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MBA General Section A


First
Economics
Dr. Tilak Raj
Indo-China Trade Analysis

University Business School

Group Members:
Pratibha Rohal and Shruti Sharma

DEFINING THE STATEMENT OF PROBLEM-

To
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Evaluate bilateral trade arrangements between India and China in terms of


import and export, their market structure and policies and predict future
course of action that can be profitable for the Indian economy.

SUMMARY/ ABSTRACT-

This work presents a comparative study of the Indian economy in lieu of the
Chinese economy. All the aspects of the Indian economy are viewed and
presented in contrast to the Chinese model and facts and figures.
A historical introduction is carried on to the recent trends, with details on the
present scenario i.e. How India maintains trading with China in the now,
finally concluding with a succinct on the possible course of action the Indian
government can take to strengthen its interests with the Eastern Dragon
neighbour, China.

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PREFACE/
RELEVANCE OF TOPIC
India and China have come to play an increasingly dominant role in world
economic affairs. Both nations have posted aggressive growth rates and,
amongst other things. China in particular has gained a large footprint in
international trade and investment flows. Today, it is the worlds largest
exporting nation while Indias exports have grown four fold over the period of
2001-2009.
Although both China and India are labor-abundant and dependant on manufactures, their export
mixes are very different. Only one productrefined petroleumappears in the top 25 products
for both countries, and services exports are roughly twice as important for India as for China,
which is much better integrated into global production networks. Even assuming India also
begins to integrate into global production chains and expands exports of manufactures, there
seems to be opportunity for rapid growth in both countries. Accelerated growth through
efficiency improvements in China and India, especially in their high-tech industries, will
intensify competition in global markets leading to contraction of the manufacturing sectors in
many countries. Improvement in the range and quality of exports from China and India has the
potential to create substantial welfare benefits for the world, and for China and India, and to act
as a powerful offset to the terms-of-trade losses other-wise associated with rapid export growth.
More so, India's eastern neighbor China has emerged as its biggest trading partner in the current
fiscal replacing the UAE and pushing it to the third spot, according to a study conducted by PHD
Chamber of Commerce. India-China trade has reached $49.5 billion with 8.7 per cent share in
India's total trade, while the US comes second at $46 billion with 8.1 per cent share and the UAE
third at $45.4 billion with 8 per cent share during the first nine months of the current fiscal, the
study revealed.
India's trade (exports and imports) with China was only of $7 billion in 2004 which rose to $38
billion in 2008 and to $65 billion in 2013.
"India's direction of foreign trade has exhibited a structural shift during the last decade. Trade
volume and trade share of emerging and developing economies has increased while the share of
conventional trading partners has showed a declining trend,

So we can justify the need to study their mutual ties and relations and their trading
patterns that can strongly affect both the economies and even the world economies.

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Acknowledgement
I, Dr. Shruti Sharma and Miss Pratibha Rohal take this opportunity to express our profound
gratitude and deep regards to our mentor and guide Prof. Dr. Tilak Raj for his exemplary
guidance, monitoring and constant encouragement throughout the course of this assignment
project. The blessing, help and guidance given by him from time to time shall carry us a
long way in the journey of life on which we are about to embark, while pursuing this
opportunity and further.
Sir, you gave us this golden opportunity to do this wonderful project, which also helped
us in doing a lot of Research and we came to know about so many new things.
Also, we are making this project not only for marks but to also increase our knowledge.
Thanks again to all who helped us.

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Table of Contents
1. Introduction..3
2. Literature review
3. Methodology
4. History....
5. Economic Comparison.........
6. India-China Bilateral Trade Relationship.
7. Trade Pattern...
8. Potential Areas for Enhancing Bilateral Trade....
9. Recent Developments in India- China Relationship.....
10. Conclusion
11. References

INTRODUCTION
In demographic terms, China and India are the two most important countries in the world and
they are also rapidly becoming the leading powers in economic terms. ChinaIndia relations,
also called Sino-Indian relations or Indo-China relations, refers to the bilateral relationship
between the People's Republic of China (PRC) and the Republic of India.

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India China trade relations are the most important part of bilateral relations between India
and China. These are the two largest developing countries in the world and are currently the most
important emerging giants in the world economy.
The two Asian giants India and China have shown several developments in different sectors
from the early times, which eventually contributed towards a steep rise in the economy of the
respective countries. However, when it comes to comparing the economy of both the countries,
China usually stays on the top. The economists points out, Chinese Government constantly
implies new, which certainly has an impact in the first rising economy. Both the countries are
putting in their best efforts to analyze their core economic strengths and gradually establish
themselves as the superpower in the World Economy.
China and India are the two most populous countries and fastest growing major economies in the
world. The resultant growth in China and India's international diplomatic and economic
influence has also increased the significance of their bilateral relationship.

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Literature Study

In recent years both economies have grown quite faster that have caught the attention of
everybody. Huge literature has been written and is available foretelling how soon these
economies will be the leading economies of the world.
Earlier studies comparing the economies of India and China focused on developments in
the1950s and 1960s. Examples include Chen and Uppal (1971), Swamy (1973),Harris (1974)
and Bergmann(1977).
Now again the interest has become more rigorous in comparative study of two giant economies
largely due to their consistent growth performance in the1980s and 1990s and subsequently their
rise in the world economy and political affairs.(Wu et.al.,2006) .Some authors are interested in
the institutional settings and hence their impacts on economic performance in the two countries
(Huang& Khanna 2003).Others are keen to compare China and Indias performance in specific
areas,Such as steel industry (Etienne, Asteir, Bhushan & Zhong 1992). Some havemade trade
projections particularly Boillot & Labbouz (2006). There have been. Some studies on
Indias Foreign trade policy by Kanagasabapathy et.al. (2006).
Arunachalaramanan et.al., (2011) have tried to relate impact of Yuan Revaluation on Indias trade
and found that despite Rupee getting depreciated with respect to Chinese Yuan our Balance of
trade with neighbour country has worsened. Batra (2004) has tried to calculate the trade potential
of India with all countries and found that bilateral trade with China still holds good potential.
Silvio Beretta and Renata Targetti Lenti (2012) have also studied bilateral trade intensively and
give a comprehensive analysis of commodities traded.
This assignment gives an insight on understanding the bilateral trade that is too complex
and enormous as it includes the individual interests of both the nations, along with their
mutual interest keeping in mind the fact that they play a key role in Asias development as
well and affect the global economic scene.
Methodology

