Rising trade, and rising tensions, point to India’s China conundrum

File photo shows containers at the Yangshan Deep Water Port in Shanghai.   | Photo Credit: Reuters

India’s trade with China rising to record levels in 2021 and set to cross the $100-billion mark for the first time has underlined the challenge New Delhi faces as it looks to recalibrate relations amid a more than year-long border crisis while remaining locked in a deep commercial embrace.

The two seemingly contradictory trends in relations have come into sharp focus this month when, three days after the 13th round of talks between military commanders ended in a deadlock with both sides trading accusations, New Delhi hailed “a breakthrough for the Indian pharmaceutical industry in China” with Hyderabad-based Dr. Reddy’s Laboratories set for a potential windfall, becoming the first Indian pharmaceutical company permitted to launch an anti-cancer drug in the lucrative China market.

Huge potential yet to be realised

Both Foreign Secretary Harsh Shringla and Ambassador to China Vikram Misri this week highlighted the potential of trade ties. Mr. Misri highlighted pharmaceuticals as particularly having “huge potential yet to be realised”. He said, in an interview to the Global Times in Beijing, discussions “were on-going on the boundary crisis” and “we hope that both sides can resolve this [border] issue, because it is casting a shadow on bilateral relations”.

Mr. Shringla also linked the border standoff to overall relations noting in a seminar this week that “it was against the backdrop” of both sides developing “a broad-based relationship” that was “clearly predicated on ensuring that peace and tranquillity were not disturbed” that ties, including trade, took off since the normalisation of relations in 1988.

Trade ties have boomed to record levels during the past year — a period which officials in New Delhi acknowledge has marked the lowest point since 1988, in the wake of the crisis along the Line of Actual Control which erupted last summer with China’s unprecedented mobilisation of troops.

Figures released this month by China’s Customs showed the two-way trade after nine months reached $90.37 billion, up 49.3% year-on-year. India’s imports from China reached $68.4 billion, up 51.7%, a reminder of continuing dependencies on goods that India has imported in large quantities over the past two decades, such as electrical machinery and active pharmaceutical ingredients (APIs), as well as the emergence of new imports such as medical supplies, which India has bought more from China than any other country during the pandemic, from ventilators to PPEs.

China’s global exports of medicine and medical supplies were up 108% this year, and medical supplies appear to have become the latest trade dependency. India also imports up to 70% of APIs from China, more than 90% of solar components and a large share of auto components as well.

If the trading relationship has appeared to remain largely immune to the border crisis, where relations have changed dramatically are on the investment front, with curbs on Chinese companies remaining, and in the telecom sector where Chinese companies have been kept out of 5G trials. The massive inflow of Chinese funds into the tech sector has also been stopped. Chinese private equity and venture capital investments fell below $1 billion for the first time since 2017, according to industry research firm Venture Intelligence.

Market access impediments

Mr. Shringla said the size of the trade deficit, which is also set for a record this year, and “a number of market access impediments including a whole host of non-tariff barriers, for most of our agricultural products and the sectors we are competitive in, such as pharmaceuticals, IT/ITES, etc”, have remained two important concerns.

He also noted India was looking to reduce those imbalances through initiatives such as the Production Linked Incentives (PLI) scheme aimed at “enhancing the resilience of India’s manufacturing sector”.

India’s message to China has been that business cannot be usual while peace on the border remains disturbed. Business has, however, boomed, with no signs of slowing down even as the border crisis shows no signs of easing.

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Printable version | Dec 8, 2021 9:05:17 AM |

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