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Saturday, February 26, 2005

The mutual benefits of trade 

In the second installment of the series, Edward Luce and Richard McGregor say that both countries stand to gain immensely from trade. In manufacturing, where China has a huge headstart; in services, where India has considerable prowess and also in sectors where the two Asian giants compete directly.

From only Dollars 1.8bn in 2001, bilateral trade will hit Dollars 14bn during India's current financial year, which ends next month. By Chinese standards the numbers are still small - its exports are more than Dollars 300bn. But in the next two years China is set to overtake the European Union to become India's largest trading partner, having been its ninth largest in 2001. Until 2002 there were no direct flights between India and China: now there are five a week with the number set to rise in the next year.

India and China are even exploring ways of joining forces to find cheaper sources of supply and boost their competitiveness. There is increasing awareness - especially in India - that, far from competing in a zero sum game, both countries are growing at such a speed that there is enough room for each to accommodate greater productive capacity. "People used to say it was China and not India, then it was China against India - but if you look at any number of sectors the real story is more likely to be China and India," says N. Srinivasan, head of the Confederation of Indian Industry.

In textiles, too, the two countries look to be able to compete side by side. China is far ahead of India, with about five times the volume of textile exports. But India is second only to China in reaping the benefits of last month's abolition of the global Multi-Fibre Arrangement, which had imposed quotas on developing country textile exports to the developed world. Last month India's overall exports were 33 per cent up on the previous January, driven mostly by Indian garment makers making the most of the abolition of quota ceilings.

The two countries are also tentatively exploring areas of co-operation, for example as partners for joint purchases in markets such as energy and commercial aircraft. Such a prospect - which Boeing or Airbus would not welcome - is so far not much more than talk. Nevertheless there is a determination in both capitals to consider the unmatchable economies of scale that would be available to them as joint buyers of some of the materials and technology that both countries lack.