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When Yuan Speaks To Rupee
For all the adversarial prancing on geopolitical matters, the full-body tango between the world’s two fastest-growing economies comes as a near-paradox. As India and China put up shared concerns at global negotiations and strive to accelerate booming bilateral trade volumes, some see it as a sign of hope—common economic interests are known to bridge gaps. After all, the two countries have often been placed on the same side of the table, whether at WTO talks or in the run-up to climate change negotiations.
Rapid bilateral trade growth—from $15 billion to $50 billion in the last five years—is natural for two supercharged economies. But for the contraction in domestic demand, bilateral trade this year was expected to touch $60 billion. From buses, trucks and auto parts to computer hardware, electronic goods and toys, our markets are flooded with both high-end and low-priced products from China. Chinese turbines and equipment are ubiquitous in the power sector; 80 per cent of the telecom equipment is being sourced from China; rigs for oil exploration; pipeline and infrastructure projects...the list is endless.
“There’s no question of an FTA with China at this juncture..... Chinese trade does not seem to be fair.”
Does this growing economic engagement call for celebration? Not really, feels commerce secretary Rahul Khullar, describing the bilateral trade as an “imperialist model” with over 70 per cent of Indian exports to China comprising semi-finished and raw material, mostly iron ore used for making steel. In contrast, 85 per cent of Chinese exports to India comprise manufactured and hi-tech goods. “Chinese prices are not transparent, as there are huge implicit subsidies. There is preference for domestic goods in China, and there are very tough obstacles to the entry of Indian companies. Chinese trade does not seem to be fair,” avers Khullar.
That view stems from a growing and uncomfortable sense that China is placing high barriers to contain India’s exports. Recent trade data for January-August 2009 shows that while India’s global exports dipped around 28 per cent, those to China have fallen by 48 per cent. On the other hand, Chinese exports to India have slipped by just 14 per cent. From a position of $1.75 billion trade surplus in 2004, India’s balance of trade with China reached a deficit of $11 billion in 2008. Some liken it to India’s pre-independence trade ties with Britain.
Speak to customers of Chinese products and a different picture emerges. Despite some concerns on quality, Chinese equipment suppliers seem to increasingly find takers in India. “The tilt in China’s favour has happened due to its manufacturing strength and competitive pricing. I find no issues with their quality,” asserts Suresh Deora, honorary general secretary of India-China Chamber of Commerce and Industry. Deora’s company, Bombay Ampoules and Vials, regularly imports Chinese pharma packaging material.
Clearly, many see this engagement as a necessary (and welcome) outcome for a economy that needs to fuel the growth engine. Even so, the government strives to downplay the Chinese impact. Union power secretary H.S. Brahma clarifies that while Chinese equipment and technological support has helped fill the gap in domestic manufacturing capacity, “their role is supplementary. We do not see their role beyond a point—at the most another three years, after which we will be able to meet all our domestic power equipment demand.”
Experts also point to the bigger picture. “While bilateral economic relations have been showing tremendous dynamism, it is very asymmetric. Not only is the trade skewed in China’s favour, the investment relations on both sides are very weak,” argues Ram Upendra Das, fellow at think-tank RIS. For instance, between 2000 and March 2009, Chinese investment in India was a mere 0.01 per cent of the total $84.4 billion FDI inflow. There are around 50 Chinese companies operating in India engaged in manufacturing, infrastructure and IT sectors.
From a $1.75 billion trade surplus in ’04, our balance of trade with China has reached a worrying $11 billion deficit.
In contrast, there are few Indian investments in China—in limited trade or specific sectors like pharma, IT education, software, auto parts and banking. “For investments to pick up, political and cultural relations will have to improve, closer banking relations built. Trading is a different matter,” argues Atul Dalakoti, executive director of the ficci office in Beijing.
Indeed, an air of uncertainty persists on the future of India-China trade. Is the talk of a Free Trade Agreement (FTA), a possibility discussed yet again during PM Manmohan Singh’s meeting with his Chinese counterpart Wen Jiabao on the sidelines of the ASEAN summit in Thailand, ever going to become a reality? Khullar is emphatic: “There is no question of an FTA with China at this juncture.”
A task force set up in 2005 to study the implications of an FTA with China—involving India lowering its tariffs—is still to submit its report. Official sources admit to a clear divide in the government on the FTA issue with those opposing, including industry, clearly prevailing. Pointing to the flood of Chinese products in Indian markets and the non-tariff barriers faced by Indian firms in China, official sources point out that it only justifies the opposition to the FTA proposal right from 2004.
As a trade expert puts it, “The entire range of Chinese cards are stacked against us. Chinese are strategically thinking of areas where they can capture our expertise.” After all, aren’t the two countries competing for a share in the global markets, be it for equity, oil, textiles or other manufactured goods? Whether or not industry likes it, suddenly business between the two countries has been invested with a new sharpness.