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Opportunities and Challenges of Economic Relations between Two Asian Powers



Opportunities and Challenges of Economic Relations between Two Asian Powers

Recently, IMP released a report that: global economic activity is experiencing a broad and more severe than an expected slowdown, the Russia-Ukraine conflict, and the resulting negative spillover effects such as soaring energy prices will further impact the world economy. Global economic growth is expected to slow to 3.2% in 2022 and may only achieve an increase of about 2.7% in 2023.

Southeast Asia, on the other hand, is likely to see a strong recovery, with Vietnam continuing to expand its supply chain influence, the Philippines, Indonesia, and Malaysia likely to grow between 4% and 6%, India’s economy is expected to grow 6.8% in 2022, and China is likely to see a recovery this year, with GDP achieving 3.2% over the year and accelerating to 4.4% in 2023 (assuming an epidemic control relaxation). Meanwhile, CNBC cited economists as saying that Asia is a bright spot amid a global economic downturn next year.

In Asia, the movements of China and India, two large economies with a total population of 2.8 billion, are of particular interest to the future direction of the world economy and stability. According to India’s “Economic Times” on September 22, local time on September 21, Indian Foreign Minister Su Jaisheng in the United States at an event in Columbia University, referring to China-India relations, a rare emphasis on “restoring normal relations with China” is the focus of India’s current foreign policy, said that despite the long-standing border differences between India and China, but find The two countries have a common interest in finding an accommodating way to get along with each other.

China-India border situation eases, trade volume surges

At the end of August, India’s Foreign Minister S Raj Sangathan gave a speech at the Asia Society on “The Asian Century and India-China Relations”, in which he proposed to “put India-China relations back on a positive track and maintain sustainable development”, and also gave the prerequisite for the “return to normalcy” of relations between the two countries. “The premise of the “return to normalcy” is that “the state of the border will determine the condition of India-China relations.

China and India are both large developing countries and emerging economies, with a certain degree of stability and dependence on economic trade. 2018 China-India trade volume of $95.543 billion, in the epidemic environment coupled with the country’s policy shift to a more pronounced “de-China” policy, in 2019, and 2020 for two consecutive years of decline. But in 2020, China replaces the United States as India’s top trading country, and in 2021 China-India trade volume reaches $125.6 billion, a significant rise to reverse two consecutive years of decline.

“Upgrading trade with neighboring countries”

In recent years, India’s government under Prime Minister Narendra Modi has been pushing companies to vigorously pursue “Make in India” initiatives to reduce their dependence on goods made overseas, including in China. The aim is to reduce the trade deficit with neighboring countries.

India’s low urbanization rate of more than 30% and relatively weak infrastructure have huge room for investment growth. While the younger age structure and rapid economic growth period of the labor force to get large-scale stimulation, there is a causal relationship with its consumer market potential to get a large-scale awakening, especially up to 65% of the young population’s strong consumer demand, investment and consumption will be the main driver of India’s economic growth.

India’s path to industrialization requires addressing the pressure of a large and growing population for employment and the serious constraints on economic and social development caused by the disparity between rich and poor. Goldman Sachs predicts that India will overtake the U.S. by 2043, and among the 10 pieces of advice it gives is the important one of “improving the level of trade with neighboring countries,” while the Modi government’s “neighbor first” policy remains clear that cooperation is mutually beneficial and suitable for China-India Bilateral relations.

If India’s industrial structure develops properly, industrialization driven by foreign investment and local entrepreneurs develops smoothly, and the labor force can achieve employment rather than social pressure, India has a demographic dividend for the future for decades.

Both countries seek development opportunities in a complementary supply chain relationship

At the same time, China, faced with the economic impact of the epidemic, the rise of manufacturing in Vietnam, and the increased risk of out-migration of manufacturing supply chains, is also desperate to find more exports for economic development.

According to the China Council for the Promotion of International Trade the September 30 release of the “third quarter foreign trade situation research report” shows that the confidence in Chinese foreign trade enterprises is expected to increase significantly, and continue to show strong resilience. According to the China Council for the Promotion of International Trade spokesman Sun Xiao, “the effect of the implementation of the stabilization of foreign trade policies began to focus on the third quarter, the first half of the strong reflection of enterprises such as freight, energy, capital, exchange rates, and other issues have been significantly alleviated.”

The industrial structure and manufacturing differences between the two countries make them highly dependent on each other, and the industrial chain and supply chain form a complementary relationship, with a broad outlook for complementary supply chain relationships in terms of raw material acquisition, production, and processing, and low-carbon emission reduction.

India wants to improve its capabilities in the industrial sector, further industrial integration, and deepen mutually beneficial cooperation with neighboring countries in heavy machinery, electromechanical products, telecommunication equipment, auto parts, chemical products, intermediate products, base metals, and products, household appliances, APIs, or anti-epidemic medical supplies, laptops, and computers since 2020, and deepen its integration into the global industrial chain.

The report in China’s just-concluded 20th National Congress points out to promote a high level of opening up to the outside world. Steadily expand rules, regulations, management, standards, and other system-based openness. Accelerate the construction of a strong trade country. Create a market-oriented, the rule of law, international first-class business environment. Promote the high-quality development of “One Belt, One Road”. India, as an important player in the Asia-Pacific economy, has good geographical relations and cooperation with China as a neighboring country, so it can give full play to the cost-performance advantage of Chinese manufacturing to win the supply chain cooperation in the industrial chain and respond to its demand and potential market in the process of its transformation to industrialization with a high dependence on Chinese industrial products, intermediate goods, and commodities. Will be conducive in the future to alleviate China’s current foreign trade enterprises facing external demand contraction, the lack of orders in hand, repeated epidemic plague, increased economic and trade friction, and other multiple problems.

Earlier, the Chinese Ambassador to India Sun Weidong also released a positive signal when talking about China-India relations with Indian mainstream media. He said that both China and India adhere to the general direction of multilateralism, have similar or similar positions on major international and regional issues, and have common interests in improving global governance, energy food security, and addressing climate change. India is in the best development opportunity in its history and is also an emerging market with many opportunities. Further development of the China-India economy and trade is in the interest of the people and business communities of both countries and will contribute to the development of Asia and the world economy.