Liam Halligan Relations between China and India have long been soured by bitter rivalry and mutual suspicion. Over the past few days, though, the two Asian powerhouses have cuddled up like a pair of giant pandas. This is a display of diplomatic affection that matters – not least as it could have a significant impact on the shape of the global economy. The main point of Wen's visit was to promote bilateral trade between these two Eastern giants. He last visited India in 2005 – at which time he set a goal of raising combined Sino-Indian imports and exports from $18bn (£12bn) to $30bn by 2010. In fact, bilateral commerce totalled around $60bn this year – twice Wen's target, despite the massive sub-prime related shock to all global trade during 2009. Over the past decade, in fact, trade between China and India has increased 30-fold. In case anyone is in doubt, it is worth stating the relative importance of the Chinese and Indian economies. Between them, these countries are home to two-fifths of the world's population. They are also the two fastest-growing major economies on earth. China is already the second largest economy after the US, having overtaken Japan last year. Less widely recognised is that, on an inflation-adjusted basis, India is the world's number four. Over the coming decades – and perhaps as soon as 2025 – China will surpass America to become the world's biggest economy, with India also taking massive strides. By 2050, in straightforward dollar terms, the GDP of the People's Republic is set to be way above that of America – perhaps half as big again, or even more. On the same yardstick, India's economy will be comparable with that of the US by mid-century, or maybe even slightly bigger. It is absolutely imperative to everyone – not only in economic, but also diplomatic and military terms – that these two soon-to-be superpowers "get on". The signs, though, are not auspicious – however attractive the zoological images lately employed by Beijing's official image-makers. China and India share a huge 3,500km border, along which both nations continue to claim vast chunks of each other's territory. These countries went to war over border disputes as recently as 1962. India remains dismayed at China's closeness to Pakistan – a relationship that prevents Beijing from recognising the disputed Kashmir region as Indian territory. China, in return, bristles at India's support for the Dalai Lama, the exiled religious leader of the Himalayan region of Tibet. During Wen's visit five years ago, both sides vowed to make progress on such issues. Little has happened. In fact, tensions have risen over the contested Indian border state of Arunachal Pradesh. Water rights have also remained highly contentious – amidst Indian claims that Chinese hydro projects in Tibet are affecting water flow that is vital to crops across the Brahmaputra basin, most of which is in India. On this latest trip, Delhi had half-expected Beijing to offer a clear endorsement of India's ambitions to gain a permanent seat on the United Nations Security Council – as President Barack Obama did when he visited Delhi last month. No firm endorsement came. India is also upset that Beijing plans to build two nuclear reactors in Pakistan – given fears that atomic materials could fall into the hands of terrorists without India's best interests at heart. In response to these ongoing concerns, Beijing launched a charm offensive. During his visit, China's premier recited Indian poetry while professing that Mohandas Ghandhi, the father of modern India, has "always lived in my heart". He even encouraged Indian schoolchildren to call him "Grandpa Wen". Schmaltzy mood music aside, China and India last week did some serious business. The two countries signed 48 commercial contracts worth some $16bn – in sectors ranging from telecoms, steel and power generation to wind energy and food. A new bilateral trade target of $100bn was set for 2015. China is already India's largest trading partner. That commercial relationship looks set to get much deeper. India is acutely aware, though, that this is no partnership of equals. The headline numbers disguise the fact that India's deficit with China is huge e_SEnD around $25bn and by far its largest trade shortfall. The reason, Delhi complains, is that Beijing doesn't play fair in terms of market access. No country has launched more World Trade Organisation (WTO) anti-dumping investigations against China e_SEnD alleging that the prices of some imports are set artificially low e_SEnD than India. While Indian exports to China largely comprise of iron ore and other low-end commodities, Delhi is keen to diversify its fast-developing economy's trade basket with its giant neighbour. On cue, Wen said he took the trade imbalance between the two countries "seriously" and would seek to grant more access for Indian producers in the areas of pharmaceuticals, agriculture and information technology. That may or may not happen. China has a well-deserved reputation for being slow to concede when it comes to international trade disputes. Wen last week gave India few firm commitments. And Beijing, anyway, only offered this rhetoric after it received a cast-iron assurance that India would relax domestic barriers against a slew of Chinese banks. From a Western perspective, ever-rising trade between China and India has to be a good thing – even if it is symptomatic of our relative economic decline. When the sub-prime crisis broke in earnest, and Western economies hit the skids, many pundits said the East would also crash and burn, on the basis that "they can't grow without us". That's turned out to be nonsense. India and China have roared ahead, as have many other emerging markets, despite Western woes. Such growth has been driven by intra-emerging market commerce – typified by the explosion in trade between India and China. We should be glad the Eastern giants are replacing a heavily-indebted Western world as the engine of global growth. Without them, the world economy would be in a very sorry state. Determined to sort out their commercial disputes, China and India last week took steps towards an over-arching bilateral trade deal. This would be bad for the West. The best way to ensure free trade is for all countries to sign multilateral agreements under the auspices of the WTO. Such deals have kept protectionism in check since the end of the Second World War – and a new multilateral "trade round" is now needed more than ever. Unless that happens soon – with the EU and US burying their differences and taking the plunge – then the emerging nations could go their own way, leading to very serious East-West trade disputes in years to come. During last week's trip, Wen gave Manmohan Singh a gift package of Chinese white tea, reciprocating the locally-produced black tea his Indian counterpart sent him last year. Singh then accepted the Chinese premier's invitation to visit Beijing in 2011. The two men also agreed to have a "hotline" installed between their offices – so they could easily and regularly confer. They may need to – given the importance and complexity of this ancient relationship. As each economy continues to grow, so will trade between them – binding them together via myriad mutually beneficially commercial relationships. In theory, that should keep the very real danger of broader Sino-Indian conflict in check. The rest of the world must certainly hope so.China and India's latest love-in raises serious issues for the West
'The dragon and the elephant should tango!" So said Wen Jiabao last week during a rare visit to India. The Chinese premier employed some uncharacteristically colourful language to convey an unusual idea – that of Sino-Indian co-operation.
Sunday, 19 December 2010
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