Firstly, we examined Sino-Indian Bilateral trade from 1996 to 2013 for export and import. Next
we calculated commodity share in trade composition taking data from UN Com trade database.
This shows share of various commodities in trade changing in subsequent years. Trade data from
1996-2013are derived from Ministry of Commerce and Industry, Govt. of India
All this data is used to construct pie charts and give a comparative view of their trading positions
over the year. Then the current trends are presented and conclusions are drawn as to how India
and china can grow in synergy.

HISTORY
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India and China are among the oldest civilizations with long history of association. China and
India are two of the worlds oldest civilisations and have co-existed in peace for millennia.
Cultural and economic relations between China and India date back to ancient times. Nathu La
Pass was the famous silk route.The Silk Route not only served as a major trade route between
India and China, but is also credited for facilitating the spread of Buddhism from India to East
Asia.
IndiaChina relations have undergone dramatic changes over the past five decades, ranging
from the 1950s with a deep hostility in the 1960s and 1970s to a rapprochement in the 1980s
and a readjustment since the demise of Soviet Union. The post-cold war era has offered
enormous opportunities to New Delhi and Beijing to move in the direction of a productive
relationship. Both countries have realized the imperative need for cooperation in diverse areas,
especially in the trade and economic domains, in the long-term interest of peace and stability in
Asia as well as for faster economic development and prosperity at home.
India and China are the two giants of Asia of the oldest and living civilization of the world.
Sindhu and Ganges gave birth to Indian civilization, which influenced south and Southeast Asia.
Similarly, Huangghe (Yellow River) and Changjiang (Yangtze River, The longest river of Asia;
flows eastward from Tibet into the East China Sea near Shanghai) gave birth to the Chinese
civilization, which on its part influenced northeast and Southeast Asia. Being neighbours India
and China had established trade and cultural relations since time immemorial. It could be
established from the records that Sino-Indian interface was always a two-way traffic and the two
elements of this exchange could be categorized as material exchange and spiritual cultural
exchange.

This two-faceted exchange was carried through the following four routes of communication:
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1. The Central Asian Route or the so-called Silk Route,


2. Assam-Burma and Yunnan Route or the famous Southern Silk Route,
3. Tibet Nepal Route, and
4. The Sea Route or the so-called Maritime Silk Route.
The Central Asian Route was the main overland route though this was not the earliest one to be
discovered. This route was especially vital for the traders and missionaries from China to India
and vice-versa. The route started from Chang an (present Xian) passed through Dunhuang, and
Kashgar. From Dunhuang, it bifurcated into a northern and southern route. The northern route
passed through the oasis between the northern edge of Taklamaken Desert and the Tianshan
mountain ranges. The southern route ran through the southern edge of the desert and Kunlun
Mountain. These two smaller routes further merged at Kashgar in Xinjiang Autonomous Region.
The route further splits into two from Kashgar- the northern route passed through Kokand
and Samarkand (now in Kirghizstan) and southern route which ran through modern Bectria and
merged with the northern branch at Merv in Margiana (present Turkmenistan). From Bactria, the
route ran through Kapisi and Kabul to Peshawar and Taxila. From Taxila it was connected to
Mathura and Ujjain (both in North India). Yet another route from Kashgar ran through Gilgit in
Kashmir. Assam-Burma and Yunnan route originated in Chengdu, Sichuan province of China and
entered Dali, Baoshan and Tengchong of Yunnan province. From Yunnan it passed through the
northern part of Burma and entered Assam in the northeast of India.
The southern silk route further ran through Bengal and then finally merged with the central Asian
route. It is believed this was earliest route for the Sino-Indian interface.The Tibet and Nepal
route was more difficult to access than the central Asian and Southern Silk route. This route
came into being the late 7th century.

ECONOMIC COMPARISON
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CHINA: Since the late 1970s China has moved from a closed, centrally planned system to a
more market-oriented one that plays a major global role - in 2010 China became the world's
largest exporter. Reforms began with the phasing out of collectivized agriculture, and expanded
to include the gradual liberalization of prices, fiscal decentralization, increased autonomy for
state enterprises, creation of a diversified banking system, development of stock markets, rapid
growth of the private sector, and opening to foreign trade and investment. China has
implemented reforms in a gradualist fashion.
In recent years, China has renewed its support for state-owned enterprises in sectors it
considers important to "economic security," explicitly looking to foster globally competitive
national champions.
After keeping its currency tightly linked to the US dollar for years, in July 2005 China revalued
its currency by 2.1% against the US dollar and moved to an exchange rate system that references
a basket of currencies. From mid 2005 to late 2008 cumulative appreciation of the renminbi
against the US dollar was more than 20%, but the exchange rate remained virtually pegged to the
dollar from the onset of the global financial crisis until June 2010, when Beijing allowed
resumption of a gradual appreciation. The restructuring of the economy and resulting efficiency
gains have contributed to a more than tenfold increase in GDP since 1978. Measured on a
purchasing power parity (PPP) basis that adjusts for price differences, China in 2012 stood as the
second-largest economy in the world after the US, having surpassed Japan in 2001. The dollar
values of China's agricultural and industrial output each exceed those of the US; China is second
to the US in the value of services it produces. Still, per capita income is below the world average.
The Chinese government faces numerous economic challenges, including:
(a) Reducing its high domestic savings rate and correspondingly low domestic demand
(b) Sustaining adequate job growth for tens of millions of migrants and new entrants to the work
force
(c) Reducing corruption and other economic crimes
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(d) Containing environmental damage and social strife related to the economy's rapid
transformation.
Economic development has progressed further in coastal provinces than in the interior, and by
2011 more than 250 million migrant workers and their dependents had relocated to urban areas to
find work.
One consequence of population control policy is that China is now one of the most rapidly
aging countries in the world. Deterioration in the environment - notably air pollution, soil
erosion, and the steady fall of the water table, especially in the North - is another long-term
problem. China continues to lose arable land because of erosion and economic development. The
Chinese government is seeking to add energy production capacity from sources other than coal
and oil, focusing on nuclear and alternative energy development. In 2010-11, China faced high
inflation resulting largely from its credit-fueled stimulus program.
Some tightening measures appear to have controlled inflation, but GDP growth consequently
slowed to under 8% for 2012. An economic slowdown in Europe contributed to China's, and is
expected to further drag Chinese growth in 2013. Debt overhang from the stimulus program,
particularly among local governments, and a property price bubble challenge policy makers
currently. The government's 12th Five-Year Plan, adopted in March 2011, emphasizes continued
economic reforms and the need to increase domestic consumption in order to make the economy
less dependent on exports in the future. However, China has made only marginal progress toward
these rebalancing goals.

