By Subrata Majumder
Green shoots are visible in the Sino-India trade relation as an impact of USA- China trade war, notwithstanding global trade is embroiled in disruption. In other words, a third force became key role player to cool Sino-India trade relation, even though a long parley was made bilaterally before. Disgruntled by big trade balance, alleging China for dumping goods, trade relation is now seen with a volte-face of China, surging imports from India and restricting exports to India.
In 2018-19, India’s exports to China made a great leap vis-à-vis abating imports. Its exports to China zoomed by 25.6 percent, while imports declined by 7.9 percent. China emerged as the third biggest export destination for India, after USA and UAE. Given this paradigm shift, a bulk of trade deficit between the two countries was lowered. Trade deficit plunged to US $ 53 billion in 2018-19 from US $ 63 billion in 2017-18.
The trigger in exports was due to petroleum and agriculture and allied products. Both these account for one-third of India’s exports to China. Exports of these two product groups increased by 89.8 percent and 92.6 percent respectively in 2018-19. Among the agricultural products, the notable increases in exports were raw cotton (278.7 percent), marine products ( 345.4 percent) and spices ( 42.9 percent)
With China retaliating against USA’s high tariff trade war, scope for India’s exports to China enhanced. For example, opportunities galore for big export of raw cotton after China bent towards India to compensate the loss of imports from USA. China imposed 25 percent tariff on imports of cotton from USA as retaliation. Of the 5 billion bales of cotton imported yearly by China, 40 percent are imported from USA. China does not impose any custom duty on cotton imports from India.
Similarly, in the run up to enhance soybean imports from India as a countermeasure, China dropped import duty on soybean from India. With China imposing 25 percent tariff on imports from USA, large scope emerged for India to export soybean to China.
China is the world’s biggest buyer of soybean and USA has been the biggest supplier to China. Annually China imports $ 39-40 billion worth of soybean from the world. Of these, more than one third is imported from USA ($ 13 billion in 2017).
In the import front, the U-turn was mainly due to decline in imports of electronic goods. This product group is the main component of India’s imports from China. They account for nearly one-third of India’s import from China. Imports of electronic goods from China dropped by 29.4 percent in 2018-19, dragged mainly by fall in imports of telecommunication equipment. It declined by 52.5 percent in 2018-19.
Thanks to Chinese investment in telecommunication in India, it resonated a negative impact on imports from China. Currently, six big Chinese companies are producing mobile phones in India. According to a survey report, Chinese mobile phones, manufactured in India, made a great leap with 51 percent market share in India.Chinese brands like Xiaomi, Vivo, Oppo, Huawee, One Plus out placed Indian brands like Micromax, Lava, and Karbon.
Trade war generated a new synergy of economic relation between the two countries, reducing the political rivalry. Both India and China now oscillate in the hope for warming the relation in trade and investment. Till the trade war broke, India was eager to improve the relation with China, with an aim to dwarf the burgeoning trade deficit. But, China was reticent. After the trade war, China bent towards India and vies for India’s heart for improving economic ties. “A new day has dawned for the two countries, which were once at odds”, according to Global Times – the Chinese official media.
Till Modi led BJP government came into power, trust deficit owing to security concern played a key role. After Modi led BJP government was installed, China has been on investment binge. Chinese investment has become a driving force for start-ups, digitization besides electronic manufacturing.
With trade war making a major turnaround in India- China relation, hopes are raised on China being the next lead foreign investor in India. Given the manufacturing in China becoming costlier after the tariff hike by USA, investors in China will dislocate their productions bases in India and other countries.
According to Standard Chartered Bank, India and China will be the two major wings for global growth. By 2030, China and India will be the second and third biggest economies, next to USA, while outsmarting Japan and Germany
China is seen not a foe, but an opportunity after the trade war broke. Trust deficit began to dilute and bonhomie between the two leaders rose. Both have vowed to make a relook to their economic relation and endeavor for a joint partnership for growth, instead of brickbat.
Needless to say, Mr Modi was never averse to China. He visited China four times as Chief Minister of Gujarat, when security concern was at peak . His priority was to seek Chinese investment.Parallelly, China exhorted India’s potential as an important destination for investment. “India has an wealth of experiences in utilizing international capital. There is no doubt it has become more attractive to foreign investors”, according to MrZjaoGancheng, Director of Centre for Asia Pacific Studies at Shanghai Institute of International Studies.
As of the end of 2017, Chinese Ministry of Commerce recorded Chinese investment in India more than US $ 8 billion. Start-ups, infrastructure and electronic manufacturing have become the key areas for Chinese investment.
Chinese investment synchronizes Make in India initiative. Digitization, Start-up are the key targets of Make in India. India has robust IT industry, that operates at cheaper costs in India than in China. By investing in these areas, China is in unique position to give a challenging shape to Make in India. (IPA Service)
