China’s Shrinking Trade Deficit Diplomacy: Outrage, Despite India’s Tiny Share In Global Trade – Analysis

Global Times – the Chinese official English daily – was irked by the narrowing down of the trade deficit with India. Opposing it a trend setter,  it said the trend was unsustainable. It argued that the narrowing trade deficit bounced back in July 2020. It increased by US$3.34 billion. This   manifested India’s dependence on China was irreversible, it argued. The Chinese media threatened India’s challenge for decoupling from China and warned of opening a Pandora box. It accused India for triggering economic tension by blocking 59 Chinese Apps, denying Chinese FDI approval through automatic route, imposed stricter regulations for Government procurement, restricted import of color TVs and so on. 

Incidentally, the narrowing trade deficit between India and China was not sudden after COVID 19 outbreak. It started two years ago and heightened since January 2020. During the five-month period from January to May 2020, India’s imports from China dipped by over 22 percent. The main characteristic of the trade was China’s gushing export to India, vis-à-vis India’s nominal export to China. This caused a wide trade deficit. Imports from China made a somersault in 2019-20. It declined by 6.6 percent.

China lost the significance as a stable source for supply chain. Factories were closed and the foreign investors were encouraged to shift their production bases. Electronic and electric items were the major items of imports from China. They accounted for one third of the total imports from China.                          

Needless to say, will the reverse in one month deficit overturn the trend of shrinking trade deficit, which began last year? The Chinese strong belief of India’s over dependence is a gaffe. It is already in the hunt for alternative to China.  Much success was unfolded when India’s imports were greatly diversified. The simultaneous increase in imports from Vietnam has become a major challenge to imports from China. During  2017-2018 to  2019-2020, imports from Vietnam surged by over 45 percent. The major components of the import surge were electronic and telecommunication items. Incidentally they were akin to imports from China. These items were responsible for widening the trade deficit between India and China. Eventually, imports of these items from China witnessed a steep fall between 2017-2018 and 2019-2020. 

Nevertheless, Chinese upset surprised many. This is because India’s role in China’s global trade is miniscule. India’s share in China’s global trade is only 2 percent. Even though China is the biggest source of imports for India, but it is not vice versa. India accounts for 3 percent of China’s global exports.  Why is it then the shrinking trade deficit with India sent China in a jittery fit?

The real reason lies somewhere else. It is not only a trade factor. There may be other issues that made China perturbed. China is known for its ethnocentric chauvinism for seizing global power. After losing the low cost hub for the world’s workshop, China pitched for global projects as a new strategy to recoup its global economic power.  BRI (Belt and Road Initiative) and RCEP (Regional Comprehensive Economic Partnership) are cases in point. BRI manifests the tenet of its global political and economic outreach through the development of infrastructure and RCEP is a ploy to seize trade power in Asia. 

India has always been an opponent to China’s global projects like BRI and RCEP. It argued that they represent Chinese economic expansionism in the emerging economies. It decoded that BRI was China’s domestic challenge, and not a global issue. China had overcapacity and was engulfed by rising unemployment. To revive exports, BRI was the noble strategy to expand exports by developing infrastructure with the help of Chinese loans. Similar was the objective behind RCEP. China had an FTA with ASEAN. China targeted the India market through the ASEAN FTA proxy. India is not a participant in both BRI and RCEP.   

India played a key role in sending a cautious message to the participants to BRI and RCEP.  It spooked concern on debt distress after Sri Lanka lost its Hambantota port. The China-Pakistan Economic Corridor (CPEC) project is another case in point, which was attuned to undermine the sovereignty of a country. Eventually, the BRI turned into a curse on developing nations. A number of developing nations inched towards debt distress  and some of them slipped into a debt trap. According to a Centre for Global Development report, eight countries are on the edge for a debt trap. BRI is now known as a predatory Chinese loan. Several countries woke up to the risks of a BRI loan. In an warning message,  Malaysian Prime Minister Mahathir said, “BRI has become new version of colonialism”.

India’s thrust on protectionism and self-reliance strongly influenced by the USA and EU after COVID 19 outbreak  – the major trading partners of China. This led to the retreat of GVC (global value chain), according to Peterson Institute of International Studies. It nudged the countries to have a second thought on import dependence in GVC model and turn inward for the development of the domestic supply chain. China has been at the hegemony in GVC

India’s opposition to BRI is now becoming a lesson for participant countries, who are slipping into the clutches of a debt trap. India’s refusal to RCEP evoked a second thought among the members on China’s genuine aim for trade expansion in the block. It irked China when Japan followed suit, the third biggest export destination for China. Arguments were labeled against RCEP, depicting it as a political goal of China through economic expansionism

This created concern in China against India’s continuous drubbing to its  global economic projects. Hence, the narrowing trade deficit was not the main reason for China’s outrage.