As the world's only two emerging economies that boast a population of more than one billion each, China and India play important roles in global economic patterns. After the international financial crisis, the world economy recovered slowly. Trade protectionism and unilateralism began to spread, severely eroding the system based on free trade and multilateralism, and adding twists and turns to economic globalization. Amid increasing uncertainty in the global economy, what are the challenges and opportunities facing China and India? In what areas should the two countries strengthen cooperation? Wang Rui, deputy director and associate research fellow of the Asian Institute of the Chinese Academy of International Trade and Economic Cooperation, shared her opinions with China-India Dialogue.

China-India Dialogue (CID): At present, the uncertainties of the global economic situation are increasing. Especially, the trade wars and technological restrictions triggered by the United States undermine the security, stability and predictability of the global trade and investment environment, and exacerbate the downside risks for the global economy. How will this impact on China and India considering their economic reform and development at a critical stage?

Wang Rui: The increasingly uncertain world economic situation exerts external pressure on China and India's domestic reforms, and encourages the two countries to further stimulate domestic economic potential, actively strengthen cooperation with neighboring countries, and accelerate bilateral and regional cooperation and opening up to seek more economic growth points. For example, China has continuously promoted the construction of pilot free trade zones, and actively expanded opening up to dock with international rules. Comparably, India has also made great efforts to deepen reform, strengthen infrastructure construction, improve business environment and attract foreign investment. Facing U.S. trade hegemony, China and India have also taken measures to fight back, and coordinated their stances under BRICS and SCO cooperation mechanisms to promote multilateralism and support free trade.

CID: India is a net importer of goods. Its trade deficit with China accounts for about 30 percent of the total, which has turned into a major obstacle to trade development between the two countries. What do you think about this phenomenon?

Wang: As two emerging countries, China and India inevitably encountered some frictions in economic and trade cooperation, but the key point is how to deal with them properly. Objectively speaking, this deficit is mainly caused by the differences in industrial structures between the two countries and their division of work in the global industrial chain. On the one hand, India owns a large population, and its production and manufacturing capacity can't meet the huge domestic production and living needs, so it has a large demand for cheap and high-quality Chinese products. On the other hand, China has a strong manufacturing industry and many foreign enterprises have chosen to set up factories in China. The products they produced and processed are exported to India and other countries, which also increases India's trade deficit with China.

From the perspective of the trade structure of the two countries, India's exports to China are mainly primary products such as resource products and raw materials, which are replaceable. However, China's exports to India are mainly manufactured goods such as machinery and electronics with high quality and low prices, which are less replaceable for price-sensitive Indian businessmen.

What's more, the Modi government actively promotes the "Make in India" project and vigorously develops the local manufacturing of electronic products. Chinese enterprises are important supporters for India's electronics manufacturing industry, since a large number of parts and components are imported from China, and that further boosts India's demand for Chinese products. With India's rapid population growth and economic development, its trade deficit with China is difficult to reverse in the short term, and with the expansion of bilateral trade scale, it's possible to expand further.

CID: How should China and India deal with the anti-globalization trend and the complex world economic situation which have posed a huge test for the two countries?

Wang: The two countries should properly handle the friction and differences, gather more consensus, tap potential in depth, and jointly promote positive, pragmatic, mutually beneficial and win-win economic and trade cooperation. The following aspects are included.

The two sides should strengthen communication, coordinate stances and jointly safeguard economic globalization. China and India are both at a critical stage of economic development, and need a stable and open external environment. Therefore, the two sides should continue to strengthen high-level meetings, and make good use of the platforms of China-India Strategic Economic Dialogue, BRICS Summit and G20 Summit to actively carry out communication and policy docking. Besides, they should jointly safeguard the free trade system and promote multilateralism, so as to create a free, fair, non-discriminatory, transparent, predictable and stable environment for trade and investment and promote the recovery of the world economy.

The two countries should strengthen investment cooperation and promote the integration of their industrial chains. India's fundamental way to change its trade deficit is to vigorously develop its manufacturing industry and improve its production capacity. The Modi government actively promotes the "Make in India" project to attract foreign direct investment, hoping to turn India into a world factory, which will also be a good opportunity for China to expand investment in India and accelerate the integration of industrial chains between the two countries. India should further deepen domestic reforms, optimize business environment, train skilled industrial workers, and create better conditions for foreign investment. And China can increase industrial investment and park cooperation in India, give full play to India's population advantages and transfer labor-intensive industries such as textiles and clothing or labor-intensive parts of high-tech industries such as electronics to India, to help the development of India's manufacturing industry.

The two countries should expand the opening up of service industries and promote the development of service trade. The service industry accounts for more than 60 percent of India's national economy and is an important driving force for its economic growth. Compared with goods trade, its service trade has greater advantages. Therefore, in its foreign economic and trade cooperation, India hopes to further expand its service exports in order to make up for its deficit in the field of goods trade. China is expanding the opening up of service industry and trade in an active and orderly way, comprehensively implementing the pre-establishment national treatment and negative list management, and greatly easing market access, which provides an important opportunity for India's advantageous services such as software and information to enter the Chinese market.

The two countries should promote infrastructure cooperation and improve interconnectivity. Lagging infrastructure construction is one of the important factors restricting India's economic development. Indian Prime Minister Modi has pledged to invest more funds to improve infrastructure conditions and actively utilize external fund sources such as the Asian Infrastructure Investment Bank to carry out infrastructure projects. China has rich practical experience and mature technology in infrastructure construction including transportation, energy, communications and other fields. India's vigorous promotion of infrastructure construction provides a good opportunity for Chinese engineering construction companies to enter the Indian market.

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