1. Introduction
India and China have a lot in common. Being ancient
civilizations reincarnated as modern republics around the same time, both
countries have lived through tumultuous times domestically and internationally.
Today they have emerged as rising powers in Asia, striving to make this century
as the one belonging to Asia. One of the distinctive characteristic of the
relation between India and China has been the role played by extraneous actors
(read Pakistan, USA and Japan).
The Sino-Indian relationship is multi-dimensional, ranging
from the issue of border conflict, economic interdependence, to societal and
cultural interactions, all of which can’t be dealt with in the limited space
under this research paper. Thus, we will limit our analysis to the economic
aspect of this relationship.
In the ensuing chapters we will try to list out the
nuances of economic interactions between the two Asian giants. This will be
done by underlining the historical evolution of the economic relations. In
order to have a better understanding of the topic, we have solicited the help
of a case study whereby an attempt is made to compare the emergence and
evolution of SEZs (special economic zones), often credited with the reason
behind China’s emergence as the manufacturing hub of the world, and their
functioning in India and China. In the later sections, we have tried to chart
out the present scenario and the contemporary issues on economic front, such as
convergence on multilateral platforms like WTO as well as future avenues of
cooperation (BICM corridor, Silk Route Economic Belt, Maritime Silk Route etc.)
In the final section, the future course of action for the
two countries have been looked into. Whether the 21st century will
belong to Asia is contingent on the question that whether the two giants will
be able to look beyond their differences, which entails a deeper understanding
of each other’s domestic compulsions and state-society relations.
2. Overview
2.1: Historical Legacy
While an individual has the agency to choose his/her
friends and enemies, this agency of choice doesn’t translate at the macro level
to the nations. A country doesn’t have any control in choosing it's neighbors.
The Sino-Indian relations should be analysed in light of the above statement.
Both India and China emerged as independent republics at almost the same time
but reached this point via different paths- one coming out of the bounds of
colonialism while other riding on a communist revolution. The future course of
development adopted by the two also differed but since no country can function
in isolation, the interactions between the two countries became imminent.
Though there are numerous dimensions to this relationship, we will try to limit
our analysis to its economic aspect only.
The legacy of relations between India and China began to
change in the 1980s, with the opening of both economies. The shift in both
countries from an import substitution to an export promotion strategy during
the1980s, led the focus to shift gradually to economics. With the onset of the
process of globalization, an added impetus was given to enhanced economic
cooperation between the two nations.
2.2: Relations under the New Govt.
The Sino-Indian relationship has been infused with fresh
energy following the landslide victory of BJP in May last year. The interest
shown by Beijing throughout the run-up of the elections and following the
announcement of the results are ominous of a new chapter in the bilateral
relations. It no doubt has increased the prospects for cooperation but, at
closer inspection, an increase in the probable avenues of conflict also become
apparent.
China was one of the very first countries to congratulate
Mr.Modi for his landslide victory. The increased enthusiasm from the Chinese
has been manifested in the visits by the top-brass of the Chinese business and
political leadership, including that of President Xi Jinping in September. The
images of Mr.Modi and Mr.Xi strolling alongside the banks of Sabarmati river
indicate a new found dynamism in the conduct of Indian foreign affairs, and
also an attempt to strike a personal rapport between the two leaders.
Let us now try to explore the reasons that elicited such
positive response from Beijing.
•
With a strong Centre in power in India, concrete and
fast- track decision-making is set to
replace the lax and indefinite approach of the previous government, attributed
to the exigencies of coalition politics.
•
In light of the protracted relationship of Modi vis-a-vis
USA (read Visa issue), China hoped that by bringing India closer it can stall
any attempts of containment planned by USA in association with India. However,
Chinese hopes seem to be quashed following an increase in the diplomatic
interactions between India and USA. The Chinese dejection is reflected in the
warning that it issued to India for not to be swayed by the American promises,
following the Joint Statement during Obama’s visit to India earlier this year.
