India's trade deficit with China widened to $14 billion after seven months this year, as China's overall trade surplus soared to the highest in two-and-a-half years amid an unexpected surge in exports to the European Union.

While bilateral trade reached $41.5 billion in July, rising 17 per cent and on track to surpass last year's record $61.7 billion figure, Indian officials will be concerned by this week's import data, released by China's General Administration of Customs, showing only 5.8 per cent year-on-year growth.

The trade deficit with China is now likely to exceed last year's record $20 billion figure.

Officials said the import figures were likely a result of falling iron ore exports as a result of the ban in Karnataka, coupled with little progress in addressing long-persisting difficulties in diversifying exports in information technology, pharmaceuticals and engineering sectors, which Indian officials have been pushing for in recent months. China's imports of iron ore, India's biggest export to the country, rose 6.8 per cent overall in July, but largely on the back of orders from Brazil and Australia.

China's overall trade surplus in July reached $31.5 billion, the highest in two-and-a-half years, as a result of a rise in imports from the European Union. The numbers, Chinese analysts said, would likely calm fears here that the debt crisis in the West would greatly impact Chinese growth. Exports to the EU grew 22.3 per cent last month, up from 11.4 per cent in June.

“China's export performance always lags behind a slowdown and weakening demand overseas,” Zhang Yansheng, Director of the Research Institute of Foreign Economic Relations at the National Development and Reform Commission, told the official China Daily newspaper.