IMF Seminar on Trade, Employment and Development: A Strategy for Metal Workers.

INDIA-CHINA TRADE
Sudhershan Rao Sarde Working President SMEFI, India. Geo Political Context; a Brief Background: India recognized People Republic of China in the year 1950 and the two countries jointly proposed the doctrine of Panch Sheel (five principles) in the year 1954 for resolution of border disputes and regional stability. Yet India china war took place in the year 1962 with both sides alleging aggression by the other as provocation for the war. Normalization of bilateral relations began on a low-key in the year 1976 and in 1984 MFN (Most Favored Nation) agreement was signed. By the year 1994 several agreements were signed in the areas of Science and Technology, Civil Aviation, Banking Cooperation, Health, Medical Sciences and simplified procedures for grant of Visa. Some key Economic Indicators: India-China Comparison: China has 10% less arable land than India yet its agricultural production is 25% higher. Though India achieved self sufficiency in food production in the year 1967-70, there are 57 million children suffering from malnutrition compared to 7 million in China according to UNICEF survey. In 1970s nearly Two-Thirds of Chinese population was considered poor according to World Bank standard of Dollar a day. Today only 10% are considered poor. By the same standard 30 % of the Indias population lives Below Poverty Line (BPL). Chinas achievements in Food Security, Education and Gender Empowerment are noteworthy. According to World Bank estimates youth male illiteracy in India is 20% whereas in china it is less than 1%. China implemented Land Reforms in the early fifties which resulted in enhanced agricultural output, establishment of agri-based industries. Barring a few states Land Reforms are a mirage in India. Neo liberal policies further compounded the crisis and thousands of farmers are committing suicides every year across the country. 50% of the income in rural households since 2003 comes from off-farm work in China, whereas in India there is large scale migration of rural artisans, small

peasants and landless labor from rural areas to urban areas causing urban chaos and mushrooming of slums. China opened up its economy in the year 1978 under no foreign pressure. It was a planned shift to market socialism to suit its national interests. In India the economy was opened in the year 1991 consequent upon foreign exchange crisis and under IMF/ World Bank dictates. India and China have large domestic markets on the basis of demography. However, on the parameter of the purchasing power parity China is ahead of India. Wages in China increased three times compared to one time in India in any given period. At the beginning of 90s Indias Highway Infrastructure was actually ahead of China in terms of total route km as well as route km/head of population. Fifteen years later, while Indias expressways languish in potholed chaos, China boasts of a world-class highway network of some 41,000 kilometers, second only to the United States in size. According to United Nations data, China is on course to age faster than any other country in history. Barring a radical change of policy, the countrys median age is set to shoot up from around 32 today to 39 by 2025 and at least 44 in 2040. Moreover, the percentage of its population that is working will peak by 2010 and the ratio of workers to those retired will decline from six to one in 2000, to two to one by 2040. According to Morgan Stanley, by 2020 the average Indian will be 29 years old compared to 37 for China. Thus just as China will have to confront the burden of caring for an army of retirees, India will continue to have more and more workers entering the highest producing/consuming phase of their lives. According to Xin Hua news recently China will enter a period of demographic liability around 2015. By contrast, the article pointed out, India will enjoy a greater demographic dividend with the working age population expected to rise as a share of the total till 2050. In china, by 2050 an estimated 400 million people will be over the age of 60. The Chinese government is faced with the task of providing social security umbrella. Presently government is spending 2% of its GDP on social welfare. Only 17% of the population is eligible for pension whereas large majority of the rural population has no pension at all. Whereas in India the situation is much worse. Only 8% of the total work forces work in organized sector and for them a pension scheme is applicable. The remaining 92% of the work force has no social security. In China during the Maoist regime population was considered as an asset and social security was guaranteed and it was an equitable society. With the change in the paradigm shift of political ideology and introduction of market socialism, the gap between the incomes of coastal and non-coastal population has vastly increased. In coastal areas where around 200 million people live the per capita income is around $ 4000 as compared to the countrys average per capita income of $1000.In India since liberalization (1991) there is a vast difference in urban and rural areas in terms of income distribution. The difference between the rich and poor is growing at an alarming rate. 2

