Indo-Chin talks: Implications

Wall Street Journal reports on the recent Indo-Chin talks: “Burgeoning economic ties are the drivers of much of the goodwill. Two-way trade reached $13.6 billion last year, up from $3 billion in 2000. To push that figure higher, they agreed a joint task force should consider a free-trade agreement between their nations. If created, it would be the world’s largest tariff-free area and cover one-third of humanity.”

Thank God, that countries cannot execute friendly M&A activities and hostile take-overs, or else India and China could merge (bad for the US), OR China could acquire Pakistan (bad for India).

Well, what exactly are the points of synergy?

India is dramatically bad and behind in Hardware / Chips, which China clearly rules. Now, Intel and Nokia are about to set up manufacturing facilities in India. China is trying to learn Software and Services from India, as well as train its vast population in English.

It is obvious that India will need a huge volume of cheap commodity hardware of all kinds – Televisions, Cell-phones, Networking Equipment – that most likely, China would supply. What is not as obvious is what India will supply to China! India has made most of its money by being a low cost service hinterland for US/Euope’s high-end IT needs. China is unlikely to have such large-scale business software needs, nor is the Chinese market very conducive to software businesses due to rampant piracy issues. May be, they will need a bit of embedded software, some UI programming – but nothing that China cannot do on its own. One thing China needs in plenty, that someone else has – is raw materials. That someone else, in this case is Africa, not India.

It looks to me, therefore, that US, Europe and India are all headed for trade-deficit economies, while China reigns supreme as the trade-surplus nation.