It is a great privilege for me to be here to share with you my observation and understanding of current economic situation of China and trend and progress of China-India economic relations.

Three weeks ago when the BNCCI invited me to have this interactive session, I was hesitant because it seemed to me that there was hardly any good news we could talk about at the time of global recession.

Now I would like to say that I was wrong. We have good news. China’s GDP growth last year was 9% despite the fact that China was heavily hit by the world financial crisis in the last quarter of the year. India’s GDP growth of fiscal 2008-09 might be around 7% in spite of the fact that the economic crisis affected the world and India for six months in the fiscal year.

According to the latest forecasts of the Asian Development Bank, China’s GDP growth will be 7% in 2009 and India’s GDP growth will be 5% in the fiscal 2009-10. Although these figures of both China and India are much lower compared with what we achieved before, China and India, as the two largest developing countries, will remain the fastest growing economies in the world at the time, according to the IMF, that the world economy will contract by 0.5 to 1 percent on an annual average basis, the first such fall in 60 years. I think this itself is our two countries’ contribution to the world economy.

There is another item of good news. Just two days ago the World Bank released a new report on the economic situation of the East Asia and Pacific Region, which says that China’s economy has touched the bottom and a recovery is likely to begin by the mid year 2009.

China has been seriously affected by world economic meltdown. As we all know that the Chinese economy is an export-oriented one and export accounted as high as 40% of China’s GDP in the last few years. Inevitably, China’s export sector became the first victim. Let’s have a look at the statistics. On a year on year (year-on-year) basis, China’s export increased by 19.2% last October and since then it has been in a free fall: in November it decreased by 2.2%, December 21.3%, January this year 17.5% and February 25.7%.

As a result of the decrease in export, China's economic growth slowed down to 6.8% in the fourth quarter of 2008, dragging down the annual rate to 9%, the lowest since 2001.

The most seriously affected regions are China’s coastal provinces and cities where many export-oriented enterprises are located. Last year in Guangdong Province alone, around 5,000 companies and factories closed down and about 570,000 workers were left jobless. According to the National Bureau of Statistics, all over the country, about 11 million migrant workers are now looking for new jobs in cities. The same government office said late last year the figure was as high as 23 million at that time.

This is a situation China has never seen before. The World Bank previously forecasted China’s 2009 economic growth will be 7.5%, and recently the World Bank cut it down to 6.5%.

The Chinese government has taken prompt, decisive and effective policy measures to fight global recession. In the fiscal front, the central government introduced a 4 trillion RMB yuan stimulus package (equivalent to $587 billion) in early November, which forcefully supported economic activity and sentiment. And recently, specific stimulus packages for 10 sectors were unveiled. The 10 sectors are automobile, steel, shipbuilding, textiles, machinery, electronics and information technology, light industry, petrochemicals, nonferrous metals and logistics. These packages are not only intended to offset the current economic slowdown but will promote industrial restructuring and upgrading.

In the monetary front, the central bank of China has quickly reacted and cut interest rates five times and reduced banks' required reserve ratio four times since last September.

These efforts have taken effect and appear to have arrested the drastic economic slowdown. Some leading indicators are pointing to a recovery of economic growth.

Bank loans have increased rapidly in last three months. The Purchasing Managers' Index (PMI) of China's manufacturing sector rose for the fourth straight month in March to 52.4. A reading of above 50 suggests expansion, while one below 50 indicates contraction. And coincidently, it is being widely reported today that China's car sales hit a monthly record of 1.08 million units in March 2009, outstripping the US as the world's largest market for a third month running.

So it is no surprise that the World Bank is now saying that economic activity in China is likely to bottom out by mid year and the recovery will take full hold in 2010.

Although the World Bank and the Asian Development Bank have forecasted China’s 2009 GDP growth will be 6.5% and 7% respectively, the Chinese government has set up the target of 8%. Recently the Chinese Premier, Mr. Wen Jiabao, said that it is indeed difficult for China to achieve the goal of 8% economic growth in 2009, but it is possible with "considerable efforts." He emphasized that setting the goal is "the government's commitment and responsibility" and has showed "confidence and hope".

Quite many economists in China believe that the Chinese economic growth rate this year can be at the level of around 8% because the fundamentals of China’s economy are in good shape. They are saying that the balance sheets of residents, the financial sector and the government are all in a healthy state.

The Chinese residents’ bank savings are huge and of which their loans, including those for cars and housing, account for only a small proportion. So China has a great potential to expand consumption and spur domestic demand in the coming months and years.

China’s banks have been largely unharmed by the international financial turmoil and the total assets of the banking sector stood at 61.1 trillion RMB yuan (equivalent to around 9 trillion USD) as of the end of last November.

And the Chinese government’s fiscal position is strong and China has the fiscal and macroeconomic space to implement forceful stimulus measures. The national debt accounted for about 20 percent of GDP at the end of last year and the fiscal deficit this year will be 3% of GDP in spite of the increased government expenditure for economic stimulation.