INDIA: India is developing into an open-market economy, yet traces of its past autarkic policies
remain. Economic liberalization measures, including industrial deregulation, privatization of
state-owned enterprises, and reduced controls on foreign trade and investment, began in the early
1990s and have served to accelerate the country's growth, which averaged under 7% per year
since 1997.
India's diverse economy encompasses traditional village farming, modern agriculture,
handicrafts, a wide range of modern industries, and a multitude of services. Slightly more than
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half of the work force is in agriculture, but services are the major source of economic growth,
accounting for nearly two-thirds of India's output, with less than one-third of its labor force.
India has capitalized on its large educated English-speaking population to become a major
exporter of information technology services, business outsourcing services, and software
workers.
In 2010, the Indian economy rebounded robustly from the global financial crisis - in large
part because of strong domestic demand - and growth exceeded 8% year-on-year in real terms.
However, India's economic growth began slowing in 2011 because of a slowdown in government
spending and a decline in investment, caused by investor pessimism about the government's
commitment to further economic reforms and about the global situation. High international crude
prices have exacerbated the government's fuel subsidy expenditures, contributing to a higher
fiscal deficit and a worsening current account deficit.
In late 2012, the Indian Government announced additional reforms and deficit reduction
measures to reverse India's slowdown, including allowing higher levels of foreign participation
in direct investment in the economy.
The outlook for India's medium-term growth is positive due to a young population and
corresponding low dependency ratio, healthy savings and investment rates, and increasing
integration into the global economy. India has many long-term challenges that it has yet to fully
address, including poverty, corruption, violence and discrimination against women and girls, an
inefficient power generation and distribution system, ineffective enforcement of intellectual
property rights, decades-long civil litigation dockets, inadequate transport and agricultural
infrastructure, limited non-agricultural employment opportunities, inadequate availability of
quality basic and higher education, and accommodating rural-to-urban migration.

Comparison between Economies


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Factors

India

China

GDP

$4.99

trillion

(2013est.)

$13.39

trillion

(2013est.)

(purchasing

$4.833

trillion

(2012est.)

$12.43

trillion

(2012est.)

power parity)

$4.63

trillion

(2011est.)

$11.54

trillion

(2011est.)

GDP

real

growth rate

note: data are in 2013 US dollars

note: data are in 2013 US dollars

3.2%

(2013est.)

7.7%

(2013est.)

5.1%

(2012est.)

7.7%

(2012est.)

9.3%

(2011 est.)

7.5%
GDP

per

capita (PPP)

(2011 est.)

$4,000

(2013est.)

$9,800

(2013est.)

$3,900

(2012est.)

$9,100

(2012est.)

$3,800

(2011est.)

$8,300

(2011est.)

note: data are in 2013 US dollars

note: data are in 2013 US dollars

agriculture: 17.4%

agriculture: 10%

composition by

industry: 25.8%

industry: 43.9%

sector

services: 56.9% (2013 est.)

services: 46.1%

GDP

(2013 est.)
Population
below

22% (2013 est.)

6.1%

poverty

(2013)

line
Household
income

lowest
or

10%: 3.6%

highest 10%: 31.1% (2005)

lowest

10%: 1.7%

highest

10%: 30%

consumption by

note: data are for urban households

percentage

only (2009)

share
Inflation

rate

9.6%

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(2013est.)

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2.6%

(2013est.)

(consumer

9.7% (2012 est.)

2.6% (2012 est.)

487.3 million (2013 est.)

797.6million

prices)
Labor force

note: by the end of 2012, China's


population at working age (15-64
years) was 1.0040 billion (2013 est.)
Labor force - by

agriculture: 49%

agriculture: 33.6%

occupation

industry: 20%

industry: 30.3%

services: 31% (2012 est.)

services: 36.1%
(2012 est.)

Unemployment

8.8%

(2013est.)

rate

8.5% (2012 est.)

4.1%

(2013est.)

4.1%

(2012est.)

note: data are for registered urban


unemployment,

which

excludes

private enterprises and migrants


Distribution of

36.8

family income -

37.8

(2004)
(1997)

47.3

(2013)

47.4

(2012)

Gini index
Budget

Industries

revenues: $181.3

billion

revenues: $2.118

trillion

expenditures: $281.6 billion (2013

expenditures: $2.292 trillion (2013

est.)

est.)

textiles, chemicals, food processing,

world leader in gross value of

steel,

equipment,

industrial output; mining and ore

petroleum,

processing, iron, steel, aluminum, and

cement,

transportation
mining,

machinery, software, pharmaceuticals

other metals, coal; machine building;


armaments;

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textiles

and

petroleum;

cement;

fertilizers;

consumer

apparel;
chemicals;
products

(including

footwear,

electronics);

toys,

food

and

processing;

transportation equipment, including


automobiles,

rail

locomotives,

cars

ships,

and
aircraft;

telecommunications

equipment,

commercial space launch vehicles,


satellites
Industrial

0.9% (2013 est.)

