Commerce to the fore for Delhi and
Beijing By Pallavi Aiyar
BEIJING - When Indian Prime Minister
Manmohan Singh visits China next week, he will be
accompanied by a 25-odd member business delegation
comprising the big guns of India Inc from a range
of manufacturing and information technology
sectors.
Four hundred members of China's
business and government community will gather at a
January 14 summit in Beijing, organized by the
China Council for the Promotion of International
Trade (CCPIT), to meet with these captains of
Indian industry. Ideas will be exchanged for
diversifying the economic engagement
across the Himalayas. A few
business deals will also be signed.
The
highlight of the meeting will be an address by
Manmohan, who is expected to spell out his vision
of the potentially formidable trade and investment
relationship between two of the world's
fastest-growing economies. The Indian premier's
message will likely emphasize the necessity of
developing a multi-faceted bilateral engagement,
away from a one-dimensional focus on the two
countries' border disputes.
In line with
the recent stress on commerce rather than
conflict, Manmohan will underline the significance
of Mumbai and Shanghai, as much as New Delhi and
Beijing, in determining the contours of
Sino-Indian ties going forward.
Over the
past few years, border negotiations have been
limping along, but bilateral trade has been racing
ahead. Between January and November 2007,
Sino-India trade surged 53% over the same period a
year earlier to US$34.23 billion. Trade between
the neighbors jumped 33.8% from 2005, and 37% that
year from 2004.
When the last Indian prime
minister to travel to China, Atal Bihari Vajpayee,
made his visit to Beijing in June-2003, the total
volume of bilateral trade was $5 billion.
At the time, other than minor trading
activity, economic links across the border were
negligible. In the five years since, some 100
Indian companies established a presence in China,
and Indian banks, industry associations,
consultancies and even a law firm have set up shop
to facilitate burgeoning business ties.
However, several question marks threaten
to push through this rosy surface. Apart from
India's long-term concerns over the composition of
its exports to China, which primarily comprise
low-value primary products, a widening trade
deficit is causing furrowed brows in New Delhi.
While in 2004 the balance of trade was in India's
favor to the tune of $1.7 billion, by 2006 this
had turned to a deficit of $4.12 billion. By
November of last year, the deficit had further
broadened to over $9 billion.
In an
interview to The Hindu in mid-2007, India's
ambassador to China, Nirupama Rao, stressed that a
trade deficit with China was "tolerable only for a
finite period", beyond which the risk of seeing a
"positive of the [bilateral] relationship assuming
negative tones" ran high.
Chinese trade
officials say that an Indian trade deficit is
likely to continue for the foreseeable future.
"Unless Indians make a much more concerted effort
to sell in the Chinese market, the Chinese surplus
will continue," says Wang Jinzhen, secretary
general of CCPIT.
One possible solution,
according to Wang, is the early negotiation of a
regional trade agreement (RTA) between the two
countries, something the Chinese have aggressively
been pushing for in recent years.
Wang
points to the fact that China has already
concluded or is in the process of finalizing about
15 free trade agreements (FTAs) with 29 countries
and regions. He gives the example of the
Sino-Chilean FTA as an illustration of the mutual
economic benefits such agreements purportedly
bring for bilateral trade. "Within a year of the
FTA with China, Chile increased its exports to
China by 100 %," he says.
A joint task
force set up by India and China to study the
feasibility of an RTA will make public its
recommendations during Manmohan's visit to
Beijing. It is widely expected to suggest
deferring implementation of any RTA while not
ruling it out altogether.
The suggested
go-slow on the RTA is primarily the result of
concerns among Indian business leaders. In India,
lingering insecurities about Indian industry's
competitiveness vis-a-vis the might of China's
manufacturing are coupled with suspicions of the
lack of transparency in Chinese pricing and
accounting systems.
India is thus
reluctant to grant China market economy status
(MES), a first step towards the negotiation of an
RTA. Currently, India is a leading initiator of
anti-dumping cases against China. Were New Delhi
to grant MES to China, it would mean that India
would compulsorily have to accept pricing figures
supplied by Beijing, leading to fears of
large-scale dumping of Chinese products.
Harpreet Puri, the founder and head of
Business Links, a China-based Indian consultancy,
argues that the best way ahead is to stagger a
potential RTA, restricting it to certain
commodities rather than implementing a full-blown
agreement all at once.
He is of the
opinion, however, that the emphasis during
Manmohan's visit should be on boosting
cross-border investments, rather than on trade
alone. "India's trade deficit is likely to
continue for some time and so it is really
important to make investments rather than trade
the foundation of the relationship," he says.
Although a gradual beefing up of
investments across the Himalayas has taken place,
they remain meagre. For example, since 2006,
Puri's consultancy alone has helped bring in a $60
million investment from wind energy company Suzlon
and an additional $50 million from Everest Kanto
Cylinders. However, actual Indian investment in
China until March 2007 stood at a mere $178
million (although contractual investment is valued
higher, at $565 million).
Chinese
investments in India are also less than weighty,
with fewer than 50 Chinese companies known to have
set up offices there. According to the Indian
government, foreign direct investment inflows to
India from China between August 1991 and December
2006 worked out to a grand total of $3.61 million.
Even the higher Chinese figure of about $17
million for actual investments is unimposing.
When Chinese President Hu Jintao visited
New Delhi in November 2006, the two countries
signed a bilateral investment protection and
promotion pact. Since then, there has been an
upswing in Chinese investments south of the
border, particularly in the area of infrastructure
and other project implementation.
However,
CCPIT's Wang explains how lack of information in
China about investment and market conditions in
India, coupled with India's stringent labor laws
and poor infrastructure, don't yet make it an
obvious choice for Chinese investors.
Moreover, although the upgrading of
economic ties is expected to take some of the heat
off the simmering issues of bilateral political
contention, such as the disputed border,
continuing political suspicions work against
unfettered economic engagement.
Thus, New
Delhi has for long stymied Chinese investments in
certain sectors, such as telecommunications and
port development, on the grounds that particular
Chinese companies pose a security threat.
Aviation is the latest sector to be
affected negatively by political concerns. The
Indian government is blocking the entry of Chinese
cargo carrier Great Wall Airlines to Mumbai and
Chennai, reportedly due to the fact that key
nuclear facilities are located near these two
airports. New Delhi's suspicions spring from the
fact that one of the former owners of the airline
in question - China Great Wall Industry
Corporation - was blacklisted by the US for
alleged transfer of missile technology to Iran.
In a retaliatory measure, Beijing has
blocked India's Jet Airways' plans to fly to
Chicago via Shanghai.
Sino-Indian economic
ties are in fact still in a take-off phase. In
January-November 2007 the share of Indian exports
in overall Chinese imports was a mere 1.46 %. In
the same time period India was only China's
10th-largest export destination and the
15th-largest exporter to China.
This is
thus crunch time for identifying and developing
mechanisms to manage the bilateral economic
relationship in such a way as to minimize
potential friction and maximize mutual self
interest.
Manmohan has the opportunity to
use the business summit in Beijing to move beyond
the now cliched niceties of touting
hardware/software collaboration and instead
address head-on the challenges of promoting
cross-border economic ties in all their thorny
complexity.
Pallavi Aiyar is the
China correspondent for The Hindu.
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