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India-China relations
What China is gaining in trade & India isn’t |
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India-China relations
THE firm handshake between Prime Minister Manmohan Singh and Chinese Premier Li Keiqang inside the Great Hall of the People in Beijing on October 23 signalled the intent of the leadership of India and China to take incremental steps towards realising the full potential of the Strategic and Cooperative Partnership between the two Asian neighbours. “When India and China shake hands, the world takes notice,” is how Manmohan Singh characterised the development while Premier Li underscored the uniqueness of the meeting as for the first time in 60 years, an Indian Prime Minister and Chinese Premier made official visits to each other's country during a calendar year. Premier Li re-emphasised that India was the first foreign country he visited after assuming office earlier this year, the importance the new leadership in Beijing continues to attach to its relationship with New Delhi. He asserted that the people and the two governments had the ability to manage “our differences along the border” so that it would not affect the overall interests of the bilateral relations. As the mandarins in the South Block maintain, Sino-Indian relations are complex. Both countries are ancient civilisations, sharing some 4000-km boundary and aware of each other’s culture. Yet, the unsettled boundary issue remains a sticking point. As Foreign Secretary Sujatha Singh put it: “We have to give time for both the Special Representatives to work on its resolution”. The takeaways The summit was the second bilateral engagement Manmohan Singh had with Beijing in five years and second during his decade-old tenure. At the end of it, the Prime Minister expressed satisfaction over the ground covered. There were three distinct facets — the prime political and security interaction, equally distinct dialogue dealing with trade and economy, and less discussed people-to-people and cultural exchanges. The Border Defence Cooperation Agreement (BDCA) and Trans-Border River MoU were the two significant top-order takeaways for each side at the end of the summit, which also saw the signing of seven other pacts, including three sister-city relationships between Delhi-Beijing, Kolkata-Kunming and Bangalore-Chengdu. The border cooperation agreement remained the most discussed pact that essentially seeks to put in place additional confidence-building measures to ensure that peace and tranquillity is maintained on the border. Will it prevent another Depsang-like incident? The opinion appears divided with a section suggesting that additional protocols like hotline and stepped up interaction between the two armies could make a difference towards resolution. Those in the Indian Army are of the view that the document affords an opportunity to build trust as also understand the People's Liberation Army with increased interaction, including small tactical exercises along the Line of Actual Control. The envelope on the border agreement was first pushed by Beijing. According to Prof Srikanth Kondapalli, chairman of the Centre for Eastern Studies at Jawaharlal Nehru University, the Chinese probably want to maintain peace on the western borders in the wake of its problems on the East with Japan, Vietnam and the Philippines. “Portions of the previous agreements of 1993, 1996 and 2005 have almost been lifted and put in the BDCA, but I feel the establishment of a hotline and plan to have one of the two brigade levels in Arunachal Pradesh may not materialise,” he says. The concerns At present, Brigadier-level officers meet at three designated spots — Spanggur gap in eastern Ladakh, NathuLa in Sikkim and Bumla near Tawang in Arunachal Pradesh, and the plan envisages adding two points — Kibithoo in eastern-most part of Arunachal and either ShipkiLa in Himachal Pradesh or Lipu Lekh pass in Uttarakhand. Similar concerns were expressed by P Stobdan, who in a paper published by the Institute for Defence Studies and Analyses (a government think-tank), states: “Expectations from the defence pact differ: Premier Li wants BDCA to ‘ensure peace and tranquillity’ along borders without affecting bilateral relations; Prime Minister Singh calls for more ‘predictability’ on the borders as a precondition for growth in the India-China relationship. The risk of BDCA’s failure may stem mainly from India’s (belated) zest to boost border infrastructure to match China’s.” On another count, New Delhi did not pull back its punches, deciding to put on hold a decision on a more liberalised visa regime. “We will make them (Chinese) sweat” is how a top official in South Block commented, suggesting the move was intended to convey New Delhi’s unease over Beijing issuing stapled visas to two archers from Arunachal Pradesh. While India did raise the issue with China during the official talks, it does not appear the matter would be sorted out anytime soon. However, the Prime Minister’s firmness and Indian diplomacy worked its way to have a memorandum of understanding on cooperation on trans-border rivers that primarily deals with data sharing by Beijing on the Brahmaputra for better flood control. “There is some victory for India on this since the text states the two sides recognised