China-India Trade: Smoothening The Rough Edges – Analysis

By R N Das

The Marxian paradigm of contradiction between thesis and anti-thesis yielding synthesis is illustrated in the current narrative of the complex Sino-Indian relationship. While on one hand, the Sino-Indian spat on the South China Sea continues to dominate the current Sino-Indian strategic discourse, on the other hand China extended a charm offensive when Premier Wen Jiabao met and mingled with 500 Indian youth in Beijing, some of whom hailed from Jammu & Kashmir and were issued normal visas (contradistinguished from the earlier stapled visa). At the same time, the first ever India-China Strategic Economic Dialogue (SED), which was mooted during Premier Wen’s December 2010 India visit, is taking place in Beijing. The Indian side is led by Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission and the Chinese side by Zhang Ping, Chairman of the National Development and Reform Commission of China. The Indian team consists of representatives from the Ministries of Railways, Water Resources, External Affairs, Power, New and Renewable Energy, Department of Commerce, Information Technology, Industrial Policy and Promotion, besides Planning Commission.

Ever since the restoration of diplomatic relations in 1978 with the appointment of K.R Narayanan as India’s ambassador in Beijing, there has been a steady progress of bilateral trade. The two countries signed the Most Favoured Nation Agreement in 1984 to facilitate bilateral trade between the two countries. During the path-breaking visit of Prime Minister Rajiv Gandhi to China in 1988, the two countries established the Joint Economic Group (JEG) on Economic Relations and Trade, Science and Technology at the ministerial level which has met eight times so far. From a miniscule volume of $18.7 billion in 2005, bilateral trade has now crossed $60 billion and is poised to touch $100 billion in 2015 as envisaged during Premier Wen’s December 2010 India visit.

Although the manifold increase in trade has been a lubricant to the overall relationship, the increasing adverse trade imbalance – estimated to be $14 billion and is likely to cross $20 billion – has been a matter of concern to India. It was against this context of a ballooning trade imbalance that during the last meeting of the JEG held in Beijing in January 2010, the two countries agreed to work towards a more balanced trade. The Chinese side also assured that China would import more from India. The Indian Minister of Trade Commerce & Industry, Anand Sharma, urged China to take corrective measures to bridge the trade gap. He also made a plea for China’s greater import of IT and ITeS from India, the removal of tariff and non-tariff barriers to the import of power plant equipments from India, removal of restriction on import of Basmati rice, fruits and vegetables, landing rights for Indian TV channels in China and import of more Indian films by China.

The issue of trade imbalance was also discussed between Prime Minister Manmohan Singh and Premier Wen during the latter’s visit to New Delhi last December. The joint communiqué issued at that time mentioned that the two sides have agreed to take measures to promote greater Indian exports with a view to reducing India’s trade deficit.1 The growing trade deficit also found its echo in Parliament recently when Commerce Minister Anand Sharma told the Rajya Sabha that “at the time of the 8th India-China Joint Economic Group, we had discussed the issue of IT and ITeS exports as also pharma with China. Unfortunately, that is yet to be done. We will take up the issue once again.” He further said, “we are exporting primary raw materials to China, while it is exporting semi-finished products to us. Fifty per cent of India’s exports comprises iron ore. The trade with China is definitely skewed.”2

Very few of the promises of the joint communiqué have been implemented. China, however, invited India to participate in the 15th China International Fair for Investment and Trade in Xiamen recently, where the Indian Consulate also organized a seminar to familiarize Chinese investors with various sectors of the Indian economy, particularly in the infrastructural sectors like roads and highways.3 The trade deficit, however, continues to persist, which, if not addressed earnestly and thoughtfully, will affect the bilateral relationship. It is against this background that India has reportedly prepared a draft ‘action plan for China’ to strategically counter China’s increasing economic clout. The five-point strategy seeks to get China to invest and produce in India and not just trade, raise duties on products where India is not dependent on it; create non-tariff barriers where dependence is high; ensure Chinese state-owned procurement agencies buy in bulk from Indian companies; and leverage the huge domestic market to gain access to Chinese markets, at least in areas where India has significant strength.4

The composition of the Indian delegation to the ongoing Strategic Economic Dialogue is suggestive of the fact that issues such as telecom, water, infrastructural development and railways are being discussed on a priority basis. The deliberations will certainly take note of the global economic scenario and how two of the world’s largest economies will synergise their complementarities for mutual benefit. How the two economies are getting intertwined can be gauged from the fact that on the 15th of this month the Industrial and Commercial Bank of China Ltd (ICBC), the world’s largest lender by market value, opened its first ever branch in Mumbai to cater for the growing bilateral trade and to help Chinese infrastructure companies to raise funds. As icing on the cake India has allowed local companies to borrow up to $1 billion in Chinese currency within the $ 30 billion ceiling on foreign borrowing for the fiscal year. Yet another development is the setting up of an India-China CEO Forum to enhance economic engagement and provide a platform for sustained dialogue on trade and investment issues. As the private sector in India plays a very important role in bilateral trade, the CEO Forum is poised to play an important role in promoting trade and commercial intercourse between the two countries and their corporate houses.

As expected, on the first day of the ongoing SED in Beijing, Planning Commission Deputy chairman Montek Singh Ahluwalia urged China to open its huge market to Indian IT and pharma products to bring about balance in the bilateral trade. The two countries also agreed to learn from each other’s developmental experience to face common challenges such as improving energy efficiency, tackling water security and combating climate change. It was also felt that another area of possible collaboration was on high-speed train technology. Thus, the first meeting has raised some cautious optimism to neutralize the trade imbalance. India and China need to integrate their respective economies on a sustained and long-term basis. One-upmanship will not help. There should be reciprocity and mutual adjustment.

1. http://www.mea.gov.in/mystart.php?id=100016879&pid=1921
2. “Trade Imbalance: China hasn’t kept promise on IT,” The Indian Express, 25 August 25, 2011.
3. Tang Zhihao and Li Jiabao, “India and Russia keen to make the most of debut,” China Daily, September 8, 2011.
4. P. Vaidyanathan Iyer, “China Rising: Ministries work on action plan,” The Indian Express, September 1, 2011.

Originally published by Institute for Defence Studies and Analyses (www.idsa.in) at http://www.idsa.in/idsacomments/SinoIndianTradeSmootheningtheRoughEdges_rndas_270911