Historical grudges fading away economic and trade cooperation is heating up

For a long time, relations between the two countries have been relatively smooth due to the border issue. In 1962, the two countries even went to war. Improved diplomatic ties between China and India, which put trade above territorial disputes in a June visit by Indian Prime Minister Atal Bihari Vajpayee, have rapidly expanded commercial ties between the world’s two fastest-growing economies. An exhibition of Made in India products was held in Beijing from October 16 to 19. This is seen as a follow-up to Indian Prime Minister Atal Bihari Vajpayee’s visit to China in June.

Indian software and information technology companies took the lead in trading with China, followed by pharmaceutical, steel and auto parts makers. At the same time, low-cost Chinese consumer goods and electronics have accelerated exports to India.

NIIT, India’s largest technology training company, entered China in 1998 and has so far set up 120 training centers in 25 Chinese provinces, making its China business its largest overseas training business. Other Indian software giants, such as Infosys Technologies and Tata Consultancy Services, have followed their Western clients into the Chinese market, hoping that China will become a base for their Asia-Pacific operations. Tata is providing software services to the Chinese operations of General Electric Co., MOTOROLA Inc. and Merrill Lynch Co. Tata already has a software development center in Hangzhou and recently chose China Pacific Data Communications as its partner in China.

‘Make in India’ challenges’ Made in China ‘

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During Prime Minister Vajpayee’s visit to China, the leaders of the two countries reached an agreement to increase bilateral trade volume from US $5 billion in 2002 to US $10 billion in 2004. This means more “Made in India” and “Made in China” will flood into each other’s countries. In the fiscal year ended March 31, 2000, trade between the two countries was less than $2 billion. Trade is expected to reach $7 billion in 2003 and $10 billion next year, as businesses from the two countries trade across the border in various ways.

India has a large population, low average wages and cheap raw materials. These factors have enabled Make in India to become more competitive. In the chip industry, for example, market size is the main reason why US chip companies have identified India and China as outsourcing markets for production and research. The population of both countries has exceeded 1 billion, which leaves huge space for the future development of the two countries.

While tax incentives and protective tariffs in China may encourage the chipmaking industry to thrive, American companies say Indian engineers generally have a strong command of English and a background in research and development at American software and other information technology companies. These factors have naturally led American chip makers to rely increasingly on India as a large research base for the development of new chip products. In 1988, Intel established the Intel India Design Center in India, which has become the largest center of Intel’s non-manufacturing operations outside the United States. Us companies are targeting India, not China, for their chip research and development. As a result, China dominates chip manufacturing, but lags behind India in research and development and lags behind in high-value added businesses.