China India Trade Deficit rises to Sinister Heights of $27 Billion Officially and Much more Unofficially

China India Trade has been rising at very high growth rates over the last few years driven by the booming GDP growth in the fastest growing economies of the world. However India like other countries faces the mounting problem of a huge trade deficit with China which is growing all the time. Like Brazil ,USA this has become a major problem . Beside the official reported figures , there is a large clandestine trade takes place outside the normal channels. Massive imports from China go unreported to avoid excise duties and custom taxes. Both countries have corrupt officials and businessmen which facilitate trade without paying of taxes and duties. Unofficial Trade Deficit with China may be double the $27 billion reported in 2011.

Rising China and India Tensions

India and China are the Two Rising Global Behemoths with Relations between these most populated countries always being tense.Both countries share a similar history of colonization by Western Powers in the 17-20th Centuries and Independence being attained in the middle of the 20th Century.China and India also shared the same economic trajectory until 1979 when Market Reforms put China on track to become the 2nd largest economy in 2010.India also embarked on Reforms in 1991 and has started showing fast economic growth in recent times.The relations between these 2 countries are tense since the Border War fought between them in 1962.They have one of the longest borders in the world which is disputed.China recently upped the ante on claiming territorial rights over India’s North Eastern State of Arunachal Pradesh.

China’s Recent Provocations

Chinese provocations against India have been rising in recent times as the Chinese leadership wants to keep India off tilt.Here is a list of recent provocations against India

1) Stapling of  separate visas for India’s citizens from the state of  Jammu and Kashmir which is disputed with Pakistan

2) Trying to stall an ADB Loan to India’s state of Arunachal Pradesh

3) Support in Building Nuclear Reactors in Pakistan which regards India as an existential threat.It has also supplying Pakistan with missiles and  fighter aircraft.

4) Denial of visa to India’s top ranking military official on flimsy grounds leading to suspension of military contacts between the 2 countries

 5) Stationing of  11,000 troops in Gilghit Pakistan Occupied Kashmir (POK) which India regards as a part of its own territory and over which India and Pakistan have fought 3 wars

Many of India’s top companies like BHEL,L&T are being hollowed out by Chinese competition of low cost goods and super cheap financing. Power, Telecom equipment form a major chunk of imports while India is primarily exports resource like iron ore. So what is happening is that India is become a resource vassal economy of China (though it may sound simplistic) . China puts up big trade barriers for India’s value added exports like pharma and Information Technology while putting no hurdles for import of resources.With the rapid growth rate of imports , India is in danger of becoming dependent on China for a number of goods as its industries shut down in the face of competion.

China captures almost Half of the Power Equipment Market in India raising Concerns

India’s private players like Tata Power,Reliance Power and others are in the process  of setting up massive mega coal plants using supercritical boiler technology.While L&T and BHEL,the two Largest Capital Equipment Companies have won a lot of orders,the sheer scale of Demand requires Huge Imports as well.Low cost Chinese equipment providers like Shanghai Electric and Dongfang Electric have won almost half of the power equipment orders raising concerns amongst the Indian administrators.

Solar Panels are a good example of one such good where Indian industries can’t compete in the face of Chinese subsidies to its own companies.

The Indian government is not going to impose any new duties on imports of Chinese solar cells. This is despite the petition by the Indian solar panel manufacturers to give a level playing field. Note Chinese solar panels have virtually destroyed the solar manufacturing industry in the West with big companies falling under the relentless price pressure where solar panel prices have gone down by 60% in one year. Only the Koreans seem to be standing up to the Chinese government backed top tier solar companies from China. The rest have mostly folded up and are facing survival questions including those from Taiwan. Indian solar companies were never that big and cost competitive anyway given the headstart and support of the Chinese backed companies. The price crash in 2011 has seen most of them close their factories as they can’t even cover their costs at the Gross Margin Level.

India China relations have never been that great on a geopolitical level with the 1962 War and unresolved border dispute in the north. Recently the imports of Chinese telecom equipment from Huawei and ZTE raised a massive ruckus with Indian telecom companies supporting the Chinese because of low cost equipment while security concerns were raised.

China has recently been in the news over Internet Espionage on defense and sensitive installations in India and USA. This has led to the high profile exit of Google from China.Recently a Canadian research organization revealed/alleged  how Chinese govt backed hackers had broken into Indian embassy and government computers.This has made the Indian government wary of allowing Chinese equipment suppliers into India’s communication sector.Though both ZTE and Huawei’s equipment is much cheaper compared to Nokia  Siemens,Alcatel and Ericsson , these companies face an uphill battler in India right now.

Rising Trade Deficit Concerns

India’s trade deficit with China is estimated to reach $60 billion by 2014-15, up nearly three-fold from $23 billion in 2010-11. Bilateral trade with China was $63 billion in 2010-11, with China accounting for $43 billion worth of imports.

“Participants at the inter-ministerial workshop were especially worried about forecasts that China could account for 75% of India’s manufacturing in the next five years, up from the present 26%,” the official said. The workshop was attended by officials of key ministries and departments, including finance, home and the department of industrial policy and promotion.

“Excessive dependence can be disruptive in case of strained relations,” said Narendra Sisodia, a defence analyst and former additional secretary of NSC Secretariat. In general terms, if a country that is supplying basic components to another stops supplies, it would hurt the importing country because its manufacturing will be adversely affected, he said. “Much also depends on whether a country has alternative sources of supply and how quickly those could be mobilised.”