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The dragon and the elephant: Moving towards common ground

By Dillip Dutta - posted Monday, 20 June 2005

It is fascinating to witness a tremendous increase in the annual two-way trade (exports plus imports) between the world’s two largest and most populous developing economies of China and India: US$13.6 billion during the last year against about US$1 billion only a decade ago. China, including Hong Kong, has emerged as India’s second largest trading partner in 2003-04, after the US.

While China and Hong Kong together account for 8.4 per cent of India’s total trade, the corresponding figure for the US is 11.6 per cent. India’s exports to China increased by 49.6 per cent in 2003-04, and imports from China increased by 45.2 per cent in the same year. India’s major export items were iron and steel, iron ore, plastic and linoleum products, machinery and instruments, whereas major imports from China consisted of electronic goods, chemicals, medicinal and pharmaceutical products, coal, coke and briquettes, silk yarn and fabrics.

It took a quarter of a century to reach the present state of bilateral relations between the two states. The two Asian neighbours resumed trade relations officially in 1978 after the 1954 trade agreement lapsed in 1962, due to a short-lived border conflict.


India’s first non-Congress government since independence decided to send its Minister of External Affairs Atal Behari Vajpayee to China in February 1979 -  the first high level visit between the two countries since 1960. Reciprocating Vajpayee’s visit, the Chinese Vice Premier and Foreign Minister Huang Hua came to India in June 1981. During Hua’s visit, a regular dialogue at a senior level was instituted as a significant step in developing bilateral ties. This was followed up by eight rounds of border negotiations between December 1981 and November 1987.

The visit of Rajiv Gandhi to China in December 1988 was a turning point in Sino-India relations. It was the first visit by an Indian prime minister to China since Nehru’s 1954 visit and it reciprocated, after a gap of 28 years, the Chinese Premier Zhou Enlai’s 1960 visit.

The two sides issued a joint communiqué stressing the need to restore friendly relations and agreed to broaden bilateral ties in various areas. A Joint Working Group was set up for negotiations on border issues and another group to promote trade and investment. Bilateral agreements were signed on co-operation in cultural exchanges, science and technology and to establish direct civil aviation air links. Top level dialogues continued with the Chinese Premier Li Peng’s visit to India in December 1991 and the Indian President Ramaswami Venkataraman’s visit to China in May 1992.

Border trade resumed in July 1992 after a gap of more than 30 years. The Chinese consulate first reopened in Bombay (now Mumbai) in December 1992 and the Indian consulate opened in Shanghai in June 1993. The Joint Working Group (JWG) on border issues negotiated an important Agreement on Maintenance of Peace and Tranquility along the Line of Actual Control (LAC). This was formally signed when the Indian Prime Minister Narasimha Rao visited Beijing in September 1993. Another agreement relating to military confidence-building measures along the LAC was signed during Chinese President Jiang Zemin’s visit to India at the end of November 1996.

During this visit, a constructive partnership of co-operation between the two countries on the basis of Five Principles of Peaceful Co-existence (mutual respect for sovereignty, territorial integrity, mutual non-aggression, non-interference in each other’s internal affairs and peaceful co-existence) towards the 21st Century was established. Meanwhile, the two countries signed agreements on avoiding double taxation, agreements of co-operation on health and medical science, a memorandum of understanding on simplifying the procedures for visa application and also on mutual co-operation in banking services.

The progress of the development of amicable Sino-India relations had been temporarily halted when India carried out nuclear tests in May 1998, apparently under the pretext of a perceived threat mainly from nuclear China. The damage was, however, quickly controlled by an Indian initiative taken in July 1998 seeking a meeting between India’s Minister of External Affairs, Jaswant Singh, with the Chinese Foreign Minister, Tang Jiaxuan, at the time of the ASEAN Regional Forum (ARF) in Manila. Mr Singh, as Indian Prime Minister A.B.Vajpayee’s special envoy, headed the ARF Indian delegation and met with Mr Jiaxuan.


However, nothing concrete materialised until Mr Singh visited China in June 1999. During this visit, both sides affirmed that the Five Principles of Peaceful Co-existence should be the premise of developing the Sino-Indian relations and agreed to refrain from treating each other as a threat.

At the invitation of the Chinese President Jiang Zemin, Indian President K.R.Narayanan paid a state visit to China in  May 2000. The two sides reached broad consensus on furthering bilateral relations including the enlargement of exchanges of personnel, economic and commercial co-operation, strengthening co-operation and co-ordination on international and regional affairs and, most important, proper handling of the issues left over from history.

Subsequently, Chinese Foreign Minister Jiaxuan visited India in July 2000 in order to implement the consensus reached by the two presidents. While Jaswant Singh met the Chinese Premier Zhu Rongji in Taiyuan, capital of the historical Shani province in March 2002, it was agreed that the bilateral trade at the existing level of US$3.6 billion was grossly unsatisfactory. They agreed to give a major boost to trade and investment ties by further intensifying business exchange visits and to facilitate the establishment of business representative offices and the organisation of exhibitions and trade fairs.

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About the Author

Dr. Dilip Dutta is Director of the Centre for South Asian Studies in the School of Economics and Political Science, University of Sydney. He is editor of the International Journal of Development Issues.

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Centre for South Asian Studies, University of Sydney

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