7.6% (2013 est.)

rice, wheat, oilseed, cotton, jute, tea,

world leader in gross value of

sugarcane, lentils, onions, potatoes;

agricultural

dairy products, sheep, goats, poultry;

potatoes, corn, peanuts, tea, millet,

fish

barley, apples, cotton, oilseed; pork;

production
growth rate
Agriculture

products

output;

rice,

wheat,

fish
Exports

Exports

$313.2

commodities

billion

(2013

est.)

$2.21

trillion

(2013

est.)

$296.8 billion (2012 est.)

$2.049 trillion (2012 est.)

petroleum products, precious stones,

electrical

machinery, iron and steel, chemicals,

including data processing equipment,

vehicles, apparel

apparel, radio telephone handsets,

and

other

machinery,

textiles, integrated circuits


Exports
partners

UAE 12.3%, US 12.2%, China 5%,

Hong Kong 17.4%, US 16.7%, Japan

Singapore 4.9%, Hong Kong 4.1%

6.8%, South Korea 4.1% (2013 est.)

(2012)
Imports

$467.5

billion

(2013

est.)

$488.9 billion (2012 est.)

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$1.95

trillion

(2013

$1.818 trillion (2012 est.)

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est.)

Imports

commodities

crude oil, precious stones, machinery,

electrical and other machinery, oil and

fertilizer, iron and steel, chemicals

mineral fuels; nuclear reactor, boiler,


and machinery components; optical
and medical equipment, metal ores,
motor vehicles; soybeans

Imports
partners

China 10.7%, UAE 7.8%, Saudi

South Korea 9.4%, Japan 8.3%,

Arabia 6.8%, Switzerland 6.2%, US

Taiwan 8%, United States 7.8%,

5.1% (2012)

Australia 5%, Germany 4.8% (2013


est.)

Debt - external

$412.2 billion (31 December 2013

$863.2 billion (31 December 2013

est.)

est.)

$378.9 billion (31 December 2012

$737 billion (31 December 2012 est.)

est.)
Exchange rates

Indian rupees (INR) per US dollar -

Renminbi yuan (RMB) per US dollar

58.68

(2013

est.)

53.437

(2012

est.)

6.2

45.726

(2010

est.)

6.3123

(2012

est.)

(2009)

6.7703

(2010

est.)

48.405
43.319 (2008)

(2013

est.)

6.8314

(2009)

6.9385 (2008)
Fiscal year

1 April - 31 March

calendar year

Public debt

51.8%

of

GDP

(2013

est.)

22.4%

51.7%

of

GDP

(2012

est.)

26.1%

of

GDP
of

(2013

GDP

est.)
(2012)

note: data cover central government

note: official data; data cover both

debt, and exclude debt instruments

central government debt and local

issued (or owned) by government

government

entities other than the treasury; the

National Audit Office estimated at

data include treasury debt held by

RMB 10.72 trillion (approximately

foreign entities; the data exclude debt

US$1.66

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debt,

trillion)

which

in

China's

2011;

data

issued by subnational entities, as well

exclude policy bank bonds, Ministry

as intra-governmental debt; intra-

of

governmental debt consists of treasury

Management Company debt, and non-

borrowings from surpluses in the

performing loans

Railway

debt,

China

Asset

social funds, such as for retirement,


medical care, and unemployment; debt
instruments for the social funds are
not sold at public auctions
Reserves

of

foreign
exchange

$295 billion (31 December 2013 est.)

$3.821 trillion (31 December 2013

$296 billion (28 December 2012 est.)

est.)

and

$3.388 trillion (31 December 2012

gold

est.)

Current

-$74.79

billion

(2013

est.)

$182.8

billion

(2013

Account

-$91.47 billion (2012 est.)

$215.4 billion (2012 est.)

$1.67 trillion (2013 est.)

$9.33

est.)

Balance
GDP

(official

exchange rate)

trillion

note: because China's exchange rate is


determine by fiat, rather than by
market forces, the official exchange
rate measure of GDP is not an
accurate measure of China's output;
GDP at the official exchange rate
substantially understates the actual
level of China's output vis-a-vis the
rest of the world; in China's situation,
GDP at purchasing power parity
provides

the

best

measure

for

comparing output across countries


(2013 est.)
Stock of direct

$310 billion (30 November 2013 est.)

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$1.344 trillion (31 December 2012

foreign

$225.1 billion (31 December 2012

est.)

investment - at

est.)

$1.232 trillion (31 December 2011

home

est.)

Stock of direct

$120.1 billion (31 December 2013

$541 billion (31 December 2013 est.)

foreign

est.)

$531.9 billion (31 December 2012

$118.1 billion (31 December 2012

est.)

investment

abroad

est.)

Market value of

$1.263 trillion (31 December 2012

$6.499 trillion (31 December 2013

publicly traded

est.)

est.)

shares

$1.015 trillion (31 December 2011)

$5.753 trillion (31 December 2012)

$1.616 trillion (31 December 2010

$3.389 trillion (31 December 2011

est.)

est.)

7.75% (31 December 2013 est.)

2.25% (31 December 2013 est.)

8%

2.25% (31 December 2012 est.)

Central

bank

discount rate

(31

December

2010

est.)

note: this is the Indian central bank's


policy rate - the repurchase rate
Commercial

10.6% (31 December 2013 est.)

5.73% (31 December 2013 est.)

bank

10.63% (31 December 2012 est.)

6% (31 December 2012 est.)

$1.379 trillion (31 December 2013

$11.79 trillion (31 December 2013

est.)

est.)

$1.401 trillion (31 December 2012

$10.02 trillion (31 December 2012

est.)

est.)

Stock of narrow

$303.1 billion (31 December 2013

$5.532 trillion (31 December 2013

money

est.)

est.)

