The Rapidly Deepening India-China Economic Relationship

In this paper we focus on the rapidly deepening bilateral India-China economic relationship. Each is deeply integrating into the global economy through trade and FDI inflows, China is seen as primarily manufacturing-lead growth with India as service-lead growth (see Rodrick & Subramanian (2006)). An alternative view is that India is effectively a lagged version of China, and the two have to be considered a joint global presence. India and China are thus viewed in the literature in different comparative mode. That their bilateral closeness is deepening is evident in a number of areas. On the trade front, India-China bilateral trade has increased by a factor of 33 between 1995 and 2007, and this growth has occurred at an accelerating rate. This compares with a 7 fold increase in the China’s overall trade this period. With bilateral FDI the increase is even more dramatic, around 90 fold over the same period, but admittedly from a small base. And while strategic issues remain between India and China since they are complicated by the relationships of each other with Pakistan, on bilateral economic policy coordination there has also been considerable joint movement towards joint positions. There has been a feasibility study for a possible India-China FTA. They have also jointly agreed a bilateral pact on climate policy underpinning their joint negotiating stance in Copenhagen in 2009 on a post Kyoto global climate regime; and in international forums such as the WTO (and specifically in the Doha Round) both countries have supported each others’ positions, and especially so in key meetings such as in July 2008 in Geneva.