Calls to reshape 'increasingly unsustainable' trade model amid growing imbalance

China has called for a move to boost mutual investments with India as a measure to strengthen trade ties and reshape what officials have acknowledged is an increasingly unbalanced and strained business relationship, as trade talks between both countries begin in New Delhi on Monday.

The Chinese Commerce Ministry told The Hindu in a written interview ahead of the visit of Commerce Minister Chen Deming, who will lead the Chinese delegation in Monday’s talks, that the relatively strong foreign exchange reserves of both countries and an increasing desire of businesses to go overseas should drive the future of trade ties.

“There is great space for China and India to cooperate in mutual investment,” the Commerce Ministry said.

Both countries will hold the ninth round of the Joint Economic Group (JEG) dialogue in New Delhi on Monday. India’s trade deficit and Chinese concerns about the investment environment in India, particularly in the power and telecom sectors, is expected to be at the focus of the talks.

In an apparent attempt to ease concerns about strains in the trade relationship, Chinese officials have suggested a new approach. Boosting mutual investments would be one way of shifting the relationship from the current model. Trade over the past decade, which has grown from a few billion dollars to US$ 74 billion last year when China became India's biggest trade partner, has largely been driven by Chinese appetite for Indian ores and Indian need for Chinese machinery.

That model has appeared increasingly unsustainable in increasing months. Trade in iron ore has fallen by close to 50 per cent in the first six months of this year, on account of the imposition of a 30 per cent duty to slow exports and an overall slowing down of the Chinese economy. Iron ore exports fell by 40 per cent in the financial year 2011-12 to 60 million tonnes.

Indian imports of Chinese machinery, particularly in the power and telecom sectors, are also likely to be affected in the coming months with proposed moves to impose a 21 per cent duty on power equipment and to ban imports of certain kinds of telecom hardware because of security concerns. The trade deficit widened to a record $ 39.6 billion in the financial year 2011-12, with overall trade rising to $ 75.4 billion, according to Indian government figures.

The Chinese Commerce Ministry said 150 entrepreneurs would attend this week’s dialogue. Chinese officials say companies are showing an increasing interest in investing in India — and are being encouraged to do so — despite concerns about the investment environment, on account of continuing uncertainties in the West.

Among the issues that China will raise in Monday’s talks is the investment and operation environment for enterprises in India and proposed moves to impose duties on electrical equipment. Indian officials will reiterate their concerns about the growing trade deficit, and will call for greater market access for Indian companies in the IT and pharmaceuticals sectors.

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