Tracing a route through the folds of the eastern Himalayas, Motilall Lakhotia is explaining how Indian trade caravans used to ply the scenic Chumbi valley into Tibet.
"It was a big trade even then. The Tibetans sold us Indians silver, raw wool and Chinese silk. We had manufactured goods and cotton. Especially blue cotton, because that is what everyone wore those days. You remember ... they called them Mao suits," says the dapper Lakhotia.
The 80-year-old businessman is one of a dying breed of Indians who once traded across the mountains. Many in Gangtok, the capital of India's Sikkim state, which nestles in the foothills of the Himalayas, remember a flourishing cross-border trade in wool, machine parts and tea carried by mules that were supervised by resident trade commissioners on either side.
ILLUSTRATION: YU SHA
The mountain kingdom of Sikkim was a pit stop on one of Asia's main arterial routes linking Tibet to the nearest ports on the Bay of Bengal. Goods were unloaded in Calcutta, driven 600km and then carried over mountain passes into Tibet before being taken as far again to Lhasa. A small Chinese community sprang up in Calcutta.
Indian businessmen began buying homes and warehouses in Yadong in China.
In 1962 all this came to an end. The frontier was sealed after a short, bloody border conflict between Nehru's India and Mao's China.
The Silk Road -- or to give it its Chinese name, the Tea Horse route -- which carried three-quarters of Sino-Indo border trade, worth hundreds of millions of silver dollars, was closed overnight. "When the war happened, it all disappeared. It was a good business and everything I had built up in seven years was gone," Lakhotia said.
The hostility continued until early this decade when business ties began to ease the wariness between the world's two most populous nations. The value of the two-way trade has risen from a few hundred million dollars in the mid-1990s to US$13 billion last year.
Gangtok is likely to be one of the first beneficiaries of this rapprochement. By March the first direct trade link between India and China will be re-opened. Perched at 4,500m, Nathu La pass will resume business as the world's highest customs post.
Karma Gyatso, industrial secretary in Sikkim, points out that a recent report by the Confederation of Indian Industry said the potential for cross-border trade could reach US$10 billion within a decade.
"It will be a big boost to us. We have to tackle high levels of unemployment in the state and trade will provide opportunities for a lot of people here," Gyatso said.
What's happening in Sikkim is only part of what is now being called the "Chindia effect," a phrase that has gained currency as it dawned on analysts that if the current growth rate persists in China and India, by 2050 the two nations will account for roughly half of global output. The "Chindia" region's potential of huge domestic markets -- encompassing a third of humanity -- cheap highly skilled labor and governments pursuing capital-friendly policies have led many to conclude that the world is at a tipping point in history.
In Mapping the Global Future, a report by the National Intelligence Council, a division of the CIA, analysts concluded: "In the same way that commentators refer to the 1900s as the `American Century,' the 21st century may be seen as the time when Asia, led by China and India, comes into its own."
Such prophecies will only be made real if both nations can co-operate and compete peacefully. The extent to which the historic differences are now being edged aside by growing economic links can be judged by the rising trade figures. Trade is projected to rise to US$20 billion by 2008 and shoot up to US$30 billion two years later. Sun Yuxi (
"If it continues, we will hit our targets ahead of schedule," he said.
At the same conference earlier this month, a trade delegation from Jiangsu Province made it clear that what interested them most was India's software industries.
"We have come to learn from the Indian masters," Li Yuanchao (
Information technology has been India's most remarkable success story. The sector now contributes 4 percent of the nation's GDP and the industry's revenues are growing by 38 percent a year. Analysts predict it will have sales of US$70 billion by 2008.
Despite its reputation as a software superpower, India's exports have been driven by the export of one item: iron ore. Last year the country shipped 60 million tonnes of iron ore to China, whose voracious construction industry is gobbling up the world's raw materials.
Chinese officials have long insisted that if their country is the workshop of the world then India is the globe's office. The logic is that both can work together to corner markets.
Tata Consultancy Services (TCS), one of India's biggest IT firms, signed up with Microsoft and the Chinese government in June to develop a global software company based in China.
"We decided to come here because of the talent," said Girija Pande, TCS's Asia-Pacific head. "China now produces more computer science graduates than India and we want to tap into the domestic market, which is growing at 20 percent a year."
To many experts, China offers India a role model. Indian information technology companies made a mark because the government avoided stifling them with regulation. Software and outsourcing companies are exempt from restrictive labor laws and they have been allowed to receive foreign direct investment, which is banned in other areas, for example, retailing.
The lesson has not been lost on India's leaders. Hardly a day passes that its government does not invoke the "Chinese model" to justify rolling back the state.
Whether trying to usher in flexible labor laws or setting up special economic zones to attract foreign direct investment, officials usually back up their policies with Chinese examples.
Even leading communists in West Bengal, who have been in power in the state for 28 years, have taken to telling comrades that everyone must "reform or perish."
India and China are non-identical conjoined twins, joined at the Himalayas. China's success is built on high literacy rates and low poverty rates, ensuring that there are workers to fill positions in the country's labor-intensive manufacturing industry.
In India, almost every second child under five is malnourished and half of its female population cannot read. The result is that India's economy depends on a thin sliver of its population.
In terms of its economy, China drew on its deep reservoirs of domestic savings to create world-class infrastructure and sucked in enormous amounts of foreign capital to build factories and to acquire the expertise that it required.
India, which began economic reforms a decade later, has taken a more conventional route. There are institutions to support private enterprise. There are established stock markets, which operate with a greater transparency than China's. It also has a decent legal system, albeit one that works better in theory than practice.
"The result is that with just a 25 percent savings rate, we have grown at 7 percent," says Jairam Ramesh, the economist and Indian Member of Parliament who coined the term "Chindia."
"The Chinese have a savings rate of 40 percent and managed 9 percent growth. It is that efficiency and our market economy that will help us in the future to catch up with China," he said.
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