Posts tagged ‘trade deficit with China’

17/09/2014

Is China’s promised $100 billion India investment more dangerous than its border policy?

Experts believe that China deliberately uses trade as part of its geo-strategic arsenal.

The script is almost predictable. Right before meetings of Indian and Chinese heads of state, something happens on the border to remind everyone that sentiment between the two countries is not exactly neighbourly. Last year it was a standoff in Daulat Beg Oldi about infiltration by the Chinese army. This year, with everyone excited at China’s promise to pump $100 billion into India, there’s another incursion by the Chinese into Demchok in Ladhak.

Chinese President Xi Jinping arrives in India today and will visit Ahmedabad on Prime Minister Narendra Modi’s birthday. But Chinese troops have also been reported to have moved 500 meters into Indian territory.

Beijing’s approach seems to be sweet-talking – this time taking the form of foreign direct investment – coupled with regular pinpricks that remind India that they have the stronger position on the border.

But could the proposed investment be as much of a threat to India as the border dispute?

Trading places

India’s total trade with China was around $65 billion in 2013-’14. Of that, only $14 billion were Indian exports heading into China, leaving India with a trade deficit of $36 billion. If oil imports are included, Chinese imports are responsible for nearly half of India’s overall trade deficit. This is a great many Indian eggs in one Chinese basket.

For many economists, this isn’t a problem. It’s simply the way efficient markets ought to function, with India buying the goods it needs from the most competitive seller. “The more competitive the trading partner, the more India should buy from it, and the bigger should be the bilateral trade deficit,” wrote commentator Swaminathan Aiyar last year. “China is the most competitive exporter of all, so India should run its biggest trade deficit with this country.”

Yet India does feel the need to reduce the trade deficit with China. Answering a question in the Lok Sabha earlier this year, minister of state for commerce Nirmala Sitharaman admitted that the balance of trade was heavily in China’s favour and that India was taking steps to address this.

“With a view to reducing the trade deficit with China, efforts are being made to diversify the export basket,” Sitharaman said.

via Scroll.in – News. Politics. Culture..

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