Trade binds China and In­dia

China Daily (Canada) - - COMMENT -

China and In­dia both are de­vel­op­ing coun­tries, both have huge pop­u­la­tions (largest two in the world) and both are fast grow­ing economies. China has en­joyed an aver­age an­nual growth of about 10 per­cent dur­ing the past three decades, while In­dia’s growth rate was 7 per­cent in the decade and half pre­ced­ing the global fi­nan­cial cri­sis. The two coun­tries’ con­tin­u­ous eco­nomic growth, there­fore, will not only ben­e­fit their 2.5 bil­lion people, but also play a sig­nif­i­cant role in eco­nomic de­vel­op­ment across the globe.

The past decade was es­pe­cially pro­duc­tive for bi­lat­eral ties thanks to the fre­quent ex­change of lead­ers’ vis­its and more people-to-people in­ter­ac­tions. In­dia has been a strate­gic trad­ing part­ner of China for the past nine years, and China is now In­dia’s largest trad­ing part­ner.

Three fea­tures stand out in the two coun­tries’ trade re­la­tions. The first is the deep­en­ing of Sino-In­dian trade co­op­er­a­tion. Ac­cord­ing to China’s cus­toms data, Sino-In­dian trade rose from $7.6 bil­lion in 2003 to $66.47 bil­lion in 2012, an aver­age an­nual in­crease of 30 per­cent. And there is still plenty of room for deeper co­op­er­a­tion be­tween the two sides.

Sec­ond, the dras­tic in­crease in Chi­nese ex­ports to In­dia has ex­panded the bi­lat­eral trade vol­ume, al­though it has also ex­panded China’s trade sur­plus with In­dia. Un­til the early years of the last decade, China had a trade deficit with In­dia— the deficit was close $1.75 bil­lion in 2004— mainly be­cause it used to im­port huge amounts min­er­als, and base metals like steel and cot­ton from In­dia, and ex­ported only small quan­ti­ties of electro­mechan­i­cal de­vices and chemical prod­ucts. But a sharp in­crease in the ex­port of China-made op­ti­cal in­stru­ments, au­to­mo­bile parts, fur­ni­ture and tex­tile prod­ucts to In­dia be­cause of the lat­ter’s boom­ing econ­omy dra­mat­i­cally tilted the trade sur­plus in China’s fa­vor.

Third, trade growth has slowed down over the past two years. Bi­lat­eral trade peaked in 2011, reach­ing $73.92 bil­lion, and then fell by 10.1 per­cent in 2012 and an­other 1.5 per­cent last year, when it was about $65 bil­lion. The ma­jor rea­son for the de­cline is the slow­ing down of the In­dian econ­omy be­cause of shrink­ing do­mes­tic de­mand. Data pub­lished by the In­dian govern­ment in­May show that the coun­try’s real GDP growth rates in 2012 and 2013 were 4.5 per­cent and 4.7 per­cent, far be­low the 2010 growth rate of 10.5 per­cent.

Ac­cord­ing to of­fi­cial In­dian fig­ures, In­dia’s im­ports in­creased by 35.6 per­cent 2011, drop­ping dra­mat­i­cally to 4.2 per­cent in 2013. As a re­sult, ex­ports of Chi­nese prod­ucts like chem­i­cals and steel to In­dia also dropped sig­nif­i­cantly. China, how­ever, has man­aged to main­tain a re­spectable trade vol­ume with In­dia by con­tin­u­ing to im­port jew­elry, no­ble metals and cop­per prod­ucts from In­dia.

Of course, the two coun­tries have been try­ing to boost bi­lat­eral trade. In March, they held the third In­dia-China Strate­gic Eco­nomic Di­a­logue in Bei­jing, where they agreed to im­prove the in­vest­ment and trade en­vi­ron­ment in each other’s coun­tries, en­cour­age mu­tual in­vest­ment be­tween/among com­pa­nies, and deepen co­op­er­a­tion in the fields of in­fra­struc­ture, fi­nance, en­ergy and en­ergy con­ser­va­tion.

The two coun­tries can be op­ti­mistic about the fu­ture, be­causeNaren­dra Modi, In­dia’s new­prime min­is­ter, has promised to fo­cus on re­form and eco­nomic de­vel­op­ment. Also, the coun­try’s cen­tral bank has pre­dicted a 5-6 per­cent growth for this year, say­ing it could rise to 7-8 per­cent in a fewyears. Among the ma­jor mea­sures the In­dian govern­ment is ex­pected to take is restora­tion of de­ferred equip­ment in­vest­ment, which can in­crease em­ploy­ment and stim­u­late con­sump­tion, and thus boost eco­nomic growth.

On its part, China can pro­vide ad­e­quate sup­ply of prod­ucts for ex­port to and a big­ger mar­ket for im­ports from In­dia if its econ­omy can grow at the rate of 7.5 per­cent a year, and thus fa­cil­i­tate mu­tu­ally ben­e­fi­cial co­op­er­a­tion in the long term.

More­over, sinceModi is said to have stud­ied the Chi­nese eco­nomic model and vis­ited Shang­hai, and Guang­dong and Sichuan prov­inces to get first­hand knowl­edge of China’s in­vest­ment pro­mo­tion, it is likely that the two coun­tries will en­ter a newage of co­op­er­a­tion. In­dia could fur­ther open up its do­mes­tic mar­ket to China, mak­ing it pos­si­ble for more Chi­nese com­pa­nies to in­vest in In­dia and for prod­ucts made in In­dia by Chi­nese com­pa­nies to be redi­rected to the Chi­nese mar­ket.

By 2015, the two coun­tries are ex­pected to con­clude their ne­go­ti­a­tions as mem­bers of the Re­gional Com­pre­hen­sive Eco­nomic Part­ner­ship and thus lay the foun­da­tion for build­ing a bet­ter trad­ing en­vi­ron­ment and re­al­iz­ing bal­anced de­vel­op­ment in the long run. The au­thor is a re­searcher at the Chi­nese Academy of In­ter­na­tional Trade and Eco­nomic Co­op­er­a­tion, af­fil­i­ated to the Min­istry of Com­merce.

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