Business Daily from THE HINDU group of publications
Tuesday, Nov 21, 2006
Industry & Economy - Foreign Trade
Chinese President Hu Jintao's visit More hype than substance?
FILE PICTURE of the Prime Minister, Dr Manmohan Singh, and the Chinese President, Mr Hu Jintao... They must go beyond the handshake.
The visit to India of the Chinese President, Mr Hu Jintao, is not a harbinger of any significant breakthrough in the relation between the two countries.
The only significance of the visit is that after a decade, a Chinese supremo is visiting India, and the second top leader within the space of 18 months. China has emerged India's second biggest trade partner, and has been the key to the latter's growth in exports.
Simultaneously, imports from China have surged, helping Indian electronics industry become cost-competitive. But this growth in India-China trade has not meant a transformation in the relations between the two countries.
Lack of convergence
There is no convergence of strategic interests between New Delhi and Beijing from the perspective of their roles in Asia and the world.
Today, India is more important to China than the other way around, though the latter has been the driver of the former's exports. But, then, half of India's exports to China is iron ore, and India itself is emerging a world hub for steel manufacturing, with giant steel projects, of the Mittal and Posco groups in the offing.
And, anyway, no value-addition is involved in iron ore exports.
For policy-watchers the key issue is that there has been no breakthrough in the relation between India and China, other than in trade. For the two countries to have deeper relations, there has to be a breakthrough in three key areas that remain irritants: The border dispute; the China-Pakistan nexus, the baggage of the Chinese aggression (in 1962) on the Indian psyche.
Strategic role player
On the other hand, the US and Japan are waking up to India's potential to play a strategic role in Asia. They are keen on using India as a bulwark against the Chinese expansion in South-East and South Asia. The US-India nuclear deal and Japan's thinking of including India in the Asian economic integration are seen as parts of this strategy. With the end of the Cold War, China has ceased to be of great significance to the US to contain Russia. Japan has always seen China as a threat. Thus, the growing body of opinion that Japan may put relations with India on a new footing so as to counter the growing Chinese clout in Asia. Though Indian corporates are looking at China as a production base, that country is not attractive enough as it offers few merger and acquisition possibilities. Home-grown MNCs are on an overseas investment binge. India's overseas investments are likely to a quadruple to $11 billion in 2006-07.
Limited M&A possibility
More than 80 per cent of India's overseas investments were through M&A. As for investments from China, they are under various security scanners. Therefore, the eagerness of China to have a Free Trade Agreement with India may not also lead to an expansion of India's trade with China.
However, it does not mean there is no positive to the visit of the Chinese President. China needs India more than the other way around. There is also the possibility of China mellowing on the border issue. Also, some understandings may be arrived on the controversial issue of scrutiny of Chinese investment. Mr Hu Jintao's visit may see some move but not a turnaround in relations between the two countries.
(The author is Adviser, Japan External Trade Organisation (JETRO). The views expressed are personal.)
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