trans-border river and related natural resources issues and linking them to strategic cooperative partnership... this is an incremental step considering that India has concern over the construction of a dam across the river in China. Earlier, India lodged a protest on the construction of a dam across the Yaluzangbu by the Chinese and its impact on the water flowing to the lower riparian country. The Chinese maintain that despite the construction and plans for other dams, the country will be utilising an insignificant portion of its share. Diplomats in the Ministry of External Affairs also point out to the rare gesture by China as the Prime Minister addressed the Central Party School of the Communist Party of China, a place where the future leadership is being groomed. During his address, the Prime Minister highlighted eight specific areas where both countries have opportunities to cooperate — infrastructure, urban management and manufacturing sector, energy, and food security, free flow of finance, information technology and counter-terrorism. He also outlined seven principles of engagement that encompass peace and tranquillity on the border, increased consultation and cooperation on complex issues, high-level strategic communication, convergence on a range of global issues, harnessing full potential in economic area and increased people-to-people contact. Cultures meet On the cultural front, the Programme of Cultural Exchange for 2013-15 in areas of art and culture, cultural heritage, youth affairs, education and sports, media, publications and mass communication is already in place. Both sides decided to mark 2014 as the Year of Friendly Exchanges and discuss with Myanmar ways to commemorate the 60th anniversary of Panchsheel. Indian foreign policy planners are of the view that New Delhi should not get drawn into the vortex of a western construct that it should be a counter to Beijing in Asia, just as Chinese appear wary of the policy of encirclement. A paper prior to the visit by researcher Tanvi Madan in the US think-tank Brookings Institute observed: “The governments of both countries have reasons for wanting stable ties: the desire for a peaceful periphery in order to focus on domestic socio-economic objectives; the need for stability in South Asia, especially with the impending American drawdown of forces from Afghanistan; existing and potential economic ties; and the prospect for cooperation in the multilateral realm. For Delhi, in addition, a stable relationship with China opens up the possibility that Beijing might use its leverage with Islamabad to shape Pakistan’s behavior in a way that might benefit India. For Beijing, there’s desire to limit India’s burgeoning relationships with the US and Japan, as well as with other countries in what Beijing considers its backyard. Moreover, as China is preoccupied with eastern maritime disputes and the North Korean situation, stable relations on its southern and southwestern flank would also help the Chinese leadership.”
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What China is gaining in trade & India isn’t
AS you stepped out for Diwali shopping in the past few years, one may have noticed the spurt in proliferation of Chinese products in the market. From lights and idols to toys and electronics, Chinese goods have swamped the Indian market. What you see in the local market is symptomatic of the macro problem of the huge trade deficit that India faces with China. The trade deficit with China stands at $40 billion. Trade between both countries was $68 billion in calendar year 2012 — less than the bilateral trade in calendar year 2011 ($73 billion) — due to the slight slowing of economic growth in both countries. There has been a fall in bilateral trade of 10.28 per cent during 2012-13, but still the trade deficit for India (for 2012-13) crossed $40 billion, 3.49 per cent more than $39.44 billion deficit in 2011-12. China has emerged as India’s largest trading partner. India is ranked 16th among the countries exporting to China while India was the seventh largest export destination for China in 2011. Both countries have set a trade turnover target of $100 billion by 2015. Prime Minister Manmohan Singh, during his visit to China, voiced concern over trade imbalance. In a statement after meeting Premier Li Keqiang, Singh said Li was receptive to concerns about the unsustainable trade imbalance between the two countries and it had been agreed to explore avenues to bridge this gap. Among the other decisions was to take forward Li’s suggestion during his visit to India in May for a Chinese industrial park to act as a magnet for Chinese investment in India. India and China are also exploring the feasibility of the BCIM (Bangladesh, China, India and Myanmar) Economic Corridor connecting the two countries. The India-China CEO Forum also held a meeting with the Indian side led by Reliance group chairman, Anil Ambani. Ficci in partnership with CICPMC organised the second meeting of the CEO forum, which reports to the respective governments about the opportunities and challenges encountered by the enterprises and works to enhance the communication and exchanges between the two countries. The forum, this time around, talked about Indo-Chinese cooperation in infrastructure and transport, energy, financial services and technology.
