Beyond the Great Wall

China's mercantilism must yield to markets

India was right to serve a demarche on China last week protesting the role of non-tariff barriers in the accumulation of a huge trade deficit that has ballooned from $1.08 billion in 2001-02 to $22.05 billion in 2008-09. Indian industry has long complained that a lack of transparency in Chinese procedures, regulations, systems and pricing methods was adding to the rising trade deficit. If India’s exports to the rest of the world are rising in double digits, why is India unable to export more to China? For their part, Chinese authorities have argued that their products are more competitive and India’s less so. Clearly, the truth lies somewhere in between and the sooner the two governments address the problem, the better for bilateral relations.

The Indian demarche came a day after India and China entered into a memorandum of understanding on “expansion of trade and economic cooperation” that commits the two neighbours to both expanding and balancing bilateral trade. India’s discomfort with a rising trade deficit with China was articulated last month at an India-China business meet in Chengdu, China, by the Indian ambassador S Jaishankar. As Jaishankar delicately put it, “Instead of being a source of complacency, economic cooperation has actually emerged as something of a challenge for the relationship in recent years. Superficially, the imbalance in trade by itself appears to have given rise to concern in India. But international trade not always being an exercise in balancing, this unease actually reflects the composition of Indian exports and perceptions regarding market access.”

These perceptions regarding market access underlie the demarche. Jaishankar has also emphasised the need for Indian companies to do more to become competitive and grow in China. India needs to focus both on a quantitative and a qualitative improvement of the trade balance, while Chinese authorities must do their bit to address Indian concerns. The broad sweep of the India-China MoU should be welcomed. Apart from assurances about ending non-tariff barriers, especially in food and pharmaceuticals trade, China has also agreed to increased cooperation in information technology and IT-enabled services. Hopefully, China will also be more open to screening of Indian films. China has been a beneficiary of globalisation. It is time it gave up its mercantilist policies and became a bit more open to a developing-country neighbour like India. This would enable both countries to reach the $60 billion target they have set for their bilateral trade and widen economic relations beyond merchandise trade to services and to participation in government procurement.