•
Modi’s pro-business attitude is hidden to none. In his
earlier stunt as the Chief Minister of Gujarat, he visited China in 2011 and
established close links with the businesses there, providing them incentives to
invest in the state. His government’s another flagship program, ‘Make in
India’, is another step in that direction.
•
China at this point of time considers India as a lesser
threat. It seems to be pre-occupied with deterring the problems posed by USA
and Japan. Moreover, it is also trying to project itself as the leader of the
developing world and in that regard India can assist it considerably at
multi-lateral platforms.
Thus, in a nutshell, it is safe to say that it is more
prudent, not only for India but also China, to coalesce rather than compete
against each other. This line of thinking seems to be reflected in the gradual
emergence of economics as the determining factor in the Sino-Indian
relationship instead of looking to resolve the border issue, for the time
being.
2.3: Case Study: Shenzhen SEZ
“As of now China has only 5 SEZ while India has approved
200 and still counting. Export from only Shenzhen has crossed $ 200 Billion in
2010 which accounts for one-seventh of China's total. How come China's SEZ is
this effective compared to India.” While browsing through Quora, we once came
across this question prompting me to obtain a greater understanding of the
issue and playing a factor in me choosing this as our topic for case study.
Anyone studying the economy must have come across the word
SEZs (Special Economic Zones). It is often been argued that SEZs were the
drivers of the incredible economic growth witnessed in China making it the
manufacturing hub of the world. Not many of us would be aware of the fact that
the first SEZ (earlier called Export Processing Zone) in Asia was set up in
India in Kandla, Gujarat in 1965. However, it failed to capitalize on this
relative advantage and China has been more successful in its application and
appropriation of the benefits accrued out of it.
With SEZs being indispensable in Chinese case and the
inability to produce identical results in India, the study of these SEZs in the
Indian and Chinese case can provide a deep insight into the present state of
the two economies.
In our analysis we have taken the case of Shenzhen, which
is not only the earliest SEZ project in China but one of the largest in terms
of geographical area it covers.
Shenzhen, an erstwhile small fishing town on the
south-eastern coast of China, bordering Hong Kong, burst onto the world scene
in the ‘80s following it being approved as the first SEZ project in China in
1979. Shenzhen heralded the essence and evolution of China’s earlier domestic
reforms and global integration.
Socioeconomically, while adventurous individual pioneers searching for
private fortune or religious freedom built the boomtowns of the old American
West, Shenzhen became an ―”instant city” as a result of
it having been designated as a SEZ - thus its growth was propelled by a
purposeful push from a powerful state. Its boom was sustained by the extended
implementation of favorable policies and rapid and continued build-up of
large-scale, state-financed infrastructure. Additionally, Shenzhen would not
have boomed without the collective toil of many risk-taking migrant laborers.
Shenzhen is one of the largest SEZs in China, covering an
expansive area of around 2000 sq. km, two times as much as Hong Kong. The
establishment of Shenzhen SEZ should be seen in the light of the promulgation
of Joint Venture Law, 1979, and The Regulation on Special Economic Zones, 1980.
The concept of SEZs, bearing resemblance to the Export Processing Zone (EPZ)
model followed in several other countries at that time, was a bold initiative
for a country that perceived itself as upholding socialist ideologies. Market
leaders like Huawei and Shenzhen Marine Containers Group (Ltd.) have made use
of the growth prospects provided by the virtue of this area being a SEZ. In
addition companies of international repute like Toshiba, Ricoh, Epson and Xerox
have established high volume manufacturing hubs, that contribute 21% of their
world output.
Let us now devote some time dwelling upon the reasons to
uncover the success story that is Shenzhen.
•
Starting from a modest population of 30,000 in 1979, it
has come a long way in the last three decades with its population numbering in
excess of 12 million. One important observation can be made here is that it
boasts of a huge migrant population, constituting almost 83% of the total
population.
•
The Central Government has provided special policy
environment for Shenzhen SEZ, thus creating “soft environment” to upgrade the
industrial competitiveness in the city. This reflects in the special tax regime
in place, especially for high-tech industries. Before 2005, the enterprises in
Shenzhen SEZ enjoyed preferential revenue tax rate, i.e., 15%.
