SHOULDER TO SHOULDER: A Chinese soldier and an Indian soldier keep guard across barbed wire at the Nathu La Pass along the China-India border on July 5, 2006. The next day, the area was reopened to restore the border trade post after more than 40 years of interrupted useDespite the rapid development of China-India relations in recent years, trade between the two countries only takes up a fraction of their total foreign trade volumes. Economic Information Daily, a Beijing-based newspaper, has published a report on China-India bilateral economic and trade relations, offering a full picture of the existing constraints.
Edited excerpts follow:
Since the 1990s, China and India have enjoyed a renaissance in the development of bilateral economic and trade relations, owing to the improvement of their political and diplomatic ties. But read the statistics over the years, and one will soon discover that's not the whole picture. Actually, China-India trade accounts for less than 2 percent of China's total foreign trade volume and less than 6 percent of India's total. This proves constraints exist.
Poor transportation conditions
On June 5, more than 300 commerce officials, entrepreneurs and scholars from China and South Asian countries gathered in Kunming, Yunnan Province, to discuss expanding regional economic and trade cooperation. Caught in trade deficits and economic underdevelopment, South Asian countries said conquering the ongoing financial crisis would be a big opportunity with which to open up the Chinese market, while attracting Chinese capital and technological support.
Chinese-Indian trade volume, for instance, has soared to 10 times its original level in the past seven years. In 2008 alone, the figure reached $51.8 billion. Vishambhar Saran, Vice President of the Indian Chamber of Commerce, said China-India trade would further prosper as the economy improves.
Li Li, a researcher at the Yunnan Academy of Social Sciences, said that, although China and India are connected by land, their current trade mainly passes the Strait of Malacca. However, she added, the marine route is so far away that the time and cost restrain fuller economic and trade cooperation.
On the other hand, the time needed to traverse land routes has been dramatically shortened with the rebuilding of the Stilwell Road that links China and India via Myanmar and the reopening of the Nathu La Pass for border trade. But still, problems remain for a number of reasons. For example, road conditions are extremely poor, thus requiring increased road construction for areas on both sides of the border.
The land and air routes that can most easily shorten China-India trade distance traverse north and northeast India, where extreme poverty has led to deterioration of basic facilities and traffic systems.
All these factors pose significant challenges to bilateral trade relations.
Fragile political trust
China-India trade relations are an economic issue, but political and security factors are influential, too. Generally, bilateral understandings between Beijing and New Delhi are far from sufficient due to their limited exchanges. Barring a handful of recent visits by officials, businesspeople and scholars, peoples of the two countries know little about each other's conditions and policies.
In other words, mutual trust is superficial and, in ways, fragile.
Time has borne this out. Some Indians, moreover, are wary that China's cooperation with Pakistan, a long-time nemesis, might be a threat, thus prompting them to hold a defensive posture.
EXPANDING TRADE ROUTES: Workers rebuild a road 4,500 meters above sea level in Xigaze, Tibet Autonomous Region, on July 1, 2007. The 165-km road is the largest land trade corridor between China and India This, in turn, could result in a fast and serious erosion of trust between Beijing and New Delhi.
Then there is the "China threat" theory: an Indian fear of China's rapid development, along with an aversion to Chinese products. This has diminished the Chinese market in India.
China-India trade has long stayed even, despite the two countries' low level of cooperation. However, a big transition took place in 2006, when India's trade with China dropped precipitously—to a deficit of $4.12 billion, down from a surplus of $800 million the year before. And, in 2007, the deficit became even greater. Inside India, much was made of this seismic shift.
The Indian media, for one, have strongly suggested the government export a variety of products to reduce the enlarging trade deficit.
The trade imbalance came mainly from an inequality in India's trade structure. Indian exports to China, it has been noted, are mainly primary products, with minerals and agricultural products representing more than half the total. By contrast, Indian imports are largely machinery products, chemical products, metal products, fibers and textiles from China.
In other words, what Indians export to China are resource-intensive, or labor-intensive products, while what they import from China are manufactured goods with high added value. This trade structure, in turn, leads to a limited market share of Indian goods in China and a great risk of trade deficit.
Indian media argue that if the rapidly growing trade deficit cannot be solved properly, the huge trade imbalance between the two countries will become a big obstacle for China-India economic and trade cooperation.
India's conservative market access system, meanwhile, remains another obstacle. Although it has carried out economic reforms for many years, the Indian economy is still domestically oriented.
When it comes to trade protectionism, India is a forerunner around the world. Except an average duty of nearly 30 percent on manufactured goods, India keeps a series of extra charges, coupled with complicated non-tariff measures.
This includes non-standard trade dispute legislation and lack of transparency in resolving trade disputes. And although India has lowered its tariff rates in recent years, the rates remain quite high. High tariff rates have thus stopped the import of Chinese goods to some degree.
India's domestic investment atmosphere features onerous administrative interventions, excess formalities and low efficiency—factors that could hinder the further development of Chinese-Indian economic and trade relations.
Frequent trade disputes
Trade imbalances lead to trade disputes. Since the outbreak of the financial crisis, in particular, India has taken a series of measures to crack down on Chinese goods, including a ban on Chinese toys, and a number of anti-dumping lawsuits against other Chinese goods. New Delhi, meanwhile, has also imposed safeguard tariffs on Chinese goods, such as aluminum shields.
According to statistics of China's Ministry of Commerce, India launched 17 trade investigations, including anti-dumping and countervailing investigations from October 2008 to February 2009.
The investigations covered a wide range of goods, including industrial salt, iron and steel, auto parts, coal products, porcelain, textiles and rubber products, which led to a total loss of $1.5 billion for Chinese merchants. Indeed, such frequent frictions have expanded to hinder overall trade between the two countries, while creating obstacles for their negotiations on a free trade area.
Statistics from China's Ministry of Commerce show that, in the past seven years, Chinese-Indian trade volume has enjoyed an average annual increase of 45 percent. Among all of China's main trade partners, India retains the highest growth rate in trade volume with China.
In fact, China and India have started regular trade talks to resolve disputes in a timely fashion. As economic exchanges are a reliable means of establishing confidence in promoting China-India relations, both countries' top leaders have pledged to give priority to them when expressing good will.
Both China and India anticipate expanding bilateral trade, establishing a trade alliance both inside and outside the World Trade Organization and pursuing a larger part in the newly emerging international economic order.
But only if the two countries make joint efforts to support, preserve and enhance the level of current economic exchanges can a mutually beneficial agreement truly be reached.