Industrial zones Singh’s visit saw agreements in some economic areas, including road transport sector and power equipment. The joint statement said the two sides agreed to look into the prospects of a bilateral regional trade arrangement (RTA). They will also review the state of the negotiation on the Regional Comprehensive Economic Partnership (RCEP). Efforts to conclude a framework agreement for the establishment of industrial zones to provide platforms of cluster-type development for enterprises would be expedited. There are several reasons for increase in trade deficit with China, an export-driven economy with 26.89 per cent of GDP contributed by exports. With a strong manufacturing sector, China is now the second-largest exporter in the world. Telecom and power have been the sectors where Chinese exports to India have grown the most. There were concerns over national security over telecom equipment supplied by companies like Huawei, leading to a huge controversy. New power plants have been importing equipment from China in a big way and the Indian Government increased import duty to protect the local capital goods industry and companies like BHEL and Larsen and Toubro. The issue of visas to Chinese personnel has also been an issue between the two sides. India’s under-investment in manufacturing has created a market for the import of Chinese products. Expansion of telecom network and power industry in India has resulted in greater Chinese imports in these sectors. About 50 per cent share of the imports from China is constituted by electrical machinery and machinery, reactors, and boilers, etc. India’s exports are characterised by primary products, raw material and intermediate products. During 2010-11, the export of non-ferrous metals and iron ore constituted 50 per cent of Indian export to China. The ban on iron ore exports has widened the trade deficit. On the other hand, to the disadvantage of India, there is limited market access of Indian products into China. With the deficit not getting bridged, the government is now wooing larger FDI from China. One of the options is establishing a Chinese industrial park, where companies and firms from China could cluster. China has very little FDI in India, accounting for a miniscule 0.13 per cent of India’s total FDI equity inflows since 2000. The dragon economy shares a significant share of India’s trade, as per an Assocham study. Another area of collaboration is railways, and officials of both countries have been in touch with each other and are considering cooperation in station development, heavy haul freight traffic and raising the speed of passenger trains on existing track.
Local industry suffers However, there are concerns in the Indian industry about trade with China. In an interaction with the Chinese media, Singh on being asked about a regional trading arrangement, said: “We have asked our commerce ministers to explore the idea of such an arrangement, for which some studies were conducted a few years ago. I am sure the ministers will continue to discuss this idea. But I must be honest that there is a great deal of concern in our industry, given the large and growing deficit in our trade with China. When conditions are more propitious and trade is more even, we will find it more feasible to discuss an RTA or an FTA between our countries.” Assocham has pointed out that small and medium enterprises are getting hit by the flood of Chinese imports. A sharp decline in units is forcing widespread job losses in the sector estimated to be over eight-10 lakh people, an Assocham survey of SME units stated. Dumping of ceramic products by China in large numbers is adversely impacting profit margins of ceramic producers and manufacturers in India, pushing smaller units on the verge of closure. Exporters say trade deficit is a serious issue and India needs to diversify its trade basket. M Rafeeque Ahmed, FIEO president, says: “India-China trade has zoomed in the last 10 years but the accentuating trade deficit is a serious cause of concern. We need to diversify our export basket to China by moving to value-added products. Auto components, pharmaceuticals, biotechnology and labour intensive could be thrust sector in the coming years. Services can be another important area. IT and ITES, tourism, architecture, environmental services can be major forex earners.” The electrical equipment industry is also reeling under the Chinese imports. India’s $25 billion electrical equipment industry is going through its worst phase in a decade due to weak demand and rising Chinese imports. In an interview, JG Kulkarni, president, Indian Electrical and Electronics Manufacturers Association, and executive vice-president, Crompton Greaves, said Chinese imports were taking on dangerous proportions affecting employment and the absence of level playing field, which is making the Indian industry non-competitive.
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