India and China recently signed an agreement aimed at resolving a decades-long border dispute between the two countries. At the same time, leaders of the two nations also agreed on improving trade and cultural ties. As their economies continue to grow, will bilateral trade bring India and China closer together? We put the question to Sridhar Balasubramanian, a business professor at the University of North Carolina.
"The trade relationship between these two countries has historically been tenuous at best. They have not been trading as often and as much as one would expect this two giants to trade. The markets have opened up right now to each other," he says. "There was a big influx of Chinese manufactured goods to the Indian markets usually consumer items like electric fans, batteries and such other items. India has also started making its presence in information technology markets felt within mainland China."
Christopher Holoman, Professor of political science at Hilbert College, notes that it is because of the recent border dispute talks that trade possibilities have developed. "Well it’s been very interesting because it developed over the last couple of days," he says. "There’s been a fairly long history of dispute between China and India largely around their long border. Just within the last day or so there was a series of meetings and they have agreed to set aside those border disputes because they have now become such large trading partners with each other."
India and China have agreed to boost bilateral trade to twenty billion by 2008. Last year, trade totalled Thirteen-point-six billion, with India recording a trade surplus of one-point-seventy-five billion. We asked Professor Balasubramanian to discuss the challenges the two countries will face by developing free trade areas. "You know it’s interesting the new moves these countries have made towards working together in multiple arenas. I’m somewhat skeptical about that partnership being really deep and robust and holding out in the long term. The reason is this. If you think about what China imports from India, and what India can import from China, India can get low coast manufactured goods from China and China can get software and other intellectual capital from India," he says. "The problem is, this are exactly the sectors where India needs to invest heavily if it is going to generate a large amount of employment for its own pools of labor. India itself needs to build up its manufacturing sector in a very robust way. So substituting the growth of the manufacturing sector with imports from China in that sector is not going to solve India’s employment challenges," he adds. "So I do not see how sending software to China and importing manufactured goods from China to India, will solve the more basic macro-economic challenges that this countries face especially India."
Professor Holoman of Hilbert College says no matter what challenges may arise, India and China can only benefit by increasing bilateral trade.
"In the long run it is a good thing. In the long run free markets and free trade tends to raise standards of living for everyone. There will certainly be conflicts. As the two countries grow they may run into conflicts over raw materials and things like that," he says. "But I believe actually that the reverse is the case. In the settlement of border disputes you see the fact. The two countries decided that even though they had been fighting over this borders over the Himalayan mountains for decades, in the end that conflict is not as important as the benefits they where enjoying from trading with each other."
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