October figures have underscored the recent troubles in a once-blossoming trade relationship

A steep decline in Indian exports to China in October has widened the trade imbalance between both countries to $23 billion according to trade figures released on Saturday, with bilateral trade in 2012 set to fall below last year’s record figure.

October’s trade figures have underscored the recent troubles in the trade relationship, which has, in recent years, emerged as the biggest positive in bilateral ties.

While officials say Indian demand for sourcing in China is still strong, a sharp fall in iron ore exports and continuing uncertainties in the power and telecom sectors — where the imports of Chinese equipment have emerged as a key driver of trade — have left an uncertain future for the trade relationship, and cast doubt on whether a $100 billion target set for 2015 will be met.

Iron ore

Officials attributed the decline to a close to 50 per cent fall in Chinese purchases of iron ore, the biggest Indian export to China. Saturday’s trade figures, officials said, underscored the need for both countries to find a replacement for ores as a new driver of trade. One reason for the fall in exports is an oversupply of stock in China and a slowdown in the steel sector here. But with mining bans in India and increasing domestic demand, exports are unlikely to recover fully.

India’s exports to China after ten months of this year amounted to $16.34 billion, a 13.3 per cent decline from the same period last year, according to figures released on Saturday by the Chinese General Administration of Customs (GAC). Overall bilateral trade reached $55.68 billion as of October, down 8.1 per cent from last year.

While trade figures usually record an increase in the last two months of the year, overall trade is set to fall below the record $73.9 billion figure of last year, when China became India’s biggest trading partner.

Chinese exports to India have also fallen this year, down 5.7 per cent after 10 months this year. Indian purchases of power and telecom equipment have been the biggest component of Chinese exports, but troubles in both sectors have seen a slump in trade. Officials said the falling rupee, which discouraged Indian companies from entering into debt arrangements to fund purchases, was another reason behind the slump.

According to country-wise trade data released by the GAC, the 8.1 per cent decline in trade with India was the second-lowest figure recorded between China and all of its major trading partners. Only trade with Italy fared worse, falling 19.9 per cent.

China’s export data to other countries indicated a strong recovery in the domestic export sector, with overall exports rising 11.6 per cent in October, up from 9.9 per cent in the previous month.

Trade surplus

China’s trade surplus in October grew to the highest in almost four years, in another indication — following this week’s positive factory data — of signs of the start of a turnaround in the Chinese economy, officials said.

“Signs of stabilisation in the economy were getting more obvious in October,” Zhang Ping, the head of the National Development and Reform Commission (NDRC), the top planning body, told reporters in a briefing.

“We are fully confident that we can achieve the economic growth target for this year,” he said.

Commerce Minister Chen Deming struck a more cautious note, telling reporters China was unlikely to meet its annual target of 10 per cent growth in foreign trade. Foreign trade volume had grown 6.3 per cent in the first 10 months. “The trade situation will be relatively grim in the next few months,” Mr. Chen said, “and there will be many difficulties next year”.

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