Bilateral Trade Growth and Composition: The Bilateral Trade between the two countries is steadily growing. India-China bilateral trade reached US$ 13.6 billion in 2004 compared to US$7.6 billion in 2003, from a low base of US$338 million in 1992. India ranked 20th as the top trading partner of China in 2003 and this position went up to 12th in 2004. China is now the second largest trading partner of India after the USA. Some Observations: Growth was witnessed both in exports and imports. According to the Chinese statistics, the Balance of trade turned in Indias favor with a surplus of US$ 1750 million in 2004. Bilateral trade recorded consistent growth of over 20% since 1992, except in 1998 and 1999 when it was less then 5%. The Total Bilateral Volume between the two countries has reached US$ 13.6 billion in 2004, 79.1 per cent higher than that in 2003. Indias Exports to China reached US$ 7.677 billion in 2004 up 80.6 per cent compared to 2003 and the imports accounted for US$ 5,927 billion up 77.3 per cent

Trend analysis: Presently, Iron ore constitutes about 53% of Indias total exports to China. Among the potential exports to China, mar products, oil seeds, salt, inorganic chemicals, plastic, rubber, optical and medical equipment and dairy products are important ones. Indias exports to China are over overwhelmingly dominated by low-value primary products with a huge reliance on iron ore. In 2005, ores, slag, and ash comprised 56 per cent Indias exports to China with a year-on-year growth rate of 28 per cent. The fact that primary products such as Iron ore and Raw Cotton dominate Indias exports also means that the benefits of value addition including increased employment, higher profitability, technological up gradation, and so on are lost. By contrast Chinas top exports to India include electrical machinery and other machinery. These together accounted for 43.9 per cent of total Indian imports from China in 2005. Chinas high volume, low cost investment, connectivity to global markets, productive labor force, and the presence on Chinese shores of large numbers of multinational clients have lured a small but steady stream of Indian investors in diverse sectors including IT, Pharmaceuticals, Banking, Wind Farm Equipment, Auto Components, and Tyre manufacturing. Yet the majority of these investors in both the manufacturing and services sectors either sell to MNCs in China or export their products out of China to their traditional buyers.

Indian Software Giants like Infosys, Wipro, TCS and Satyam have invested in China with a hope to capture about 40% of Chinese domestic market which is approximately $ 30 billion. So far Indias I.T. companies could not make a dent in the Chinese market. State owned companies keep the foreign owned companies out of the multi million I.T deals on some pretext or the other. Barriers like language and culture did not permit these companies to scale the great domestic wall of China. Majority of the Indian investors in manufacturing and service sector sell their products to Agencies in China or export their products out of China to their traditional buyers. Chinas investments in India in Green Field Investments i.e. infrastructure projects are blocked by government initiative for security concerns. To cite a few examples, Chinese companies are barred/discouraged from investing in Indian ports. Telecom companies of China are also refused permission for espionage apprehensions. According to the government of India, FDI inflows from China to India between August 1991 and October 2005 stand at $ 2.03 million. Where as Indias total inward FDI for the same period stands at $ 36.2 billion. Indian investments in China, currently stands at $130 million. Whereas U.S corporations/enterprises had actually invested $ 51.1 billion in China and set up 49,000 enterprises in the country. Chinas total FDI inflows are worth $ 72 billion in the last year. In spite of many hurdles the bilateral trade between two countries is growing as in evidence above. Implications for the Metal Workers in particular and Working Class in general: The bilateral trade between the two countries is cause for concern and worry for the Metal workers of India. The bulk of the Chinese exports to India (43.9%) are Machinery and Electrical machinery. In addition to the above, various goods such as Electric Bulbs, serial bulbs, electric appliances, electronic toys, chandeliers, lamp shades, crockery, shoes, etc., have flooded the Indian markets. Even idols for worship during festivals are also exported from China to India causing hardship to the artisans. Every small town including big cities have China markets offering low cost goods which are less than the cost of manufacture on Indian soil. The manufacturing sector of India is already reeling under the pressure of liberalization since 1991 without any growth in employment and decrease in real wages. To withstand competition from Chinese goods the Indian manufacturers are further compressing wages, circumventing labor legislation, flouting OHS standards thereby reducing labor costs to stay alive in the race. Fan industry could be a classic example where more than 50% of the production is shifted to unorganized sector. About 30% of the production in organized sector is shifted to vendors. Many large companies have closed their factories and shifted their production to job order companies. Whereas in the Auto components sector, Pharmaceuticals, Biotechnology, IT India stands to gain due to skilled but relatively cheap labor provided the state 4

takes a pro-active role in formulating strategies for a sustained economic engagement. Joint ventures in either of the countries are a possibility to reach global markets. Annexure: Resumption of Border Trade: Border trade is resumed between India and China through the strategic Nathu La Pass and Namgya Shipki-La Pass. The resumption of Sino Indian border trade is a great historic event not only for enlarging trade, but also for greater relations between the two countries. The reopening of the border trade route after 44 years since the Sino-India war of 1962 will give a major boost to the local economies of the landlocked mountainous regions of the two Asian giants.