The Myth of “Chindia” Assessing Interdependence between China and India

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The Myth of “Chindia”

Assessing Interdependence between China and India

Asia Paper vol. 3 (2)7 January 2008

Jonathan Holslag is research fellow at the Brussels Institute of Contem-porary China Studies (BICCS). He focuses on China’s Africa Policy andregional security in Asia. Recent papers are China’s Diplomatic Victory inDarfur and China’s New Mercantilism in Central Africa. The author isacknowledgeable to the experts and officials interviewed in Beijing andDelhi

Background Papers are a product of BICCS’ ongoing research projects. Theyare published after an internal peer review procedure.



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investors will still be needed. The Eleventh Five Year plan calls for moreforeign investment in China's remote west and the northeast rust belt, whichare currently egging far behind the coastal regions in attracting foreigninvestment. Therefore, despite the emphasis on quality, the document says

the government expects foreign investment to keep rising in the next fewyears. The government will also stimulate investments in relatively newgrowth poles such as agribusiness and services. 22 For both states foreigndirect investments are vital contributors to technological innovation. As thetwo countries have not yet the full capacity to make a way into foreignconsumer markets themselves, they will have to rely on the export channels,the distribution networks, brands and marketing strategies of their corporate

guests. Moreover, once investors are anchored, they will make part of pro-China lobby groups in the West and counterbalance the influence ofprotectionist voices. Consequently, if a substantial disinvestment occurs inthe near future, this will not only cause a financial drain; more important isthe cut off from incentives to trade and to innovate. 23

4. Implications for economic complementarity

Then, what is the impact of these similar expectations and objectives? Howare China and India’s ambitions to step up their exports and to soak in FDIinteracting? Currently the export profiles of China and India arecomplementary. The export complementarity index concerning goods hasbeen surging from 0.38 in 1996 to 0.61 in 2005. 24 The chief explanation is

China’s specialization in fabricated products, representing up to 81 percentof total exports of merchandise, and India’s strength in raw or semi-processed commodities, comprising 70 percent. With commercial servicesincluded, the specialization is even more obvious. Whereas China onlygathers eight percent of its export revenues in the tertiary sector, in India thisfigure mounts up to 42 percent.

This complementarity however is likely to dilute if the two countries

succeed in the aspirations to modify the composition of their export flows.India from its side, wants to step up its exports of labour intensive goods. 25

Graph 2. Export categories as a share of total export volume. Figures drawnfrom WTO Trade Statistics for the year 2006.

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1 0

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3 0

4 0

5 0

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t r a n s p o r t e q u i p m e n t

E l e c t r o n i c d a t a p r o c e s s i n g a n d o f f i c e e q u i p m e n t

T e l e c o m m u n i c a t i o n s e q u i p m e n t

I n t e g r a t e d c i r c u i t s a n d e l e c t r o n i c c o m p o

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51 Gupta, Monica (2006), Auto parts sector up against `dumping` fromChina, Business Standard, 4 October 2006.52 Bhattacharya, Swapan K. and Bhattacharyay, Biswa N. (2006), Free Trade Agreement between People’s Republic of China and India: Likely Impact and Its

Implications to Asian Economic Community, ADB Institute Discussion Paper n°59, Asian Development Bank Institute, Kasumigaseki, p. 8.53 Ghatak, A.R. (2005), Finite ores, implications for mineral policy, The Hindu,13 September 2005; Exporting iron ore is against national interests, Tata SteelMD, The Hindu Business Line, 17 August 2005.54 Chinese Importers Boycott Indian Iron Ore, People’s Daily, 9 March 2007.

The Myth of “Chindia” Assessing Interdependence between China and India

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