India’s trade deficit with China has been accelerating. Imports in 2015-16 were more than five-times the exports. China exports mostly manufactured goods to India. For example, almost three-fourths of telecom imports and over half of solar equipment are from China. India has practically no domestic competitive production.
China is also good at imitation. There are thousands of Chinese who make Indian idols and firecrackers, that are sold in huge central markets frequented by Indian traders, for sale in India. They import silk weavers from Varanasi and Kanchipuram to replicate their techniques to create exotic sarees on Jacquard looms. These products do not match Indian quality, but are cheaper. The Chinese are exploring other such opportunities.
At this rate, China can replace a great deal of Indian organised and cottage manufacturing. On the other hand, most of India’s exports to China are of natural resources (like iron-ore). If things continue the same way, soon India will become an economy ruled by China.
For instance, China exports steel at much lower prices than steel manufactured in India. India’s steel industry is in trouble as a result. This is beginning to happen in other sectors as well. But India is not unique in this dominance by China, as this is happening to other countries as well.
The US claims to have lost a good part of its domestic manufacturing and millions of jobs in manufacturing to cheap Chinese imports. Thanks to the large amount of outsourcing to China, China has begun to export sophisticated electronics and other items to the US and elsewhere, replacing their local manufacturing. Experience with local assembly and manufacturing have enabled China, with its educated researchers and scientists, to plagiarise and, indeed, improve upon such products.
China is well on the way of becoming the manufacturing centre of the world. However, it must be borne in mind that China, unlike others, is a secretive, centrally- and tightly-controlled economic system. State-owned enterprises are dominant, especially in heavy industries and infrastructure supplies. Prices are set as part of broad economic strategy and tactics. The same input is many times priced differentially between a firm entering a new export market and others. Taxes are tailor-made to enable export competitiveness and vary between manufacturers.
Since China was admitted to the World Trade Organisation (WTO), some countries, including India, have challenged special prices and incentives given by the Chinese government to some exporters. Most have lost their cases.
The election of Donald Trump as the next US President has been attributed to the loss of manufacturing and related jobs to China. Reaction is now to follow, aimed at limiting Chinese exports to the US and American investments in China. This was a very important part of the Trump election campaign. On December 21, 2016, Peter Navarro was selected by President-elect Trump to serve as the director of the National Trade Council, a newly-created position in the executive branch of the US federal government. Among other responsibilities, he will be responsible for trade negotiations. His last book was “Death by China”. It is also a documentary film, which is believed to have influenced Trump. He can be expected to take strong measures to limit China’s influence on the American economy.
This provides an opportunity to the Indian government, which has so far failed to gather convincing evidence from the Chinese in arguing its cases before the WTO. We should follow American leadership to contain China’s influence on Indian trade and manufacture, as India cannot be economically subservient to China.
The contours of global conflicts are now changing. There is a good chance under President Trump the US will improve its relation with Russia. Also, we may see a decline of the NATO; decline of the British power; the European Union becoming less united; the spread of Islamic fundamentalism; and greater military and economic cooperation between Japan and South Korea, and possibly ASEAN countries. As the only other large counterpoise to China in Asia, India will inevitably lead the “circle of Pearls” against China. The possibility of friendship between India and China is remote, given the enormous support from China to Pakistan, principally to contain India, and the border disputes between New Delhi and Beijing. Instead of living on the Nehru nostalgia of “Hindi-Chini bhai-bhai” (Indians and Chinese are brothers), we must now treat China as a non-combatant enemy and ensure that neither economic nor military power makes India subservient to China.
The world may now witness two camps again, with America and Russia getting closer, and forming one with Europe. India and others in Asia, versus China, Pakistan and South Korea. It is time our thinkers strategised accordingly.
The author is former director general, NCAER, and was the first chairman of CERC. Views are personal