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BREAKINGVIEWS - Trade should leave China and India both winners
December 14, 2010 / 2:02 PM / in 7 years

BREAKINGVIEWS - Trade should leave China and India both winners

-- The author is a Reuters Breakingviews columnist. The opinions expressed are her own --

China's Premier Wen Jiabao (L) toasts with Japan's Prime Minister Naoto Kan (R, arm and glass visible) and Indian Prime Minister Manmohan Singh (C) during a gala dinner happening on the sides of the 17th ASEAN Summit in Hanoi October 29, 2010. REUTERS/Barbara Walton/Pool/Files

By Wei Gu

HONG KONG (Reuters Breakingviews) - Decades of mistrust haven’t stopped China and India’s trade from tripling in the past five years. Now China wants to restart free trade talks when Premier Wen Jiabao visits New Delhi later this week. India has long resisted such an agreement. Yet more open trade should leave both sides winners.

Since the two countries warred over a border dispute in 1962, China and India have had a fractious relationship. But on some issues they agree. India helped China stop an agreement over climate change in Copenhagen that both felt was too soft on rich countries. Chinese and Indian state-owned firms have bid together for oil and gas assets.

While both have benefited from foreign trade, closer union may sound like an unequal bargain. India’s trade deficit with China rose to $16 billion in 2007-2008 from $1 billion in 2001-2002, and freer trade might push it wider. China’s cheap currency gives it an edge, despite Indian tariffs on many goods. But in the longer term, India could be a big beneficiary too. Despite the widening deficit, India’s exports to China have been growing. Indian exports to China surged by 75 percent in the first quarter of 2010, year on year, led by textiles and precious metals. China’s cheaply produced goods pose little threat to India’s thriving services sector, while in categories like pharmaceuticals, India remains significantly ahead.

Moreover, India looks due to take over some of China’s manufacturing lead. Wages in China have been rising rapidly. India’s workforce could step into the gap: the country’s GDP per capita is a quarter of China‘s, its median age ten years younger, and its unemployment rate double that of its trade partner. Cheap Chinese power equipment and infrastructure should help India build modern factories, at relatively low cost. Undoing deep mistrust will take time. Indians may worry that China will attempt to keep both low and high end manufacturing, particularly given its reluctance to let the currency appreciate. India may not be prepared to sell more of what China really wants, like iron ore. Free trade between the emerging superpowers is a distant goal, but still one worth pushing for.

CONTEXT NEWS

-- China wants to start negotiations over a free-trade agreement during Premier Wen Jiabao’s visit to India from Dec. 15, China’s envoy to India Zhang Yan told reporters in New Delhi on Dec. 13.

-- Bilateral trade between China and India almost tripled to $51.8 billion in 2008 from $18.7 billion in 2005, according to China’s Foreign Ministry. China is India’s biggest source of imports, and third-largest export market. India is China’s ninth largest trading partner.

-- India’s trade deficit with China rose to $16 billion in 2007-2008 from $1 billion in 2001-2002, according to India’s central bank.

Editing by John Foley and David Evans

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