This paper gives clear insights into bilateral trade for both Asian neighbours for the last 20 years very comprehensively and policy implications are discussed in the last section deliberating how India can bridge the gap (trade deficit) meanwhile China too can increase its export. Negative evaluation/ counter evaluation-1. India assumes Chinas rise as Asias rise but China sees its rise as separate from Asia's destiny. When it does pay lip service to the "rise of the Asian century" discourse, it is to reach out to an Asia that might challenge China's rise to power.

Since 1949, when the Chinese Communist Party first declared the Common Program of the new Chinese state, it has been concerned with an examination of how dominant states achieve power. It has studied as well how dominant states use power to sustain the enhancement of their power. Hence, the Chinese have an obsession with comprehensive national power as a basis for state and regime security. The difference in the two assumptions means that Beijing's "win-win" statements need to be examined in Delhi with more reference to India's interests than China's desires.

2. Second, Delhi moves on the presumption that the bilateral relationship between India and China is about accommodation on the border dispute. China, on the assumption that the bilateral relationship with India is about its territorial integrity and sovereign rights which are non-negotiableGiven the interweaving of notions of sovereignty with the "mandate to rule", it is a rare Chinese leadership that will agree to a bargain on the border unless India makes a strong argument using a variety of instruments of state policy.

3. Delhi should be cautious of working to Beijing's plan, a plan based on reversing the mistakes of its coastal development policy. The reasons for the economic backwardness in India's Northeast are clearly different and will have to be addressed through a different set of economic regimes and platforms.Any realistic assessment of the nature of India's trade with China also indicates the fact that both the current levels of trade and the basket of commodities traded are not sustainable unless India wants to revert to a neo-colonial existence as an economy based on resource extraction.

4. The excitement over China's domestic economic turn needs to be reviewed as well. China's domestic market is unlikely to present a level playing field for Indian investors unless there is deep reform in its state-owned enterprises, the largest part of its manufacturing sector. The fact that major Chinese companies abroad are state-owned companies means that their investments in India would primarily be investments by the Chinese state, a situation that should create unease in Delhi.

5. To move ahead to grow its infrastructure and the manufacturing and agricultural sectors, India should look at China where possible but also beyond China. While China's economic presence in East Asia is dominant, other East Asian states have done as well without the liabilities China has created in terms of economic and social imbalances.

6. Fourth, India moves on the assumption of mutuality and reciprocity, China on the assumption that its interests alone must be jealously guarded. Therefore, we have had the absurd example of India, and the world, being held hostage to China's demand that it endorse the one-China policy and the position of Tibet within China. Not to mention the even more duplicitous opposition from Beijing to India's exploration activities in what it regards as disputed waters off the coast of Vietnam when China marches ahead with infrastructure and development activities in Kashmir as well as maintains a hold on disputed territories in Kashmir "ceded" to it by Pakistan.

7. In a silly foreign policy sideshow, there is the other situation where India banks on its history of supporting China's admission in the United Nations but comes up empty when it asks China's support for its candidature to a permanent seat at the UN Security Council.Mutuality and reciprocity are well entrenched principles in international law, and Delhi would be well within its rights to demand this from China or else cease its verbal support for China's position on Taiwan and Tibet while raising the issue of its activities in disputed territories in Kashmir in a consistent manner.8. To have a credible and workable China policy, India must make its assumptions and their implications clear to China. So far we have seen little in our China policy that speaks to our foreign policy assumptions.It is imperative to begin to understand the many different levels at which we need to engage with China to resolve issues. Given the narrow of window of opportunity in front of us before China's rise becomes truly credible, succumbing to shock and awe is an option we do not have. But the surge of Revived National sentiment as Modi enters scene gives us a ray of hope that may be India will truly focus on the demanding issues rather than ignore them as I had been doing earlier. China seemed to have agreed to pool in cash and invest in the Indian economy; also new FTAs (free trade agreement) are on the spur.So overall we have an optimistic outlook that in the coming years India will learn how to benefit from China and both the countries will rise in Synergy.

References1. BBC News http://www.bbc.com/news/world-asia-india-29218466

2. Mehraj Uddin Gojree, India and China: Prospects and Challenges, International Research Journal of Social Sciences, Vol. 2(8), 48-54, August (2013).

3. Ravindra D. Hande, Kishor P.Kadam India-China Trade Relation And Its Changing Scenario Electronic International Interdisciplinary Research Journal (EIIRJ) {Bi-Monthly},ISSN 2277-2456, Volume-I, Issue-III.2013

4. Raksha Thakur, Potential of India-China Bilateral Trade Relations: A Trend Analysis www.theinternationaljournal.org > RJCBS: Volume: 01, Number: 10, August-2012.

5. Prof. S. K. Mohanty, India-China Bilateral Trade Relationship A Project Research Study funded by Reserve Bank of India.

6. Duetsche Bank Report. India China Risk Analysis.

7. Economic Survey Of India http://indiabudget.nic.in/survey.asp

8. Sheikh Mohd Arif, A History of Sino-Indian Relations: From Conflict to Cooperation International Journal of Political Science and Development.

9. http://www.indiastat.com/default.aspx

10. http://en.wikipedia.org/wiki/China%E2%80%93India_relations

11. http://www.academia.edu/7794608/Changing_Bilateral_Trade_between_India_and_China

12. China and India: Economic Performance, Competition and Cooperation-An Update, T. N. Srinivasan,2002

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