Sunday, January 27, 2008



A purely statistical analysis can be misleading. The current euphoria over the expanding Sino-Indian economic relations, the gallopingbilateral trade and the mushrooming analytical studies triggered off by this euphoria are coming in the way of an adequate focus on certainemerging characteristics of these relations, which have already started redounding more to the benefit of China than of India. Thesecharacteristics could have positive as well as negative impact on the over-all Sino-Indian relations.

2. The first emerging characteristic is that China is increasingly the beneficiary of the expanding Sino-Indian economic relations during the last five years just as it has been the major beneficiary of the expanding Sino-US economic relations during the last two decades.Initially, asIndia and China embarked on their policy of expanding bilateral trade, India benefited more than China because of growing Chinesedemands for iron ore for its steel industry. Consequently, in the first four or five years after this expansion started, the balance of trade wasin favour of India. This balance in favour of India quietened fears of a possible dumping of moderately-priced Chinese goods into the Indianmarket.

3.Now, there is a greater flow of goods and services from China to India than the other way round. The result: the balance of trade isincreasingly in favour of China. The large manufacturing base in China enables it to offer a large basket of manufactured goods to the Indianmarket. The inadequate development of the Indian manufacturing sector is coming in the way of expanding the basket of Indian exports toChina, which continue to depend on raw materials-----with iron ore constituting nearly 60 per cent of our exports.

4. The galloping bilateral trade----already touching US $ 40 billion and racing towards the newly-set target of US $ 60 billion--- has alreadymade China the second largest trading partner of India after the US. More importantly, in the coming five years, it is likely to make the Indianmarket the second largest market for Chinese consumer goods after the US market. The continued prosperity of the Chinese manufacturingindustries would depend on the continued availability of this market.

5. This would have positive as well as negative impact just as it has happened in the case of Sino-US economic relations. The dependenceof the Chinese manufacturing industries on the US market has introduced a certain moderation in Chinese policies towards the US instrategic areas due to the Chinese anxiety to avoid unnecessary tensions in its relations with the US in matters such as Taiwan lest thesetensions affect the trade, which is overwhelmingfly in favour of China.

6. Similarly, the growing dependence of the Chinese manufacturing industruies on the Indian market could moderate Chinese policy-makingtowards India in non-economic fields. Unnecessary political tensions in Sino-Indian relations could affect the growing economic benefit toChina arising from the vast Indian market.

7. As against this, a likely negative impact is that the dependence of the Indian market on Chinese manufactured goods and the fascinationof the Indian consumers for Chinese goods could come in the way of our being able to develop our own manufacturing industries.

8. The flood of Chinese goods flowing into the US market is not triggering off any undue concerns -----apart from some proforma expressionsof concerns from time to time--- because both the US and China are almost equal beneficiaries of the expanding economic relations. Many ofthe Chinese consumer goods flooding into the US market are manufactured by enterprises set up in China by American capital flows. If theChinese are earning more money by flooding the US market with consumer goods , the Americans are earning more money by flooding Chinawith American direct investment flows and getting high returns for them.

9. This has not been happening in the case of Sino-Indian economic relations. The trickle of Indian capital flow into China has been in the services sector----mainly information technology (IT). There has been hardly any Indian investment in the sector of manufactured goods.Thus, the benefits to China from the flow of its manufactured goods to India has not been compensated by attractive returns for Indianinvestors.

10. The second emerging characteristic is in respect of the flow of skilled manpower. There is a greater flow of skilled Chinese manpower toIndia than the other way round. The over-fascination for the IT sector in India and the large salaries offered by IT companies have resultedin a distortion of our technical education system. The IT rush is making Indian youth flock to IT training institutions and there has been adeclining interest in joning engineering colleges to specialise in subjects unconncted with the IT sector----such as civil, mechanical andelectrical engineering. The result: India has been producing a surplus of excellent quality IT experts, who are able to find jobs withoutproblem either in India itself or abroad, but it is no longer able to produce the required number of good quality engineers even to meet itsown needs.

11. This distortion in the technical education system has not yet occurred in China. China's ever-increasing investments in the infrastructuresector and the increasing involvement of Chinese companies in foreign construction projects----particularly in Africa---- have sustained a highdemand for good quality engineers. Chinese technical institutions have been producing all the good quality engineers it needs internally aswell as externally.

12. The shortage of good quality engineers is going to be increasingly felt as we embark on a programme of improving our infrastructure.There has already been an increasing flow of Chinese engineers into India for the execution of the construction contracts won by them.Wherever Chinese companies win construction contracts, they prefer to take their own engineers in view of the language problem and alsobecause they have greater faith in the quality of their engineers. In India, even if they want to employ local engineers, they say good qualityIndian engineers are in short supply.

13. One has been seeing this second characteristic already in the power sector where many new plants are coming up in the private sector.Very often, the money is Indian, but the equipment and engineers used for the construction of these projects are Chinese. To quote from anagency report carried by on January 21,2008: "Who would have thought a few years ago that there would be a Chinese hand inthe development of the Indian power sector? This is a reality today. Not only is Chinese equipment being deployed by quite a few powercompanies in the country, Chinese manpower from companies such as Dongfang Electric Corporation (DEC), Sichuan Machinery andEquipment Corporation (SCMEC) and Shandong Electric Power Construction Corporation (SEPCO) is employed in large numbers in thecountry...... The Chinese companies want to get their own people , because they know how to best handle the equipment and can do itfaster.This also helps the Indian companies tide over the huge crunch in technical manpower in the country for engineering, procurementand construction (EPC) contracts and operations and maintenance jobs....Since there's already a huge shortage ,they are not eating intoanyone's jobs. "It is not as if they are bringing blue-collared labourers to compete with the Indian labourers," said a management expert.They are bringing people at the supervisory and engineering levels."

14. Has there been a reverse flow of Indian IT experts to China? No. At least, not yet. Indian IT companies operating in China tend to recruitChinese graduates in increasing numbers, bring them to India for improving their knowledge of English and IT skills and then employ them intheir companies in China. Moreover, Indian IT companies in China are not yet getting as many contracts as Chinese engineering companieshave been getting in India. The contracts procured by the Indian IT companies are largely from Western multinationals in China, which valuetheir English knowledge and IT skills.

15. The Chinese companies in India are not recruiting Indian students, taking them to China to learn the Chinese language and engineeringskills and then employing them for their projects in India. This is what the Russians used to do in the 1950s and 1960s, when companies ofthe Soviet Union were involved in construction projects in India. While we are prepared to help the Chinese catch up with us in the IT sector,they are not prepared to help us catch up with them in the engineering sector. The Soviet Union did not look upon India as a potential rival.The Chinese do. That is the reality behind soothing statistics.(28-1-08)

(The writer is Additional Secretary (retd), Cabinet Secretariat, Govt. of India, New Delhi, and, presently, Director, Institute For TopicalStudies, Chennai. He is also associated with the Chennai Centre For China Studies. E-mail: )