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India, China Build Trade Ties


During a recent visit to India by Chinese President Hu Jintao, India and China announced ambitious plans to double trade in three years, and called for greater cooperation in energy and infrastructure. From New Delhi, Anjana Pasricha looks at the developing trade ties between the world's two fastest-growing economies.

Just five years ago, trade between the Asian giants was hostage to their cool political relationship, and stood at a meager half a billion dollars.

That has changed dramatically in recent years as the two have reached out to each other. Trade this year is expected to surpass $20 billion.

The head of international operations at the Confederation of Indian Industry, Jayant Bhuyan, says the potential has been created by the explosive growth in the two countries' economies.

"Because the markets are so huge and growing, the capacity to absorb is enormous," said Bhuyan. "Like we are selling machinery and equipment to China, we are also importing machinery and equipment from China."

India sends raw materials such as iron, steel and chemicals to feed China's giant economy. China in turn sells products such as silk, electrical and electronic goods in India's massive domestic market.

But although trade may be growing, cross-border investments are still meager. Businessmen cite many roadblocks. They say transportation connections are poor, and visas are slow in being issued.

There are other hurdles to investment. India plans to spend billions of dollars on building roads and rails, but Chinese firms say they are being blocked from investing in areas such as telecommunications and ports. New Delhi denies discriminating against Chinese companies, but says security concerns prompt increased scrutiny in some areas.

India and China fought a brief border war in 1962. Despite the recent warming of ties, the border dispute lingers, and so does political mistrust.

The head of East Asian studies at New Delhi's Jawaharlal Nehru University, Alka Acharya, says this mistrust is preventing the two from reaching the full potential of their economic relationship.

"There is confidence that Sino-Indian relations have achieved a degree of stability, but there are too many imponderables still for economics to actually come in complete control," noted Acharya.

Nevertheless the needs of their huge populations and economies are making India and China pragmatic. For example, Chinese President Hu Jintao said in India that the two countries would benefit by increasing cooperation in energy projects.

Both have an ever-growing need for energy, and their race to secure stakes in oil and gas projects overseas has driven up prices. But joint bidding in a handful of projects in recent times has led to lower acquisition costs, and the two now want to participate in developing oil fields overseas.

They have also signed an agreement to cooperate in the field of civilian nuclear energy, despite Chinese concerns about India's nuclear capabilities. Analysts say Beijing sees a business opportunity in helping develop nuclear reactors in India, if a deal between New Delhi and Washington to give India access to civilian nuclear technology is passed.

Bhuyan says there is confidence on both sides that economic linkages will increase significantly.

"This target of $40 billion, which President Hu Jintao and Prime Minister Manmohan Singh have announced in Delhi, we all believe that it will actually be met well before 2010," commented Bhuyan.

Businessmen in both countries say they are picking up the message from the political leadership - the massive economies of China and India are ready to work together.

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