$317.4 billion (31 December 2012

$4.911 trillion (31 December 2012

est.)

est.)

prime

lending rate
Stock

of

domestic credit

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Stock of broad

$1.376 trillion (31 December 2013

$18.15 trillion (31 December 2013

money

est.)

est.)

$1.396 trillion (31 December 2012

$15.5 trillion (31 December 2012 est.)

est.)
Taxes and other

10.3% of GDP (2013 est.)

19.4% of GDP (2013 est.)

-5.7% of GDP (2013 est.)

-2.1% of GDP (2013 est.)

household

consumption: 56.4%

household

consumption: 36.3%

composition, by

government

consumption: 12.4%

government

consumption: 13.7%

end use

investment in fixed capital: 29.6%

investment

investment

investment

revenues
Budget surplus
(+) or deficit (-)
GDP

Gross
saving

national

in

inventories: 8.2%

in

fixed

in

capital: 46%

inventories: 1.2%

exports of goods and services: 25.2%

exports of goods and services: 25.1%

imports of goods and services: -

imports of goods and services: -

31.8%

22.2%

(2013 est.)

(2013 est.)

33.7%

of

GDP

(2013

est.)

50%

28.8%

of

GDP

(2012

est.)

51.2%

30.3% of GDP (2011 est.)

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of
of

GDP
GDP

(2013

est.)

(2012

est.)

50.1% of GDP (2011 est.)

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India-China Bilateral Trade Relationship


Bilateral trade agreements are agreements between countries where one country gives preference
to certain countries in commercial relationships, facilitating trade and investment between the
home country and the foreign country by reducing or eliminating tariffs, import quotas, export
restraints and other trade barriers.
Bilateral trade agreement is defined in Business dictionary as The exchange of goods between
two countries, Bilateral trade agreements give preference to certain countries in commercial
relationships, facilitating trade and investment between the home country and the foreign country
by reducing or eliminating tariffs, import quotas, export restraints and other trade barriers.
Bilateral trade agreements can also help minimize trade deficits. A bilateral trade agreement
usually includes a broad range of provisions regulating the conditions of trade between the
contracting parties. These include stipulations governing customs duties and other levies on
imports and exports, commercial and fiscal regulations, transit arrangements for merchandise,
customs valuation bases, administrative formalities, quotas, and various legal provisions.
All countries that sign a bilateral trade agreement are mutually benefitted the economic gains
from international trade are improved when many countries or regions agree to a mutual
reduction in trade barriers. India china bilateral trade started in 1950 and reached US$ 61.7
billion in 2010.
The China-India bilateral trade at approximately USD19 billion in 2005 is deemed to be a far cry
of a respectable volume of trade for two large economies. Despite the fact that both economies
have pledged to increase bilateral trade to USD40 billion by 2010, the importance that India
assigns to China is yet to be reciprocated. China is Indias second largest trading partner whilst
India remains a distant tenth in Chinas foreign trade. Thus, cooperation is considered limited to
this date.

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China has emerged as Indias largest trading partner after it replaced the United States in March
2008. When India initiated its comprehensive reforms in 1991, the level of bilateral trade
between the two countries was insignificant as the trade basket was restricted to a limited
number of products. However within a short period, China has become Indias single most
important trading partner even though Indias bilateral trade deficit with China reached an
unsustainable level of US$ 39.1 billion in 2012 (IMF, 2013b). Policy makers will have to find
ways to manage this huge deficit given that India can neither afford to limit its economic
engagement with China nor continue with such a huge bilateral trade asymmetry for a long
period of time.

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Trade pattern of China and India


S.No

\Year 2009-2010

.
1

2
3

EXPORT

%Growth
India's

11,617.88

178,751.43

2010-2011

2011-2012

2012-2013

2013-2014

15,482.70

18,076.55

13,534.88

14,824.36

33.27

16.75

-25.12

9.53

251,136.19 305,963.92

300,400.68

314,405.30

Total
Export
4
5

%Growth
%Share

IMPORT

7
8

%Growth
India's

40.49

21.83

-1.82

4.66

6.5

6.17

5.91

4.51

4.72

30,824.02

43,479.76

55,313.58

52,248.33

51,034.62

41.06

27.22

-5.54

-2.32

369,769.13 489,319.49

490,736.65

450,199.79

288,372.88

Total
Import
9
10

%Growth
%Share

11

TOTAL

28.23

32.33

0.29

-8.26

10.69

11.76

11.3

10.65

11.34

42,441.90

58,962.46

73,390.13

65,783.21

65,858.98

38.93

24.47

-10.37

0.12

620,905.32 795,283.41

791,137.33

764,605.09

TRADE
12
13

%Growth
India's

467,124.31

Total Trade
14
15

%Growth
%Share

9.09

32.92

28.08

-0.52

-3.35

9.5

9.23

8.32

8.61

Chinas Trade with India

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Reflecting the synergy in bilateral trade relations, total trade between the two countries has also
risen more than 20-fold, from US$ 3.6 bn in 2001 to US$ 73.9 bn in 2011, underlined by rise in
both Chinas exports to as also imports from India.
During the period 2001-2011, Chinas exports to India rose from US$ 1.9 bn in 2001 to touch
US$ 50.5 bn in 2011, with a CAGR(Compound Annual Growth Rate) of 38.8% during the
period. As a result, Indias share in Chinas global exports has risen from 0.7% in 2001 to touch
2.7% in 2011. Chinas imports from India have also risen from US$ 1.7 bn in 2001 to US$ 23.4
bn in 2011, with a CAGR of 30%. Indias share in Chinas global imports has also risen from
0.7% to 1.3% during the period.

