Eye on Asia | This little talked about trade relationship could flourish, China and India just need to ditch the mutual distrust

Our host at one of Shenzhen’s most vibrant start-up accelerators was surprised by my question. There were American, Canadian and European founders in their programme, she said, but of course no Indians. This, she suggested, might reflect the paucity of entrepreneurship arising from India’s conservative culture and traditional educational system.

In fact, India’s burgeoning entrepreneurial ecosystem is sizzling with start-ups. One study concluded that India is the third most vibrant hotspot for tech start-ups after the US and UK. That none of India’s teeming young entrepreneurs were in this Shenzhen accelerator is a reflection not of India but of the gulf in understanding that persists between business in India and China.

China has already overhauled the US as the world’s largest economy on a purchasing power (PPP) basis. India is now the world’s fastest-growing large economy and is forecast soon to become the third largest globally. These two enormous countries share deep historic links and a border of 4,000 kilometres. Yet, trade between the dragon and tiger economies amounted to only US$90 billion last year and is heavily skewed in favour of China. Investment flows are similarly muted; China is estimated to have accumulated foreign domestic investment of some US$10 billion in India, though most of that investment has been made in the last two years.

Political and strategic issues between the two countries in part explain the underdeveloped nature of the economic relationship. Unresolved border issues flare up occasionally, including last year over the Doklam area of Bhutan. More recently, concerns have developed in both capitals over conflicting interests in the Indian ocean. Beijing sees rising Indian naval power as a threat to its trade routes while Delhi frets over growing Chinese influence and military presence in neighbouring countries including Bangladesh, Sri Lanka and Pakistan.

On a deeper level, the bilateral relationship has been plagued by a trust deficit and profound mutual ignorance. I encountered a wall of indifference In China towards engaging in business with India a decade ago when I was helping the Tata Group, India’s largest corporate, build its footprint in China (now surpassing US$10 billion in sales). More recently, when from 2010 I was developing one of India’s pioneering solar power companies, it was a real challenge to interest Chinese solar equipment makers in prioritising the Indian market, even though it was rapidly becoming one of the largest globally.

Now, at last, business connections between India and China have started to improve, especially in high tech sectors and among younger entrepreneurs. Encouraged by President Xi Jinping and Prime Minister Shri Narendra Modi, a few Chinese companies have seen the potential of India’s huge and fast-growing market.

Xiaomi has become the number one smartphone brand in India, Huawei both leads the telecom equipment market and has a major development centre in Bangalore, while SAIC has acquired General Motors’ operations in India.