The Chinese Premier Li Keqiang is visiting India within two months of the conclusion of the formal process of change in Chinese leadership. He would be the first Chinese Premier to visit India within such a short time of assuming office.
What is the implication of the visit
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There is little doubt that India has gained more importance in the Chinese strategic calculus. The importance stems from primarily economic reasons. China is one of Indias topmost trade partners. Similarly, Indias economic importance has steadily increased for China. The importance is largely on account of the bilateral trade. The size of the trade has increased enormously, albeit in an unbalanced fashion. India is a huge market for Chinese products and is expected to remain so in the foreseeable future.
Indeed, from a Chinese perspective, India is a rather unique market. The large trade surplus that China runs with India is similar to the nature of the trade balance it has with Europe and North America. But it is different from Chinas trade balances with Japan, South Korea, Taiwan and Southeast Asian countries like Malaysia, the Philippines and Thailand. China runs large trade deficits with these countries. These deficits are unlike its deficits with African countries like Angola, Congo, Libya and South Africa, or Latin American countries like Brazil, Chile and Peru. These latter deficits are all results of resource-driven trade with China importing large energy and primary resources from these countries. Similar deficits are seen with parts of the Middle East too, for example, Saudi Arabia and Qatar.
On the other hand, Chinas deficits with countries in Northeast Asia and Southeast Asia are driven by large imports of intermediates and semi-finished products, mainly parts and components, which are assembled and beaten into shape in China, for further exports elsewhere. Among the latter destinations, India is an important market.
Over the years, and particularly the last decade, the Indian market has grown in importance for China. In entire Asia, Chinas trade surplus is highest with Hong Kong followed by India. Given that Hong Kong is a special administrative region of China, the trade flows reported and recorded for Hong Kong vis--vis the mainland, and the surplus registered, can be influenced by the high outgo of mainland products from the Hong Kong port and the Pearl Delta region that are recorded as hi-tech exports. Such data and reporting issues do not arise for India.
According to Chinese statistics, Chinas trade surplus with India is around $29 billion. The only two other countries from Asia with whom China has this sizeable trade surplus are the United Arab Emirates ($24 billion) and Vietnam ($23 billion). The importance of the Indian market for China and its trade is clear from the fact that among Chinas top ten trade partners, the surplus with India is lower than those with only the US ($259 billion), the UK ($39 billion) and the Netherlands ($62 billion).
India clearly fits into the Chinese trade matrix as a country that is a large consumer of Chinese products. China does not depend on India for sourcing parts & components and intermediates as it does on Japan, South Korea, Taiwan and Thailand. Nor does it depend on India for procuring resources like it does on Latin American, African and Middle East countries, except for fine ores and raw cotton. As a market, India shows a similar proclivity to absorb Chinese manufactures in a broad-based fashion, as the American and British markets.
Preserving access in the Indian market is expected to be a priority for Li Keqiang and the Chinese leadership. There could well be a new target set for bilateral trade during Lis visit. Given the robust increase in bilateral trade, the $100 billion target set for 2015 during Premier Wen Jiabaos visit in December 2010, should be attained well before time. Apart from trade, China is also looking at India as a country that can yield high returns on long-term investments. It should not be surprising if some major Chinese enterprises choose the occasion to announce their long-term business plans in India.
Two other issues are likely to feature in Lis discussions with his Indian counterpart. Both China and India are part of ongoing negotiations at the Regional Comprehensive Economic Partnership (RCEP). The RCEP aims to create a common framework between the ASEAN and the countries with whom it has bilateral FTAs, i.e. Australia, China, India, Japan, New Zealand and South Korea. China would aim to hasten the RCEP negotiations, as it is wary of trade diversion losses arising from the US-led Trans-Pacific Partnership (TPP) negotiations involving major economies on both sides of the Pacific. Indias cooperation is essential in expediting the RCEP negotiations and Premier Li is expected to don a persuasive mantle in this regard.
The other issue for discussion could be the BRICS. Without India, again, Chinas plans to whip up the BRICS into a major global coalition will not work. China is keen on not only getting the BRICS Bank going. It is also keen on developing stronger bilateral economic links with other BRICS members. It has taken a major step in this direction by agreeing to trade with Brazil in respective national currencies. It might be open to a similar arrangement with India. More so given that Indian corporates are already raising substantial debts in the yuan.
The author is head (partnership & programme) and senior research fellow at the Institute of South Asian Studies in the National University of Singapore. Views are personal. He can be reached at firstname.lastname@example.org