8 per cent slump in Indian exports to China widens trade gap

Indian exports to China fell by 8 per cent in July — the biggest decline in Chinese imports from any major country — further widening an already record trade deficit that has increasingly strained trade ties.

Indian exports to China fell to $12.9 billion after seven months of this year, according to figures released here on Friday. Imports fell 3.3 per cent to $26.6 billion, taking India’s deficit to $13.7 billion.

Officials said the fall was largely on account of the steep decline in the export of iron ore following recent bans. Iron ore, which is by far India’s biggest export product to China, fell by almost 50 per cent in the first six months of this year to $3.3 billion, down from $6 billion in the same period last year.

Gloomy picture

Friday’s trade figures, released by the Chinese General Administration of Customs (GAC), painted a gloomy picture overall for the Chinese economy. Export growth fell to a six-month low in a reflection, Chinese officials said, of persisting global sluggishness, falling European demand and increasing factory costs.

Exports rose one per cent in July, compared with 11.3 per cent growth the previous month. Imports increased at a slower 4.7 per cent, down from 6.3 per cent in June. “The July data were poor indeed,” Zheng Yuesheng, who heads the GAC’s statistics department, told reporters. “It will be an arduous task to fulfil our foreign trade target, as external demand is weak. The weaker than expected trade data has increased pressure on the Chinese government to take robust measures to boost the economy. With the export sector losing speed faster than expected, the government’s current investment stimulus plan looks woefully inadequate,” said Alistair Thornton of IHS Global Insight.

“This isn't a 2008 collapse, but it's not worth testing how close the economy can get. The government is likely to respond by ramping-up its stimulus efforts, with both monetary and fiscal guns firing.”

The lowest inflation figures in two and a half years reported recently have given the government more room to put in place strong stimulus measures. In recent weeks, the central bank has cut lending and deposit rates — for the second time this year — while the government has said it would accelerate investment in infrastructure projects.

Bilateral trade between India and China reached a record $73.9 billion last year, with the imbalance widening to $27 billion. Chinese demand for iron ore has played a major role in driving the trade relationship, which has rapidly grown this past decade up from a few billion dollars. Indian imports of Chinese machinery and of power and telecom equipment have been another major driver of trade.

Competitive products

With India looking to improve the nature of trade and restrict exports of ores and raw materials, officials said the need to identify competitive products as new drivers of the trade relationship had become paramount. So far, India has made little headway in pushing exports of pharmaceuticals and in information technology, where officials have so far focused their efforts to improve market access.

While India has complained of complicated registration procedures for drugs and of Chinese reluctance to accept Indian software products, Chinese officials say Indian companies have done far less than their international competitors to establish a significant presence in either sector. They say Indian pharmaceutical companies have not been active enough to push their products and engage with hospitals, while Western technology companies had established a presence in China decades earlier.

Beyond the reasons for the imbalance, the growing deficit has increasingly strained ties - India has, in recent years, filed more anti-dumping investigations against China than any other country. The trend has concerned officials on both sides of the border, particularly because trade has emerged as the biggest bright spot in a relationship that is still grappling with many strategic challenges.