| In the background of accelerated economic globalization and the slow progress of multilateral trade negotiations, regional economic cooperation develops vigorously around the world. Free Trade Area (FTA), in particular bilateral FTA, becomes the main form of regional economic cooperation because of its advantage of initiative, flexibility and universality, etc. Due to the rising global trade protectionism triggered by global financial crisis, many countries have turned to strengthen regional trade liberalization arrangements and conclude bilateral FTA. FTA has become important for many countries to avoid the risk of trade protectionism and to promote the development of trade. As the world's largest developing countries and emerging economies, both China and India follow this trend, accelerating the implementation of FTA strategy respectively. With the rapid development of economic and trade cooperation, China and India also show the willingness to set up FTA.When Indian Prime Minister Vajpayee visited China and proposed to establish FTA in June 2003, China responded positively. In April 2005, Premier Wen Jiabao visited India, and signed "Declaration between the PRC and the Republic of India" with India. The declaration proposed that the two countries should develop a comprehensive economic cooperation, including trade and investment, and committed to establish free trade area between China and India in 2015. For this, the two leaders announced the launch of a joint working group. Through efforts, China and India reached a consensus on all the chapters, including trade in goods, trade in services, investment, trade facilitation,economic cooperation, the conclusions and recommendations, etc. A joint research report was completed on schedule in October 2007. According to the report, India and China should reduce and eventually eliminate trade barriers, promote trade liberalization, improve the investment environment, enhance economic cooperation and realize mutual benefits and promote economic integration of Asian through establishing regional trade agreements (RTA). However, because India still refuses to acknowledge China's "market economy status", Indian politicians and businesses are cautious and worry about the potential competition and impact brought by cooperation with China. As a result, the establishment of RTA remains stalled in the research stage. In order to remove the obstacles on the establishment of FTA, it is crucial to study both the trade complementarities and competitions between China and India in depth, to investigate the expected effects and difficulties of the China-India FTA, and to explore strategies to promote China-India FTA and implementation steps, which has essential research value and practical significance.This thesis is based on the traditional and non-traditional gain of free trade area, exploring whether or not there is basis for establishing free trade area with India, with the expected effects of FTA as the core; analysis complementary and huge development potential of the two countries from theory, reality and empirical aspects, reveals expected effect and many difficulties in establishing a free trade area, and proposes strategic visions to overcome the barriers and promote the Sino-Indian free trade area. The basic ideas of this thesis are:(1) combing the theoretical basis for the establishment of free trade area to provide theoretical basis of the full text. (2) analyzing positive attitude of the two countries on the participation in FTA and their own strategic intentions and the increasingly close economic in recent years, to establish realistic basis for the study of establishing FTA. (3) from the reality and theory further revealing the level of macroeconomic are more complementary than competitive in trade relations between India and China, thus there are chances for establishing FTA. (4) using qualitative analysis and quantitative analysis methods to reveal the possible static and dynamic economic effects and non-traditional income, revealing the economic, political and historical and many other obstacles to establish FTA. (5) based on the real and empirical analysis, qualitative analysis and quantitative analysis, proposing strategic vision to promote the early realization of FTA. Specifically, the main contents and views of the full text are as follows:1. Sort out and resolve the theory of FTA between India and China, clear theoretical basis and analytical framework of the full text. It has been shown that the customs union theory and free trade theory of traditional income theory, the non-traditional revenue of the new regionalism, the center-periphery theory explaining integration among developing countries of development economics, and the international dependency theory are the main theoretical basis to analyze the problem of FTA between India and China; these theories focus on the welfare effects and influencing factors of free trade agreements.2. Analyze the practice, strategic intent and bilateral trade relations of their participation in the Sino-Indian FTA from the reality aspect. The positive attitude in the participation in FTA and the similarities of strategic intentions between the two countries makes for the regional trade integration. Since the last decade of 20th century, economy of China and India grow rapidly due to the deepening reform, and foreign trade of each country and their bilateral trade developed rapidly. Overall, bilateral trade between China and India shows the trend of closer relationship in recent years, which is an important basis for establishing FTA. However, it is disproportionate for bilateral trade compared to the rapid development of bilateral economic and economic output. Bilateral trade remains low and is non-symmetric; both the broadth and the depth of the market potential should be explored within the framework of FTA.3. Empirical analysis of complementarities and competition between India and China from the macroeconomic level and structure level of specific trade economic respectively. There are differences between India and China on economic development level, economic structure and economic development models. Being highly complementary, there is basis for establishing FTA between the two economies from