For China, a win-win outcome of Premier Wen’s India visit

Only area where ties are doing well is commerce


Brahma Chellaney

The Economic Times, December 16, 2010


The first visit of a major Chinese leader in more than four years has yielded a bland joint communiqué skirting core Indian concerns but incorporating a commitment to rapidly expand a lopsided trade relationship that has already turned India into the raw-material appendage of a neo-colonial Chinese economy. Premier Wen Jiabao leaves India for Pakistan content with a visit whose outcome helps reinforce the aim of China’s current strategy: Gain bigger commercial benefits in India while being free to inflict greater strategic wounds on that country.


Wen must also be pleased that the Indian side leaned over backward to cloak or underplay the contentious issues and put a positive gloss on the current relationship. Wen didn’t have to take any question from the media because the Indians did all the talking, including on China’s behalf, with a heavy emphasis on spin. Asked pointedly if she agreed with the Chinese ambassador’s view that the Sino-Indian relationship is very fragile and difficult to repair, the Indian foreign secretary responded not by seeking greater stability in increasingly fraught ties, but by debunking the envoy’s assessment with expressions like “robustness.”


But no amount of casuistry can hide the new strains that have appeared in the relationship from the growing Chinese assertiveness on multiple fronts. The 29-year-old bilateral talks to settle the border, for example, are now deadlocked and, in fact, have gone off on a tangent, turning into a strategic dialogue on bilateral, regional and international issues.


The only area where bilateral ties are doing well is commerce, as underlined by the 20-fold increase in trade in the past decade to $60 billion. However, the trade relationship is uncomplimentary for India, which is largely exporting primary commodities and importing finished products. China’s proven iron-ore deposits, according to various international estimates, are more than two-and-half times that of India. Yet China is conserving its own reserves and importing iron ore in a major way from India, to which, in return, it exports value-added steel products. Such a pattern of trade is just not sustainable, especially as India ramps up its own steel-producing capacity.


India also faces a ballooning trade deficit with China, with Chinese exports to India now almost double of India’s exports to China. Although India’s trade deficit with China totalled  $16 billion in the first 10 months of this year, the joint communiqué offers only the following for a more balanced trade: “support for Indian participation in China’s national and regional trade fairs, advancing of trade facilitation, enhancing exchange and cooperation of pharmaceutical supervision, stronger relationships between Chinese enterprises and Indian IT industry, and speedier completion of phyto-sanitary negotiations on agro products.”


A third area of concern in commerce is the dumping of Chinese goods in India that is systematically killing local manufacturing. Such dumping indeed continues blithely despite India’s lodging of a record number of anti-dumping cases against China in the World Trade Organization.


Yet Wen came with a huge trade delegation of more than 300 businessmen to strengthen the asymmetrical trade relationship.  Cash-rich China’s foreign direct investment (FDI) in India has been minuscule — just $52 million in the past decade — even as it seeks greater access to the Indian market for its goods and services.


What the Sino-Indian commerce demonstrates is that trade in today’s market-driven world is not constrained by political disputes or strained ties. More importantly, it shows that booming bilateral trade does not serve as a guarantee of moderation and restraint between states.


The 20-fold increase in bilateral trade in the past decade, far from softening China’s approach toward India, has only resulted in a perceptible hardening in its attitude and policy. Today, with the Western and Japanese markets roiled by national economic troubles, China has a greater need to enlarge its share of the market in India, the second fastest-growing economy in the world after its own. That is why Wen’s visit agenda was so heavily weighted in favour of expanded trade.


Unwilling to make any political concessions, China hopes to focus relations increasingly on commerce — a win-win proposition for itself. It is even pushing for a free-trade agreement with India. But if it continues to use India primarily as a raw-material source, to undercut Indian manufacturing through dumping of goods, and to maintain a large trade surplus, India will have little incentive to negotiate a free-trade agreement.


India has to take a larger strategic view of the trade relationship with China. For Beijing, the business with New Delhi is now business while it continues its strategy of regional containment of India.


India and China, economically, are a study in contrast, with India’s private sector-led growth standing out against the central role and power of state-owned enterprises in China’s success story. The strategic intentions of state-owned Chinese enterprises often dovetail with Beijing’s foreign-policy objectives. To build a more equal and balanced trade relationship, India must demand the dismantling of China’s non-trade barriers and other mechanisms that are keeping out higher-value Indian exports, such as information technology and pharmaceutical products.


For a number of years, India has felt obliged to periodically renew its commitment to a “one China” policy, even as China not only declines to make a one-India pledge, but also mocks India’s territorial integrity overtly. But in a sign of greater realism in India’s China policy, the latest joint communiqué contains no Indian commitment to a “one China” policy.

(The author is professor of Strategic Studies at the Centre for Policy Research in New Delhi.)

(c) The Economic Times, 2010.

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