Though the pace of expansion of bilateral trade has been strong since 1999, current trade barely accounts for 2 per cent and 10 per cent of the Chinese and Indian total foreign trade respectively—with trade volumes totalling US$40-50 billion annually. China’s major imports from India are primary products, such as ores and precious stones,  that do not provide options for value addition, or lead to increased employment and technological development in India. China mostly exports electrical machinery, organic chemicals, and iron and steel products to India. Neither India’s strength in services is reflected in the export basket, nor is its weakness in manufacturing mitigated by Chinese trade. Unlike the Koreans and Japanese who have localised production of components and, more importantly, use local labour, the Chinese have lagged behind in market seeking FDI in India. Bilateral investments are not encouraging either, with investments by either side being US$30-40 million annually.

Beginning in the 1990s, Chinese companies were not successful in India largely on account of poor quality goods. Although, things have changed in recent years with companies such as Haier and Lenovo focusing on brand-building strategy in India. Today, India is one of the most important offshore project contracting markets for China; mainly in infrastructure projects, including roads and bridges, power generation and telecommunications.

China’s interest in projects, such as the Mumbai port trust, Manipur road lines, the Himachal Hydroelectric plant, are considered too ‘sensitive’ from India’s national security viewpoint. More recently, the Kaidi Electric Power Company’s and Chinese Harbour Engineering Company’s bid for ports in southern India were not approved. The reason being these companies had business interests in Pakistani ports. Chinese telecom giant Huawei’s expansion is closely monitored in India owing to ‘security’ concerns about its owner, a former PLA officer alleged to be close to the Party. There are government directives in India against the use of Chinese telecom equipment in sensitive border regions over fears that the equipment is compromised and could render Indian IT networks vulnerable. Whilst, China is suspicious about India’s closer ties with the United States, and its treatment of the Tibetan government-in-exile. This together with the long-standing Sino-Indian border dispute and the development of a genial Sino-South Asian relationship, which notably does not include India, complicates efforts to improve bilateral ties.

Until economic interaction between India and China becomes sufficiently important to both, there is no space for theoretical frameworks such as economic interdependence to play a part in abating conflicts. And until bilateral economic interaction increases to the point that it becomes costly for governments to disrupt it, there is no way for a traders’ lobby or an industrial lobby to act as a counterforce when bilateral relations meet bumps, such as in the case of Sino-US relations.

In the wake of the recent financial crisis it is imperative that China finds ways of looking at markets such as India in the medium term, instead of singularly relying on Western markets. For instance, Indian strengths in the software industry offer complementarities to China’s electronic and hardware industry; and the pharmaceutical industry in the region is yet to benefit from the advantages of India’s R&D facilities and human capital, and China’s production of bulk drugs and intermediates.

Many analysts from the Realist school are fond of citing a Chinese saying to the effect, ‘one mountain cannot accommodate two tigers’. However, it is now time to move beyond that narrow understanding of interstate relations.

Joe Thomas Karackattu is a doctoral degree candidate at the Center for East Asian Studies, School of International Studies, Jawaharlal Nehru University (JNU), New Delhi.

This article was an entry in the recent EAF Emerging Scholars competition.