•
Shenzhen is the most active city in the sector of risky
investment in China. By the end of 2005, the number of risky investment
organizations in Shenzhen accounts for 1/3 of China. In Shenzhen, there are
Shenzhen Stock Exchange, Trading Center of Hi-Tech Equity Rights, Shenzhen SME
Guarantee Center, etc.
•
The infrastructure is well-established in Shenzhen. For
example, its harbor ranks No.4 in the global container transportation, and its
airport No.4 in terms of passenger flow. All of these conditions have built a
favorable logistic environment for the upgrading of the industrial
competitiveness in the city.
•
Shenzhen neighbors Hong Kong, so the upgrading of the
industrial competitiveness benefits from Hong Kong as the international
financial center, information center and efficient intermediate service center.
However, one must keep in mind that the picture is not as
rosy as it seems at the first look. Shenzhen SEZ, like most of those anywhere
else, is fraught with the problems like the issue of integration and equal
rights to the migrants, use of this means by private houses to acquire precious
agricultural land at throwaway prices, undermining of labor rights, amongst
others.
Now we are better endowed to answer the question asked at
the beginning of this section – that regarding the comparison of SEZs in India
and China.
•
The People’s Republic of China began its tryst with SEZs
in ‘80s and gained success only in ‘90s, speaking volumes about the gestation
period for such initiatives. Whereas India initially started with EPZ and
jumped boats only in 2005 after failure of the initial model. Hence, in
essence, India being a late entrant needs some time to catch up to China.
•
Difference in Size: Chinese SEZ blueprint says, Size Matters for SEZ. Shenzhen is the
largest SEZ in China, as is already explained above, and is spread over 493 Sq
Kms. (49,300 hectares). While the largest SEZ in India, Reliance - Navi Mumbai
and Maha Mumbai SEZ, is mere 14,000 hectares. The minimum area required to set
up an SEZ in India is merely 10 hectares. How can self-sustaining
infrastructure be developed in such small area?
·
In China the SEZs are fully operated by the state, whereas
in India the provision for operations by private enterprise and joint sector is
also present.
•
In China, the labor laws are relaxed whereas such a
flexibility is completely absent in the Indian case.
•
In China a lot of careful planning and deliberation has
gone into deciding about the location of these SEZs, all located in coastal
areas near business hubs like Hong Kong, Macau and Taiwan. In contrast, Indian
SEZs are allocated arbitrarily which dissuades the export-oriented businesses
from investing in these areas.
•
Chinese mantra for success is its focus on ‘quality rather
than quantity’. While China has 6 SEZs in total, India has already commissioned
more than 200 SEZs with many more in the pipeline.
•
Policies in Chinese SEZs are characterized with a degree
of experimentation, insulating it from laws in the rest of the country with an
eye on attracting investment. In Indian SEZs, the rules are dictated by fiscal
sops (standard operating procedures).
•
Lastly, but most importantly, Chinese SEZs are based on
foreign investment whereas their Indian counterparts have failed to woo in the
foreign capital and is essentially driven by local capital. Government’s ‘Make
in India’ initiative which underpins a single window clearance for forign
capital can go a long way in removing this lacuna.
2.3: Prospects for Cooperation in future
The sixth BRICS summit held at Fortaleza (Brazil) on 15th
July provided an important platform or the first ever meeting between PM Modi
and President Xi. Alluding to its significance President Xi remarked, “When
India and China meet, the whole world watches”. This is no exaggeration if we
take cognizance of the economic clout of China and the potential and
demographic advantages of India, especially if the two countries decide to work
together.
There was much enthusiasm ($100 billion investment
package) before the visit of President Xi to India in anticipation of a large
Chinese investment package, especially on the heels of successful Japanese
visit by Modi which enabled India to secure a $35 billion Japanese investment.