Chinas Exports to India Major Commodities

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Machinery and electrical & electronic equipments are the two largest items of Chinas exports to
India, with a combined share of 45% of Chinas total exports to India during 2011 (24.4% &
21.3% share, respectively).Chinas exports of these two items to India have, in fact, registered a
significant rise in recent years, with the result that Chinas trade surplus with India for these two
items are as high as US$ 11.9bn in the case of machinery, and US$ 10.3 bn in the case of
electrical and electronic equipment.
Other major items of Chinas exports to India include: organic chemicals, fertilizers, articles of
iron and steel, iron and steel, and plastics and articles. For all these major items, India has
emerged as one of the leading export destinations for China.
For instance, India is the 6th largest global market for Chinas exports of machinery (with a share
of 3.5% of Chinas global exports in 2011); 8th largest global market for Chinas exports of
electrical and electronic equipment (2.4% share); 2nd largest global market for Chinas exports
of organic chemicals (11.8% share); largest global market for Chinas exports. of fertilizers
(44.7% share); 4th largest global market for Chinas exports of articles of iron and steel, and iron
and steel (5.9% & 4.6% share, respectively); 7th largest global market for Chinas exports of
plastics and articles (2.5% share).
Chinas Imports from India Major Commodities

Two items, viz. ores, slag and ash, and cotton dominate Chinas imports from India, together
accounting for 32% of Chinas total imports from India during 2011. Other major items of
Chinas imports from India include copper and articles, pearls and precious stones, organic
chemicals, and plastics and articles.
As in the case with exports, India has emerged as an important global import source for China.

While India has emerged as the 3rd largest global source for Chinas imports of ores, slag and
ash in 2011 (accounting for 6.9% share of Chinas imports), India is the leading global source for
Chinas imports of cotton (22% share). Further, Indias is the 8th leading global source for
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Chinas imports of copper and articles (4% share), and the 4th largest global source for Chinas
imports of pearls and precious stones (8% share).

Potential Areas for Enhancing Bilateral Trade Relations

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Bilateral trade relations between India and China has witnessed a significant rise in recent years,
with total trade (exports plus imports) between them having risen more than 20-fold, from US$
3.6 bn in 2001 to as much as US$ 73.9 bn in Reflecting on the higher growth in Chinas exports
to India, as compared with import growth from India, Chinas trade surplus with India has
witnessed a sharp rise from a meagre US$ 0.3 bn in 2001 to touch US$ 27.2 bn in 2011. India
has emerged as one of the major destinations for Chinas exports.
In 2011, India was the 7th largest export market for China, up from the 19th position in 2001.
However, as regards Chinas imports, India is still a marginal partner at the 18th position in 2011,
a slight improvement from the 20th position in 2001.
To enhance bilateral trade relations, and in particular to address Indias rising trade deficit with
China, strategy to boost trade relations with China would entail identification of potential items
of Indias exports to China, which would be based on the following analysis:

Identification of major items in Chinas import basket, and share of India in each product

line.
Selection of potential export items, based on low share of India in Chinas import basket
of major commodities, keeping in view Indias global export capabilities. This would
entail identification of potential export items under each product category.

Recent developments in India- China relations

India- china strategic 2nd economic dialogue, 2012

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1. The 2nd India-China Strategic Economic Dialogue (hereinafter referred to as the


Dialogue) took place in New Delhi on 26 November, 2012. The Indian side was led by
H.E. Mr. Montek Singh Ahluwalia, Deputy Chairman, Planning Commission, Republic of
India and the Chinese side was led by H.E. Mr. Zhang Ping, Chairman, National
Development and Reform Commission, Peoples Republic of China (hereinafter referred
to as the two sides).
2.

Established during the visit to India of H.E. Mr. Wen Jiabao, Premier of the State
Council of the Peoples Republic of China in December 2010, the Dialogue is aimed at
improving macro-economic policy coordination, promoting exchanges on economic issues
and enhancing India-China economic cooperation. The 1st Dialogue had been successfully
held at Beijing in September 2011 where the two sides agreed to constitute five Working
Groups on policy coordination, infrastructure, energy, environment protection and hightechnology. A working level delegation from China visited New Delhi in March 2012
following which the five Working Groups met in Beijing in the months of August and
September 2012. This preparatory work has contributed immensely to the successful
deliberations in and outcomes of the 2nd Dialogue.

3.

During the 2nd meeting of the Dialogue, the two sides discussed a wide range of topics
including greater cooperation at the global level, strengthening communication on macroeconomic policies, deepening and expanding trade and investment and promoting bilateral
cooperation in the financial and infrastructure sectors. The proposals and recommendations
made by the five Working Groups were considered during the 2nd Dialogue and directions
given for their future activities.

4.

The two sides agreed that in the current global economic situation it was important to
raise the level of economic engagement between India and China. The two sides agreed on
the

following:

(i) Cooperation at the global level: Exchanging views on current global economic and
developmental challenges, the two sides recognized that as major developing economies,
they needed to maintain close coordination and communication to pursue their common
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interests. Among them is the reform of international monetary and financial systems,
stabilizing the volatility in global commodity markets, working towards sustainable
development and climate change goals, and ensuring food and energy security.
(ii) Strengthening communication on macroeconomic policies: Following detailed
discussions on the global and national economic situations, the two sides agreed that
development growth trends globally have weakened as a result of a number of factors since
the onset of the global financial crisis. This included weakening demand in the developed
markets, the ongoing Eurozone crisis, lower business confidence, and growing inflationary
trends. Both sides seek to maintain continued economic growth while adjusting
manufacturing and services, upgrading levels of technologies and skills, while developing
the hard and soft infrastructure for encouraging economic growth. The two sides agreed that
they would regularly conduct joint studies on issues of mutual interest, focusing on benefits
of best

practices.

(iii) Deepening and expanding trade and investment: With a view to promoting greater
economic and commercial engagement, both sides recognized the need to explore potential
synergies in areas where the two sides have mutual complementarities, improve trade and
investment environments, work towards removing market barriers, enhance cooperation in
project contracting, deepen business to business exchanges, improve transportation links,
encourage greater bilateral investment and work towards achieving a more balanced and
sustainable bilateral trade.

