Trade quarrels between India and China

Trade quarrels between India and China

According to a report of the Wall Street Journal and other sources, India is frustrated that trade between India and China is tending to the benefit of China because the trade deficit with China jumped in the last fiscal year (end of March) to nearly USD 40 billion being the largest contributor to the country’s overall gap between exports and imports and puts the subject on top of the agenda when meeting with Chinese officials during August

India’s government is convinced that this development is a serious economic threat for the country. The nation’s current account deficit (balance of trade with the world) amounted to 4.5 % of GDP Gross Domestic Product in the last fiscal year and was an all time high, leading in consequence to a sharp depreciation of the INR and is putting enormous pressure on India to attract foreign capital.

India wants for its value added products more access to the Chinese market and wants China to increase government procurement in sectors such as pharmaceuticals. India submitted to China a list of 916 goods that it believes China should purchase in larger quantities. In fact, India’s drug and fi8ne chemical exports to China have fallen 12 % since 2007 to a total of USD 108 million, whereas sales to American have more than doubled during the same period to close to USD 2 billion. India’s pharmaceutical companies are the leading suppliers of low-cost generic drugs to treat everything from high cholesterol to stomach infections and those products have great success in the U.S., Great Britain, Germany and other Western markets and helped to boost India’s exports of drugs and fine chemicals from USD 3.3 billion in 2004 to USD 10.4 billion 2011.

P1-BH394_INDCHI_D_20120802173005India is flooded with Chinese goods from heavy industrial equipment to laptops and cosmetic. In a bit more than a decade China moved from rank seven to rank one as source of Indian imports, overtaking the U.S.A., Germany and Japan. India wants to curb this influx of goods and has put at the end of July a 21 % tariff on imports for big power projects in order to protect local manufacturers from Chinese competitors. But the reverse side of the medal: India needs advanced Chinese power technologies to put “steam” into the biggest power plant projects. China supplies over 40 % of India’s power gear. The flood of Chinese goods into India is on display in the narrow congested alleys of Sadar Bazaar in the old section of Delhi (built by the Mughals). Tiny shops in shabby building sell toys, hardware, costume jewellery, cosmetics, home appliances and hosiery. Five years ago, Chinese goods amounted only to 5 % of their inventory, but now they account for more than 50 % and instead of sourcing in India, traders go frequently on purchase tours to China. Some of them have wholesale and retail operations and are spending some 15 days per month living in China to source all kinds of goods.

Some India officials accuse China to effectively block Indian exports by not giving certain Indian products market access, outside experts don’t think that China is barring Indian products but see the reason in India’s inability to produce quality manufactured goods. China exports a wide variety of sophisticated products with higher profit margins and creating more domestic jobs. The value of China’s telecom exports amounted to USD 6.7 billion in the last fiscal year. India’s lion share of exports to China is raw material (mostly cooper and iron ore).

Countries like the U.S.A., Brazil and Russia also run large trade deficits with China. India’s concerns however are sensitive, given the fact that China and India are neighbouring rivals with clashing strategic interests. India is worried about China’s influence over Indian Ocean shipping lanes and China is wary of India’s oil-exploration in the South China Sea.

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