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2 A giant trade partnership of
unequals By Pallavi Aiyar
BEIJING - In the new century the big story
when it comes to the Sino-Indian relationship has
been the burgeoning economic engagement.
Traditional preoccupations and suspicions to do
with borders and boundaries have thus had to
contend with a powerful, alternative reality of
racing bilateral trade and growing economic
dynamism.
Recently released statistics
from China’s customs authorities reveal that
Sino-Indian trade in the first six months of 2007
reached US$17.2 billion, up a
sharp 67% over the same period in the previous
year. Last year bilateral trade between the
neighbors crossed $25 billion, so that the trade
target set during Chinese Premier Wen Jiabao's
visit to India in April 2005 of $20 billion by
2008 was met well in advance.
Indeed, over
the last five years, every ambitious target set
for trade has proved not to be ambitious enough,
with the statistics zooming ever upwards with a
momentum seemingly of their own.
In 2006
India-China trade increased by 33.8% over 2005 and
in turn the figure of $18.7 billion for 2005 was a
37% climb over the previous year. Just three years
earlier, in 2002, the total volume of bilateral
trade was a paltry $5 billion.
China
replaced Japan as India’s top trade partner in
Northeast Asia a few years ago and is now on track
to overtake the United States to become India’s
number one trading partner in the world. Indo-US
trade currently stands at about $32 billion, a
quantum that may well leaped by year-end.
On the surface then, there appears to be
plenty of evidence for optimists who hold that
Bangalore and Shanghai, rather than New Delhi and
Beijing, are the new determinants of the
topography of bilateral ties; ties that are
increasingly characterized by commerce rather than
conflict.
However, in recent months a
ballooning trade deficit with China means that
gray clouds are threatening to mar the sunshine
that India-China trade has been spreading in its
wake thus far.
While in 2004, the balance
of trade was in India’s favor to the tune of $1.7
billion, by 2006 this surplus had turned to a
deficit of $4.12 billion. This year the deficit is
only widening, having reached $3.28 billion in the
first six months, up from the $2.66 billion
deficit for the same time period in 2006.
Indian exports to China continued to rise,
seeing an almost 30% year-on-year increase in the
January-June period this year. However, this
increase was out-paced by Indian imports from
China which scaled up by close to 65%, to touch
$10.24 billion.
What’s truly a matter of
concern from the Indian point of view, however, is
not the level of Indian exports to China but
rather the composition of those exports.
India’s exports to China are
overwhelmingly dominated by low-value, primary
products with an out-sized reliance on iron ore.
In 2006 ores, slag and ash comprised more than 50%
of India’s exports to the mainland, a trend that
has remained unaltered over the last few years.
Despite Indian trade officials having repeatedly
expressing concern over the lopsided nature of
this export composition, in the first six months
of this year iron ore continued to account for
half of total exports to China.
The
majority of Chinese exports to India on the other
hand comprise manufactured and value added
products. Electrical and other types of machinery
for example made up 45% of Indian imports from
China in the first six months of 2007.
"India cannot be an exporter of raw
materials and commodities to China all the time,"
says Nirupama Rao, the Indian ambassador to China,
flagging the rising concern over a situation she
says is "unsustainable in the long run".
The ambassador adds that a "deficit [with
China] is tolerable only for a finite period,
beyond which we risk seeing a 'positive' of the
relationship assuming negative tones."
This is an atypically strong statement
from the embassy, which usually tends to focus on
the sunnier aspects of cooperation and growth when
it comes to trade. It highlights the growing
uneasiness in India over what some see as the
realization of long-held fears that trade with
China will ultimately be detrimental to Indian
industry. It thus calls attention to the serious
levels of potential friction that Sino-Indian
trade can generate unless carefully managed.
Trade friction including the enormous
surpluses that China enjoys is at the center of
several of Beijing’s more weighty bilateral
relationships, notably with the United States.
Given that despite still being only in the
take-off period, India-China trade has already run
into a bumpy stretch, it would perhaps make sense
for New Delhi and Beijing to establish a strategic
economic dialogue along the line of the Sino-US
dialogue initiated last year.
Since 2005
India and China have entered into a "strategic and
cooperative partnership". Setting up a dedicated
dialogue on
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