(iv)Expanding cooperation in the financial and infrastructure sectors: Both sides


have agreed to intensify the cooperation in the financial sector by encouraging financial
institutions of the two countries to set up operations in either country to support
enterprises of the two countries to establish / expand commercial operations. Both sides
agree to undertake studies in related areas including innovative financial methods to

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support the requirements of priority sectors particularly the infrastructure sector having
significant scope for furthering economic development.
5. The main outcomes of the Working Groups are as follows:
6.
(a) In the Policy Coordination Working Group, both sides discussed plan priorities and
ways and means of achieving plan targets recently unveiled in their 12th Five Year Plans.
They exchanged views on skills development and industrial park development. The two
sides also submitted assessment reports on the investment environments in each others
country based on the experiences of the enterprises of the two countries and discussed
possible solutions to improve the investment environment. The two sides have also
agreed to carry out joint studies on planning cooperation and skills development for
employability, and

entered

into

related

MoUs.

(b) In the Infrastructure Working Group, with its focus on enhancing railway
cooperation, both sides exchanged views on the broad policies and plans for railway
development in each others country. The two sides also discussed high-speed rail
development programme, heavy haul and station development and entered into an MoU
to

exchange

views

and

other

related

information

in

these

areas.

(c) In the Energy Working Group, both sides briefed each other on the development of
the power sector in the two countries, the ongoing cooperation in the power equipment
sector, opportunities and challenges in the wind energy sector, the possibility of Chinese
power equipment manufacturers setting up service centres in India and relevant policy
environment to support the ongoing cooperation, and reviewed the small hydro power
workshop that was successfully held in Beijing in October 2012.
d) In the Environmental Protection Working Group, the two sides agreed to enhance
cooperation in the implementation of energy efficiency projects through energy service
companies (ESCOs), encouraging visits to industrial and manufacturing centres excelling
in energy efficient initiatives, cooperate and jointly develop testing protocols and
standards and have entered into a related MoU. The two sides also exchanged views on
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enhancing cooperation in water-saving technologies covering the areas of waste water


recycling

and

water-efficient

irrigation

systems.

(e) In the Hi-Technology Working Group, the two sides agreed to enhance cooperation
in the Information Technology and Information Technology Enabled Services (IT/ITES).
Both sides also agreed to carry out / support joint studies to better understand the IT/ITES
markets of each country and have entered into a related MoU in this area. The two sides
also reached a consensus to explore the possibility of working together for developing
common standards for digital TV, audio and video codec standards and mobile
communication technology.

7. The following Memorandums of Understanding were signed by the two sides in the
presence of

the

delegation

leaders:

(a) Memorandum of Understanding between the Planning Commission of the


Government of the Republic of India and National Development and Reform
Commission of the Government of the Peoples Republic of China on Undertaking Joint
Studies.
(b) Memorandum of Understanding between the Bureau of Energy Efficiency, Ministry
of Power, Government of the Republic of India and National Development and Reform
Commission of the Government of the Peoples Republic of China on Enhancing
Cooperation

in

the

Field of

Energy

Efficiency.

(c) Memorandum of Understanding between the Ministry of Railways of the Government


of the Republic of India and Ministry of Railways of the Government of the Peoples
Republic of China on enhancing technical cooperation in the railway sector.
(d) Memorandum of Understanding between the National Association of Software and
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Services Companies (NASSCOM), India and the China Software Industry Association
(CSIA) on Enhancing Cooperation in the IT/ITES Sector.
8. The two sides agreed that the 3rd India-China Strategic Economic Dialogue will be
convened in China in 2013. They also agreed that prior to the 3rd Dialogue, the Working
Groups would meet to implement the consensus and decisions agreed to by the two sides
at the 2nd Strategic Economic Dialogue.

The 5th India-China Strategic Dialogue


On August 20, 2013, The 5th round of the India-China Strategic Dialogue was held in New
Delhi by Indian Foreign Secretary Sujatha Singh and Chinese Vice Foreign Minister Liu
Zhenmin. During the 4-hour meeting, the two delegations discussed bilateral, regional, and
global issues, and exchanged ideas for improving trade relations, reducing the Indian trade
deficit, and boosting cultural cooperation, people-to-people exchanges and the expansion of
scientific and technological cooperation. The two sides discussed the use of ways trans-border
river waters, and ways to maintain peace along the Line of Actual Control (LAC), and planned
for the China visit by Indian Prime Minister Manmohan Singh by the end of the year.
Future cooperation in the BRICS framework, ways of ensuring an open, inclusive and
transparent architecture in the Asia-Pacific region and the outlook for Afghanistan in 2014 and
beyond were other areas of discussion between the two sides.

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Chinese President Xi Jinping visits India, 2014:


China's President Xi Jinping has begun his first official visit to India for talks expected to focus
on improving trade and boosting Chinese investment. He is expected to pledge billions of dollars
in investment, including plans for Chinese-funded industrial parks.
President Xi's plane landed in Gujarat, home state of India's PM Narendra Modi, who has also
vowed to deepen ties. China is one of India's top trading partners but they vie for regional
influence and dispute their border. Mr Xi's visit comes amid unconfirmed reports in the Indian
media of a new face-off on the border.
The reports said Indian troops had spotted their Chinese counterparts trying to construct a
temporary road into Indian territory across the Line of Actual Control (the de facto boundary) in
the Ladakh region.
Despite the continuing tensions, trade between India and China has reached close to $70bn
(43bn) a year, although India's trade deficit has climbed to more than $40bn from $1bn in 20012002.
Ahead of his visit, Mr Xi said he appreciated Mr Modi's comment that "China and India are two
bodies, one spirit"."The combination of the 'world's factory' and the 'world's back office' will
produce the most competitive production base and the most attractive consumer market," he
wrote.