the macroeconomic level. By calculating the trade specialization index and the index of intra-industry trade, China and India trade relations from inter-industry and industry are investigated. There is competition for some labor-intensive products between the two countries in world markets; while in primary products and capital and high-technology industries, complementarity is more than competition; all the situations are conducive to establish FTA. Between China and India, there is a strong complement in intra-industry trade, but the majority of the trade between the two countries is still inter-industry. There are potentials to develop intra-industry trade between the two countries in the information technology industry, mechanical and electrical products, pharmaceuticals, coal and iron ore and other products, and the product areas and the scale in inter-industry trade will expand in the framework of FTA between the two countries. As there is similarity between the main import and export commodities and import and export partner countries for China and India, there is competition for the two countries in the third country market, which to some extent, limits the deepening of bilateral economic exchanges. Overall, there are both complementarities and competitions in Sino-Indian trade relations, but complementarity is more than competition, there is realistic basis to form China-India FTA.4. Analyse expected effect of the China-India FTA from traditional and non-traditional gain aspects using quantitative analysis and qualitative analysis. By calculating the proportion of trade index between China and India, using the gravity model of trade to analyse quantitatively, we conclude that there is great expansion effect by establishing FTA. There is great trade potential in China-India bilateral trade, but the trade barriers between the two countries are tremendous; if the two countries cooperate on the regional trade mechanism further, they will be able to generate greater trade creation effect. The trade creation effect is positive for China and India, which is consistent with the trade creation effect of customs union theory. There is dynamic effect including economies of scale, intensified competition, investment and optimize the allocation of resources by establishing FTA with India, particularly the investment expansion effect is conspicuous; the establishment of Sino-India FTA could increase FDI (that is direct investment) from both the third country and the partner countries. This paper also made a trial research on the non-traditional gain by establishing the China-India FTA. These non-traditional gains include:accessing political gain, signaling to the outside, improving the status in international affairs and negotiating capacity for both China and India, providing "insurance" for the two countries, promote the coordinated development between the two countries, improving their security, expanding energy cooperation space, etc.5. Comprehensively and deeply analyse barriers of the establishment of FTA from economic, political, historical and other aspects. Economic barriers include:the similarity of factor endowments and comparative advantage between China and India determine the competitive in trade between the two countries, India pursues an inward-looking economic development strategies and foreign trade strategy, India's high tariffs, India carries out trade protection measures frequently to China and intensified, imbalance of trade in India and China, India has not acknowledged China's "market economy status". Political barriers include:the Sino-Indian border issue and the war in 1962, the Tibet issue, the Japanese factor, the U.S. factor, the Sino-Pakistan relations, spreading of the "China threat" theory by India, different political systems and ideology between China and India, etc. Historical and other barriers:few non-governmental communicate between the two countries, cognitive misunderstanding and prejudice between the two countries, difference in cultural values, transportation problems, technical barriers exist in Establishment of FTA. The two countries must face and resolve these obstacles and constraints in establishment of FTA, otherwise, the relationship between the two countries may deteriorate, or even ruin the good prospects of Sino-Indian FTA.6. Within the existing framework of China-Indian relations, the high transaction costs have limited the further expansion and deepening of bilateral economic and trade relations, FTA is expected to be a system arrangement achieving great benefits for both China and India. Based on the analysis in previous paper, we first identified the principles that should adhere in institutional arrangements to promote the China-Indian FTA, and learn the experience of the North American Free Trade Area and combine with the reality between China and India and the requirements of the world multilateral trade system, recommend the strategic concept from new institutional economics to promote the establishment of China-Indian FTA as early as possible, study the principles that should follow in the institutional arrangements of FTA and possible steps to promote, and conceived in four phases in FTA to implement gradually.In this paper, the normative analysis and empirical analysis, qualitative analysis and quantitative analysis and theory with practical research methods are used. The main innovation or expansion of this research is:based on the traditional income and non-traditional gain perspective to give a more comprehensive analysis of the possible effect of the China-Indian FTA, expanding the expected effect of establishing FTA. This paper also gives a comprehensive, in-depth study of the China-Indian FTA barriers from economic, political, historical, and other point of view, to make up for the scattered study depth currently in academic research on this issue; learning from the North American FTA development experience combined with the reality of the two countries and the world multilateral trade system requirements, proposing strategic idea to promote the early realization of China-India FTA and to implement the four-step phase gradually from the perspective of new institutional economics.
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