As the world’s only two emerging economies that boast a population of more than one billion each, China and India play important roles in global economic patterns. Although China and India have taken different development paths, they have achieved stability, development and prosperity. China has become the world’s second-largest economy, and India is expected to surpass Britain and France to become the world’s fifth-largest economy in 2019. The simultaneous rejuvenation of China and India provides an important opportunity for the realization of the Asian century and injects more vitality into the world economic recovery.

Coexisting challenges and opportunities

After the international financial crisis, the world economy recovered slowly. Trade protectionism and unilateralism began to spread, severely eroding the system based on free trade and multilateralism, and adding twists and turns to economic globalization. Especially, the trade wars and technological restrictions triggered by the United States undermine the security, stability and predictability of the global trade and investment environment, and exacerbate the downside risks for the global economy, which is not a good thing for both China and India, whose economic reform and development are at a critical stage.

According to Chinese Customs statistics, in the first half of 2019, China- India trade volume was 44.73 billion US dollars, down 4.5 percent from the same period last year. In the same period, the Indian Ministry of Commerce and Industry statistics also showed that China-India trade volume was 42.08 billion US dollars, down 7.1 percent from the same period last year.

However, from another point of view, the increasingly uncertain world economic situation exerting external pressure on China and India’s domestic reforms, encourage the two countries to further stimulate domestic economic potential, actively strengthen cooperation with neighboring countries, as well as accelerate bilateral and regional cooperation and opening up to seek more economic growth points.

For example, China has continuously promoted the construction of pilot free trade zones (FTZ), and actively expanded opening up to dock with international rules. Comparably, India has also made great efforts to deepen reform, strengthen infrastructure construction, improve the business environment and attract foreign investment, which provides good opportunities for China- India trade and investment cooperation. Facing US trade hegemony, China and India have also taken measures to fight back, and coordinated their stances under BRICS and SCO cooperation mechanisms to safeguard the multilateralism and free trade systems.

As two emerging powers, China and India inevitably encountered some frictions in economic and trade cooperation, but the key point is how to deal with them properly.

India is a net importer of goods. According to the statistics of the Indian Ministry of Commerce and Industry, India’s total goods trade deficit in the first half of 2019 was 81.65 billion US dollars. The trade deficit with China alone reached 25.32 billion US dollars, accounting for 31 percent of the total, which has become a “heart pain” for India, and turned into a major obstacle to the development of trade development between the two countries.

Objectively speaking, this deficit is mainly caused by the differences in industrial structures between the two countries and their division of work in the global industrial chain. On the one hand, India owns a large population, and its production and manufacturing capacity can’t meet the huge domestic production and living needs, so it has a large demand for cheap and high-quality Chinese products. On the other hand, China has a strong manufacturing industry and many foreign enterprises have chosen to set up factories in China. The products they produced and processed are exported to India and other countries, which also increases India’s trade deficit with China.

From the trade structure of the two countries, India’s exports to China are mainly primary products such as resource products and raw materials, which are replaceable. With the adjustment of China’s economic structure, the growth space of primary products exported to China is limited. However, China’s exports to India have mainly manufactured goods such as machinery and electronics with high quality and low prices, which are less replaceable for price-sensitive Indian businessmen.

Other important evidence is that India’s free trade agreements with the ASEAN, Japan and Korea have come into force. The products of these countries enjoy preferential tariff treatment in the Indian market. But besides the Asia-Pacific Trade Agreement (APTA), which has a smaller coverage and less trade liberalization, there is no more high-level free trade agreement between China and India. Nevertheless, India’s trade deficit with China continues to expand year by year, which shows that Chinese products have strong competitiveness in the Indian market.

What’s more, the Modi government actively promotes the “Make in India” project and vigorously develops the local manufacturing of electronic products. Chinese enterprises are important supporters for India’s electronics manufacturing industry, since a large number of parts and components are imported from China, and that further boosts India’s demand for Chinese products. With India’s rapid population growth and economic development, its trade deficit with China is difficult to reverse in the short term, and with the expansion of bilateral trade scale, it’s possible to expand further.