Conclusion/ Inferences
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Positive evaluation-

1. Bilateral trade is an important indication of international economic relations. Although


both countries are yet to resolve their boundary dispute but they have fared exceptionally
very well in economic relations.
2. Bilateral trade rose to $ 72Billion in 2012, highest ever. China has been exploring options
to diversify its exports as its major clients in Europe and North America are yet to recover
from recession completely. China is in search of next big consumer that can remain
reliable and consistent in the long run. That bulk Buyer is India with 1.2billion
populations with enormous young age population. It can continue to remain a major
market for Chinese manufacturers.
3. This opportunity has to be seen vis-a-vis China how India can benefit from mutual
cooperation. In our analysis we have observed that this incremental trade accrued to
China significantly resulting in huge trade deficit for India.
4. Trade intensity figures show that India and China are not still trading at high level as
expected. There is scope for increase in bilateral trade. Next, Growth in trade is also
possible if we can exploit our comparative advantage as shown in many commodities by
the data. There is an overlap in few commodities, so the two countries can trade in areas
where there is no overlap in comparative advantage.
5. There is also scope for increased intra-industry trade in some areas where the two
countries compete with each other (WU and Zhou 2006).Both countries can exchange
valuable experiences given different growth strategy they have adopted. India has been
able to sustain high growth rate with few investment in Infrastructure while China has
made enormous investment in manufacturing and allied investment and has become
factory of the world. After slow down, it can still accelerate its economy if service sector
gets a stimulus. India can be of significant contribution in this area.
6. Indias manufacturing sector is still very small. Its contribution in GDP growth has been
small. India has to learn from China in this field how to harness the cheap labour
available here and generate a number of jobs.
7. Both countries can regain the share of World GDP as they have in 1820 that was two third
of whole. It is possible only when both learn mutually from each other with synergy and
then this deadline can be achieved very soon. This paper gives clear insights into bilateral
trade for both Asian neighbours for the last 20 years very comprehensively and policy
implications are discussed in the last section deliberating how India can bridge the gap
(trade deficit) meanwhile China too can increase its export.

Negative evaluation/ counter evaluation-

1. India assumes Chinas rise as Asias rise but China sees its rise as
separate from Asia's destiny. When it does pay lip service to the "rise of the
Asian century" discourse, it is to reach out to an Asia that might challenge
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China's rise to power.


Since 1949, when the Chinese Communist Party first declared the Common
Program of the new Chinese state, it has been concerned with an
examination of how dominant states achieve power. It has studied as well
how dominant states use power to sustain the enhancement of their power.
Hence, the Chinese have an obsession with comprehensive national power
as a basis for state and regime security. The difference in the two
assumptions means that Beijing's "win-win" statements need to be examined
in Delhi with more reference to India's interests than China's desires.
2. Second, Delhi moves on the presumption that the bilateral relationship
between India and China is about accommodation on the border dispute.
China, on the assumption that the bilateral relationship with India is about its
territorial integrity and sovereign rights which are non-negotiable
Given the interweaving of notions of sovereignty with the "mandate to rule",
it is a rare Chinese leadership that will agree to a bargain on the border
unless India makes a strong argument using a variety of instruments of state
policy.
3. Delhi should be cautious of working to Beijing's plan, a plan based on
reversing the mistakes of its coastal development policy. The reasons for the
economic backwardness in India's Northeast are clearly different and will
have to be addressed through a different set of economic regimes and
platforms.
Any realistic assessment of the nature of India's trade with China also
indicates the fact that both the current levels of trade and the basket of
commodities traded are not sustainable unless India wants to revert to a
neo-colonial existence as an economy based on resource extraction.
4. The excitement over China's domestic economic turn needs to be
reviewed as well. China's domestic market is unlikely to present a level
playing field for Indian investors unless there is deep reform in its stateowned enterprises, the largest part of its manufacturing sector. The fact that
major Chinese companies abroad are state-owned companies means that
their investments in India would primarily be investments by the Chinese
state, a situation that should create unease in Delhi.
5. To move ahead to grow its infrastructure and the manufacturing and
agricultural sectors, India should look at China where possible but also
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beyond China. While China's economic presence in East Asia is dominant,


other East Asian states have done as well without the liabilities China has
created in terms of economic and social imbalances.
6. Fourth, India moves on the assumption of mutuality and reciprocity, China
on the assumption that its interests alone must be jealously guarded.
Therefore, we have had the absurd example of India, and the world, being
held hostage to China's demand that it endorse the one-China policy and the
position of Tibet within China. Not to mention the even more duplicitous
opposition from Beijing to India's exploration activities in what it regards as
disputed waters off the coast of Vietnam when China marches ahead with
infrastructure and development activities in Kashmir as well as maintains a
hold on disputed territories in Kashmir "ceded" to it by Pakistan.
7. In a silly foreign policy sideshow, there is the other situation where India
banks on its history of supporting China's admission in the United Nations
but comes up empty when it asks China's support for its candidature to a
permanent seat at the UN Security Council.
Mutuality and reciprocity are well entrenched principles in international law,
and Delhi would be well within its rights to demand this from China or else
cease its verbal support for China's position on Taiwan and Tibet while raising
the issue of its activities in disputed territories in Kashmir in a consistent
manner.
8. To have a credible and workable China policy, India must make its
assumptions and their implications clear to China. So far we have seen little
in our China policy that speaks to our foreign policy assumptions.
It is imperative to begin to understand the many different levels at which we
need to engage with China to resolve issues. Given the narrow of window of
opportunity in front of us before China's rise becomes truly credible,
succumbing to shock and awe is an option we do not have.
But the surge of Revived National sentiment as Modi enters scene gives us a
ray of hope that may be India will truly focus on the demanding issues rather
than ignore them as I had been doing earlier. China seemed to have agreed
to pool in cash and invest in the Indian economy; also new FTAs (free trade
agreement) are on the spur.
So overall we have an optimistic outlook that in the coming years India will
learn how to benefit from China and both the countries will rise in Synergy.

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References

1. BBC News http://www.bbc.com/news/world-asia-india-29218466


2. Mehraj Uddin Gojree, India and China: Prospects and Challenges, International
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Changing Scenario Electronic International Interdisciplinary Research Journal
(EIIRJ) {Bi-Monthly},ISSN 2277-2456, Volume-I, Issue-III.2013
4. Raksha Thakur, Potential of India-China Bilateral Trade Relations: A Trend
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