However, at the same time Chinese economists are also warning that we should not be too optimistic at this moment. The newly emerging trend of improvement has been largely stimulated by government-influenced investment and we will not have a sustainable recovery without a substantial increase in market-based investment, and for which we need to wait for about two years. More importantly, with China still heavily reliant on exports to world markets that are contracting continually, a truly sustainable recovery in China ultimately depends on developments in the advanced economies. In the last decade, China’s export has increased, on an average, 23% every year. Now because of the contraction of the consumption markets of advanced economies, it will be difficult, if not impossible, for China to repeat the success story of two-digit economic growth in the foreseeable future.

Ladies and gentlemen, after talking so long about world meltdown, let's talk about something exciting. That is about China-India economic relations. For the first time, China has become India's largest trading partner and the bilateral trade reached 51.8 billion US dollars in the calendar year 2008. Ten years ago, the figure of China-India trade in 1998 was only 1.9 billion US dollars. This is a nearly 30-fold increase in just ten years. And also the first time in history, India has become the biggest overseas market for Chinese companies undertaking contract projects. Last year, Chinese companies were awarded contracts worth 12.9 billion US dollars for various construction projects in India.

We are in the era of globalization where economic ties constitute the basis of overall relations between countries. It is very much true for China and India.

China and India are two of the largest economies and both have established their comprehensive industry systems. But at the same time, the economic strengths of our two countries are very much complementary to each other.

India is strong in knowledge-based industries, especially in IT and pharmaceuticals. So many Indian companies in these sectors have established their offices, laboratories and factories in China and their business is doing quite well.

China is strong in manufacturing and infrastructure and many Chinese companies are doing business in these fields in India.

Recently I have found a phenomenon in economic cooperation between our two countries, which has been emerging in the power sector. Here I would like to talk a little bit more about it.

Indian economic growth has been on fast track these years and the issue of shortage of electricity needs to be addressed in a very urgent manner. The Government of India has set up an ambitious target with a time frame of ten years. That is: by year 2012, all electricity demand will be fully met; per capita availability of electricity will be increased to over 1000 units; and accordingly new electricity generation capacity of 100,000 MW will be added during the period from 2002 to 2012.

Now I am sure that this target will be achieved on time or even before the due date. One of the reasons is that the Electricity Act 2003 of India has opened the door for international competition and China's major power equipment producers and power plant builders have been quite active in the Indian market since then. Now Chinese companies have obtained many contracts for power equipment and EPC power projects. According to an incomplete statistics, over 30,000 MW of equipment will be supplied by Chinese companies in the coming few years, which accounts for over 30 per cent of the capacity addition target of 100,000 MW.

This is really a new phenomenon in the history of China-India economic relations and is a win-win situation.

For China, after 20 years’ hard efforts, its capacity of producing power equipment and building power plants is now much larger than the domestic demand. At the end of last year, the total installed power capacity in China was almost 800,000 MW, which was 5.4 times that of India at the same time. And last year also, 133,000 MW of equipment was manufactured in China, which was nearly as much as the total installed power capacity of 147,000 in India at the beginning of this year. So to maintain and develop the capabilities of power equipment manufacturing and power plants construction, Chinese power industry has to go abroad. They have found many large markets in the world, but the Indian market is one of the largest.

For India, to achieve the target of addition capacity of 100,000 MW by 2012, international cooperation is very much needed and China is a natural choice for many reasons: one, nowadays in the world, only China and India are two large economies which still rely heavily on coal-fired power generation, and in this field major Chinese companies have the latest know-how; two, Chinese equipment is reasonably cheap while its quality is comparably good; and three, because of their large capacity and rich experiences, Chinese companies can deliver goods on time and do the job faster.

Power plant is a strategic project in terms of its long life of about 30 years and its significance to millions of people. So it is understandable that the Indian side has to attach great importance to the quality issue. Recently a few Indian newspapers reported some problems of power projects constructed by Chinese companies and suspected the quality of Chinese equipments. According to my knowledge, the reported problems are teething problems and all the power equipment producers and power plant builders, no matter they are Indians or foreigners, might have the same problems. But it may not be fair that just because you are newcomers, your problems are easily the news to the media. As I know, most of the contracts the Chinese companies obtained have been awarded by Indian companies in the private sector. Definitely, it is not an easy decision for private business people to make to invest billions of Rupees in a power plant. They have to do their homework seriously and have to make their research all over the world. Finally they have been convinced that to choose Chinese equipment is in their best interests. We don’t need to doubt about their wisdom.

Recently our Indian friends have been talking very much about energy security. Now I have a feeling that in a short term, or in next ten to twenty years, if there is one foreign country which will contribute the most to the development of India’s power sector, that country must be China.

Thank you.