Though these hopes were not reciprocated completely fetching a ‘mere’ $20
billion Chinese investment, the economic relations between the two nations received
a new fillip.
Let us now invest some energy to list out the avenues for
future prospects of cooperation.
•
In order to turn the skewed trade imbalance (amounting to
almost $40 billion), China will invest into projects focusing on improving
manufacturing sector in India. It includes setting up of industrial parks with
the help of Chinese capital and a MoU was also signed in that regard. Also,
China will modify its economic policies to facilitate Indian export of minerals
and pharmaceuticals.
•
China has floated the idea for several multi-national
economic initiatives in the region, namely, Silk Road Economic Belt, Bangladesh
India China Myanmar (BCIM) Corridor and Maritime Silk Route. However, these
actions have also been perceived as expansionist tendencies in China,
consequently making India a reluctant party to these engagements. For instance,
the Chinese attempts to enhance its presence in the Indian Ocean region is
looked at critically in India. But one must be considerate that China is doing
so to safeguard its energy supplies.
•
In order to counter the Western influence in financial
institutions like World Bank and IMF, the BRICS nations at the Fortaleza summit
New Development Bank and Contingent Reserve Agreement with an initial capital
of $100 billion. The bank will be headquartered in Shanghai with India being
its first President.
•
China and India have continued to cooperate at the
platform of WTO. Both have joined hands in unequivocally criticizing the West
for following protectionist policies in the context of import of Indian and
Chinese goods.
•
Both India and China are proficient in the fields of
services and manufacturing respectively. Thus, if the two countries can combine
forces with India providing the software expertise and China supplying the
hardware, their amalgamation will result into world class products.
3. Conclusion
On the whole, the complex India-China relations are
undergoing a churning process. The rise of a strong nationalist party under the
dynamic leadership of Prime Minister Narendra Modi, who is determined to give a
big push to India’s economy through infrastructure development, will certainly
resonate in the narrative of the relationship between the two countries. China
seems to be an important partner in Modi’s scheme of things. India’s bonding
with Japan and USA will also play out in the complex India-China relationship.
Notwithstanding the asymmetry between the two countries,
China has to take into account the rising profile of India’s economy, its
demographic dividend and global standing. India on its part has been very
respectful to China. The goodwill and affection that PM Modi extended to
President Xi during his visit to India seems to point at the establishment of
an enduring personal rapport between the two.
India only stand to gain by being friendly towards its
northern neighbors, not otherwise. India has neither the necessity nor
capability nor even the inclination to pick up a quarrel with China. PM Modi,
however knows well that while dealing with China, India cannot demand respect,
but can only command respect which comes from a position of strength, and not
weakness or vulnerability. The way forward for the two countries should be to
promote their economic relations in the hindsight with border issue being
resolved amicably through discussions, dialogues and deliberations, not letting
it hinder the benefits that can be accrued though economic cooperation. A
win-win relation between the countries is not an option, but the only choice.
4. References
•
David
M. Malone, ‘Does the Elephant Dance: Contemporary Indian Foreign
Policy’
•
Dr.
Rup Narayan Das, ‘India-China Relations 2014: Engagement amidst Security
Dilemma’, World Focus (December 2014)
•
Dr.
Guo Wanda, ‘Improve Industrial Competitiveness Based on SEZ
Advantages: With Shenzhen SEZ as a Case Study’, China Development Institute
•
Xiangming
Chen and Tomas de’Medici, ‘The “Instant City” Coming of Age:
China’s Shenzhen Special Economic Zone in Thirty Years’, Center for Urban and Global Studies: Trinity College, Hartford,
Connecticut
•
Quora,
‘What's
the difference between India & China's SEZ policies?’, http://www.quora.com/Whats-the-difference-between-India-Chinas-SEZ-policies#
•
K. G.
Mallikarjuna, ‘A Comparative Study on Indo-China SEZs’
Mathew Southerland, ‘China-India
Relations: Tensions Persist Despite Growing Cooperation’, U.S.-China Economic and Security Review Commission Staff Report
December 22, 2014
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