the relationship between china and india

The Relationship between China and India within the Framework of Asian
Economic Integration
Regional economic integration is undergoing an unprecedented boom. Although Asia is a latecomer in regional economic integration, since the late 1990s its integration has been accelerating at multiple levels, with ASEAN being the hub, and ASEAN+1 and ASEAN+3 being two main pillars. During this process, the economic relationship between China and India – two countries that have experienced similar aftereffects of colonialism in their history, that are opening up their economies through similar reforms at present, and that share long geographical borders – is attracting greater attention around the world. This process will not only affect the two countries themselves but will have a great impact on the Asian integration in connecting East Asia and South Asia and, to a greater or lesser extent, on the emerging shape of the world.
Both China and India are great ancient countries and civilizations with a long history. These two countries had a centuries-old traditional friendship. However, due to numerous historical, political and economic reasons, relations between China and India were basically left at a standstill in the past few decades.
After China began to implement its reform and opening-up policies in 1978, accentuated differences in economic development began to emerge between China and India. Like other East Asian countries, China adopted an export-oriented path to develop its economy by actively participating in and exploiting the international division of labor, based on its competitive advantage of low-cost labor. By contrast, the Indian economy was still in a relatively closed position until comparatively recent times. These different development paths resulted in great differences emerging in the opening-up between these two countries. Measured from every angle, China is significantly more open than India.
The border disputes between China and India also cast a negative shadow on the development of economic relations between the two countries. For historical reasons, there has been no officially defined border between China and India, which restricted the development of Sino-Indian relations to a large extent and made these two countries keep a watchful eye on each other even long after the border war.
For the aforementioned reasons, China and India have had highly limited economic exchanges for a long time. On the whole, trade between China and India was rather small before the 1990s and remained so even during the early 1990s. Sino-Indian economic relations, ignited by the Indian systematic reform and series of cooperation agreements signed by the two governments, have been accelerating since the end of the 1990s, as represented in trade, investment, technological cooperation and other exchanges and communications, etc.
From 1999 to 2004, bilateral trade increased from US$1.99 billion to US$13.6 billion. Sino-Indian investment is also thriving. Moreover, the two countries have reached a
consensus on guidelines for solving the border problem. The sixth round of negotiations, held in September 2005, brought the negotiations to a substantial phase.
As Asian economic integration deepens and the economies of both countries develop rapidly, new conditions are being created for reshaping Sino-Indian relations. Discussion of Sino-Indian relations has been put on the global agenda. Looking ahead, the cooperation and strengthened economic relations between the two countries mean a lot of common benefits for both countries. However, there are also a series of impediments restricting the depth and extent to which the two countries can cooperate further.
China and India have greater and greater mutual interests. Mutual gains that can be realized through Sino-Indian cooperation include:
ÆBroader gains from trade shall be obtained through enlargement of the scope and scale of their common markets. The bilateral trade and investment are presently insignificant considering the economic scale of the two countries. There is thus a lot of room for China and India to enlarge the scale of their common markets.
ÆRapid economic development shall be derived from deepening the international division of labor. China’s advantages in industrial and mechanical equipment and processing, and India’s advantages in software and the high-tech industry, create complementary spaces for the two countries to cooperate in vertical and horizontal specialization.
ÆEnhanced bargaining strength in the process of formulating international rules shall be enabled, so as to protect and promote the two countries’ common interests as developing major powers. Despite the increasing power of both China and India, each of them individually has no effective means to counterbalance today’s global system. The current international economic system is still dominated by the Western developed countries. China and India share more and mutual interests as their economy develops and, on many issues, their claims and requirements based on their differing social conditions are unlike from those of the West. Through Sino-Indian cooperation, favorable rules and conditions for developing countries, including themselves can be wined.
ÆHigher costs can be avoided in the exploration and exploitation of natural resources and energy.
ÆBorder security can be created, laying a favorable foundation for mutual economic development.
Despite the vast mutual benefits, some political and economic factors continue to create bottlenecks and obstacles in the development of Sino-Indian relations. These include:
ÆConflicts of interest among domestic interest groups in both countries. China’s interest groups are developing increasingly, and they will surely exert an increasing influence in the development of Sino-Indian relations. India’s much more diversified interest groups and democratic politics mean that India faces even greater resistance
to economic reform and free trade compared to China. Considering that China’s competitive manufacturing industry may harm some vested interests in India, protective measures and resistance from India make the development of Sino-Indian relations potentially difficult.
Æ Geopolitical considerations and the coexistence of economic cooperation and competition in the two countries. Both China and India are highly conscious of the prospect of becoming prosperous and wealthy countries, and hope to re-establish themselves among the world’s major powers in terms of industry, technology, trade and finance through economic development. Similar approaches adopted to achieve such objectives determine that these two countries are inevitably in competition with each other.
ÆThe economic development of both China and India depends a great deal on external markets, especially the US market. However, due to considerations of its own national interests, the United States does not and will not support the building of closer alliance-like relations between China and India. One of the main purposes for developing US-Indian relations is to target the rise of China.
There are three scenarios for the prospects of Sino-Indian relations. The first scenario is that China and India will remain isolated from each other, and that a zero-sum competitive relationship will exist between China and India. At the same time, China and India will inevitably compete with each other as they grow stronger. Realistically, it is hardly possible to return to the situation in which the two countries found themselves before. The second scenario is the establishment of a full-fledged bilateral free-trade area and the formation of an overall strategic alliance between the two countries in the global arena. However, the incentives and impediments that lie ahead of Sino-Indian economic relations determine that this is also unlikely to happen, at least in the short term. The third scenario is that Sino-Indian cooperation will move slowly and smoothly toward mutual prosperity but the relationship between the two countries will generally develop on “being good neighbors” basis. Based on the above analysis, this scenario may actually be the most likely relationship between China and India.
The term “being good neighbors” needs to be elaborated in a little more detail. A “being good neighbors” relationship between China and India has four aspects: the maintenance of long-term peaceful coexistence; the limiting of political and economic differences and conflicts to manageable levels; the further opening of markets and the facilitating of economic cooperation in fields of mutual benefit; and strengthened cooperation on specific issues at regional and international levels. Good fences make good neighbors. Here, “good fences” refers to clearly defined and strictly enforced international rules or institutions. In the case of Sino-Indian relations, the two countries can intensify communication and cooperation within the framework of JACIK and the Shanghai Cooperation Organization, and they can also cooperate within the framework of the WTO and G20. The cooperation between them, albeit gradually strengthened and specific-areas focused, will contribute to the Asian economic integration, to the common interest of developing countries, and the welfare of the human being as a whole.。