India?s fifth premier to visit China, Manmohan Singh, arrived here on Sunday, seeking to push the Indo-Chinese relations to a ?vibrant and dynamic? phase. Strengthening the bilateral economic engagement is a key focus of his three-day agenda. On Monday, he is scheduled to deliver his keynote address at the India-China Economic, Trade and Investment Cooperation Summit?an event organised by the China Council for the Promotion of International Trade, which will be attended by 400 members of China?s business and government community.
To participate in this event, a 25-member Indian business delegation, comprising heavyweights from the manufacturing and the IT sectors, had arrived in the Chinese Capital ahead of Singh.
Indian industry, for its part, has a sense of unease with the engagement so far on the trade front, which has seen bilateral volumes jump to $38.6 billion in 2007 but with a massive deficit of $10 billion against India. Four years ago, the balance of trade was in favour of India, as it registered a surplus of $1.4 billion. The spurt in trade volumes thereafter has rapidly transformed that to a huge and growing deficit, which will not go away in the near future. Reflecting this unease was commerce minister Kamal Nath, who told his Chinese counterpart Chen Deming when they met on January 12 that China and India had substantial trade but this was sustainable only if there was no large trade deficit.
The Indian business delegation met Singh on Sunday and conveyed their concerns, which are sure to be reflected in the Prime Minister?s address at the summit and talks with the Chinese leadership. Simply put, their concerns are that massive Chinese exports to India are affecting Indian manufacturing. India simply cannot compete, as China?s pricing mechanism is opaque with massive hidden subsidies. China?s exchange rate is also artificially undervalued. All these translate into a strategic and targeted surge of Chinese goods into India, resulting in huge deficits year after year. For all the bonhomie regarding Chindia?a close engagement between two rising global powers?india Inc basically thinks it is an unequal relationship.
While not denying that India?s trade deficit with China was a concern, Singh told India?s industrialists to take a long-term view of the bilateral engagement. According to sources, he forcefully emphasized that this process of coming together of the two countries represented an ?international public good? when the spectre of recession haunts the global economy. As fast-growing countries, both have a major role in contributing to global growth.
?It is a historic necessity for the two great neighbours to work together. There will be areas of competition, and there will be areas for cooperation. There is enough space in the world for both countries to continue to grow and address the developmental aspirations of their peoples,? Singh added.
Back to trade, India?s position vis-a-vis China appears similar to a Third World country that exports raw materials like iron ore while importing manufactured goods from the latter. While ores, slag and ash make up a large chunk of its exports, China exports a range of electrical and other types of machinery to India like automatic data processing machines and transmission apparatus for radio and telephony. The imperative necessity, therefore, is for India to diversify its basket of exports to China and push for greater market access in areas where it has core competencies if the bilateral engagement in trade is to be a win-win situation for both the countries.
China?s push for a bilateral trade agreement has to be viewed against this context. A joint task force, set up by India and China to study the feasibility of a regional trade agreement, is expected to make public its findings during Singh?s visit. Kamal Nath, in fact, told Chem Deming that ?further discussions? were needed on this matter, and that issues of RTAs and market access would be ?studied constructively?. India, for its part, has been reluctant to grant the market economy status to China, which is a crucial building block for forging an RTA, given its unease that such a move will entail accepting China?s pricing numbers that could result in massive dumping. An RTA is expected to be late but it can?t be ruled out altogether.
The Indo-Chinese engagement, however, is more than trade and involves investments as well. Some big-ticket business deals are expected to be signed during Singh?s visit, as China is actively seeking investments from India Inc. India also welcomes greater Chinese investments in infrastructure. Certainly, the potential is there as bilateral investment volumes are below par. India?s investments in China in the form of projects was $28 million between January and November 2007 while cumulative FDI till then was $200 million. China?s FDI into India stood at $3.3 million during the first nine months of 2007 and cumulative investments so far were worth $20.33 million.
