India, China to hold talks on increasing trade

India, China to hold talks on increasing trade

New Delhi: India and China will on 26-27 September hold discussions on doubling bilateral trade to $100 billion by 2015 and ways to plug a yawning trade gap in China’s favour.

The countries will also seek ways to encourage mutual investment among businesses, apart from devising ways to handle frictions in trade so each other’s interests are protected, a government official said, requesting anonymity.

The Indian delegation, led by Planning Commission deputy chairman Montek Singh Ahluwalia, is slated to hold talks in Beijing on 26-27 September with Zhang Ping, head of China’s National Development and Reform Commission, the country’s apex planning body.

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The decision to establish the dialogue, along the lines of a similar engagement between China and the US, was taken during talks between Prime Minister Manmohan Singh and his Chinese counterpart Wen Jiabao in December.

Both sides had agreed to establish a strategic economic dialogue to enhance macro-economic policy coordination, promote exchanges, and join hands to address issues and challenges in economic development and enhance cooperation.

India and China identified trade as a means to increase convergence and narrow the trust deficit between the Asian nations during a landmark visit by then Indian Prime Minister Rajiv Gandhi to Beijing in 1988.

Ties have been riddled by mutual suspicion since 1962 when the countries fought a brief but bitter border war, and slow-moving deliberations to find a solution to the dispute over the frontier have done little to remove the distrust.

Commerce has picked up only in the past decade, especially after a visit to India by then Chinese Premier Zhu Rongji in 2002.

Bilateral trade is expected to touch $70 billion in 2011-12. It was $60 billion in 2010-11, with trade worth $20 billion in Beijing’s favour. In 2009-10, the trade balance in China’s favour was $16 billion.

“There is great scope to increase India-China trade," said Sujit Dutta, a professor of Chinese studies at Jamia Milia Islamia University. “Trade has been growing due to the opening up of the Indian economy to China."

Indian exports to China consist of raw materials such as iron ore, while Chinese imports into India consist of finished goods such as power and telecom equipment, imported by corporate groups such as the Tatas and Reliance, Dutta said.

“For these companies, it is cost-cutting as Chinese equipment is available at cheaper rates," said Dutta. “The import of such Chinese goods results in job creation in China."

But in areas where India has an edge—including information technology and pharmaceuticals—there are many barriers inhibiting Indian imports into China, Dutta said.

“What the Indian delegation needs to impress on the Chinese is that China needs to bring in investment into India, into the manufacturing sector, for example, which will create jobs in India," he said.

China was “not listening" to India’s repeated requests for addressing the bilateral trade imbalance, India’s commerce secretary Rahul Khullar told reporters earlier this month.

In view of this, the ministry was working on a specific strategy to discourage unrestricted Chinese imports, particularly of power and telecom equipment, Khullar had said.

The official cited earlier said a high-level meeting to discuss the subject took place on 6 August, where specific measures to correct the skewed trade balance were discussed.

Earlier this month, India allowed local companies to borrow up to $1 billion in the Chinese currency within the $30 billion ceiling on foreign borrowings for the fiscal year ending 31 March.

The move is aimed at providing some flexibility to Indian firms, especially those that import power equipment from China, as rising local borrowing costs have been forcing them to delay investment decisions.

This was the result of “a rethink in government following pressure from the private sector," said Biswajit Dhar, director general at Research and Information System for Developing Countries. “Given the economic recession, Indian companies may not be able to borrow from Europe and America. The Chinese in contrast gave quite a good deal to Indian companies who borrowed from them in the recent past. The Chinese are also interested in diversifying as the US market is not doing well," Dhar said. “It makes sense to lend to Indian companies but how this will play out in the long term is difficult to say."