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There are no takers for Hu Jintao's bid for a free trade agreement (FTA) with India, but the Chinese President's recent visit has come at a time when Chinese companies are aggressively eyeing opportunities in India. China and India signed a pact on investment promotion and protection. The two sides also set a target of raising the annual volume of their bilateral trade to $40 billion by 2010. An analysis of Hu's visit and the impact on bilateral trade. The joint declaration issued by India and China during the recent visit by the Chinese President, Hu Jintao, provides one more proof of China's eagerness on pursuing the line of a 'strategic partnership' with India instead of a policy of 'great power rivalry', which marked bilateral relations since the late 1950s till around the mid-1990s. China has its reasons for such a change in policy but for India the present should provide an opportunity for engaging in closer cooperation with a compatriot Asian 'economic powerhouse' for maximum economic gains. A significant progress has been made during Hu's visit with 13 agreements signed, ranging from the establishment of consulates in Kolkata and Guangzhou to an exchange programme on cooperation in education. Also signed were a protocol on phyto-sanitary requirements for the export of Indian rice to China (indicating that rice will be exported to China for the first time); an MoU on inspection of iron-ore export cargo (one of India's largest export items to China), and an agreement on bilateral investment protection and promotion which is expected to help Indian investors set up shop in China. However, no decision has been taken on the issue of some Chinese companies being subjected to security checks; this may be no more than an irritant but has the potential to rock bilateral ties. As for the announcement that the bilateral trade target will be $40 billion by 2010 against around $20 billion this year, it does not amount to much going by the recent rate of increase in bilateral turnover - the 2005 level of $18.7 billion was 40 per cent higher than in 2004. The Chinese President has proposed five steps, including trade liberalisation, expansion and diversification, to solidify the mutual relationship between India and China. The current bilateral trade between the two countries is incompatible with their size but has scope for growth by improving trade structure and increasing technological cooperation. China has also emphasised the need to increase border trade for greater cooperation. India and China are currently conducting a feasibility study that is expected to be completed by October 2007 and would lay the foundation for trading between the two regions. The two countries are likely to achieve their bilateral trade target of $40 billion by 2010. The investment of China in India likely to touch $5 billion by 2010. China has become India's number one trading partner in the North East Asian Region (NEAR), overtaking Japan. Another important feature of India's trade with NEAR countries is that the highest imports are from China. China, now, takes initiatives to boost trade and economic ties with India. Prior to the 1990s, major exports from China to India were manufactured products and semi-finished products, while major exports from India were primary and semi-finished products. However, since the mid-1990s, significant changes have taken place in the trading structure between the two countries with the growth rate of the trade volume of manufactured products surpassing that of the growth rate of primary products. However, the real test of a strategic improvement in Indo-China economic ties lies in altering the trade pattern between the two economies - with Indian exports becoming more diversified - and by stepping up direct Indian investments in China. Though the Indian corporates are looking at China as a production base, that country is not attractive enough as it offers few merger and acquisition possibilities. Home-grown MNCs are on an overseas investment binge. India's overseas investments are likely to quadruple to $11 billion in 2006-07. More than 80 per cent of India's overseas investments were through M&A. As for investments from China, they are under various security scanners. Therefore, the eagerness of China to have a FTA with India may not also lead to an expansion of India's trade with China. On the other hand, the US and Japan are waking up to India's potential to play a strategic role in Asia. They are keen on using India as a bulwark against the Chinese expansion in South-East and South Asia. Also, there is a growing body of opinion that Japan may put relations with India on a new footing so as to counter the growing Chinese clout in Asia.
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