The Hindu Business Line : India-China trade: Win-win situation or zero sum game?

INDIA-China trade: $20 billion by 2008? Not ambitious. But there are problems. A story is told about the efforts of well-intentioned private citizens to foster fraternal relations between India and Pakistan — in the decades before September 11 fortuitously brought this within the realm of practical politics. Participants from the two sides decided to plant a tree, to symbolise their growing friendship. But there were differences of opinion on what the tree ought to be named.

The Indians wanted to call it maitri, the Pakistanis dosti. So in the end, two different trees were planted. One called dosti and the other maitri.

A similar situation prevails regarding the recent efforts of the Indian and Chinese governments to bring about mutually rewarding economic cooperation. Both sides agree on a target of $20 billion in bilateral trade by 2008, but there is disagreement on what the present position is, as the accompanying table illustrates.

On one thing the two sides are agreed. Total trade in 2003 (or 2003-04) touched or exceeded $ 7 billion. Given historical rates of growth, this certainly makes the 2008 target achievable.

There is, however, a disturbing difference in perceptions particularly about the trade balance in 2003 or 2003-04. At a superficial level, the latest figures may look very similar; they are both around $ 1 billion. But both sides claim that this is the `loss' incurred by them, quite unlike a zero sum game in which one party by definition gains what the other loses.

All in all, the Chinese figures seem more trustworthy. The Indian statistics have all the signs of having been hastily cooked up for dishing out on the occasion. Successive Economic Surveys of India's Ministry of Finance do not once mention China in their table on `Direction of Trade'.

And for all our progress on the IT front, we still simply do not seem to have the wherewithal to monitor the commodity composition of trade coming from or going to this or that country. This is why the Economic Surveys carry separate tables on Direction of Trade, and on the Commodity Composition of Exports and Imports. There is simply no way that users can pool these data, even when they are presented in electronic form.

The Chinese Customs data, on the other hand, provide details of the import and export baskets of each of the countries they trade with, and have been doing so for years. This difference in application is perhaps the defining characteristic of the pattern of trade between the two countries.

Never mind who `wins' in the end, in terms of the trade deficit or surplus, it is we that will end up losing, as illustrated by the following paragraphs. Sad to say, trade between the two countries, too, seems fated to be a zero sum game - in which one side can only win if the other loses; rather than the win-win situation that is characteristic of exchange between two dynamic and self-assured partners.

According to Chinese Customs Department data, the total value of two-way trade between India and China in the calendar year 2003 was $ 7.6 billion. Chinese exports to India that year aggregated $ 3.3 billion (up 25 per cent over 2002), while Indian exports to China totalled $ 4.3 billion (87 per cent more than in 2002).

While the total trade surplus of India with China in 2003 was only about $ 900 million, trade between the two countries in primary commodities alone yielded a surplus of $ 1.3 billion for India; i.e., about 45 per cent more than the entire surplus. In other words, in manufactured commodities, India ran a deficit of around $ 400 million in its trade with China, which someone once termed the `factory of the world'.

While some see India as the `intellect'ual capital of the world, there is scarcely any sign of this in the trade between the two countries. In the case of medicinal and pharmaceutical products, India imported goods worth a quarter of a billion dollars, while exporting less than a third of that amount. That India exported no computers worth the name to China is not surprising; after all, the latter is well on the way to becoming the computer factory of the world.

In fact, India imported about $ 120 million worth of office machines and automatic data processing machines, while offering merely 1/60th that amount in exchange. Even more sad is the case of telecommunications and sound-recording/reproducing apparatus and equipment, in which our imports soared to more than $ 0.4 billion, while all that the country was able to offer in return was a measly $ 2 million `in kind'.

The same story is true of professional, scientific and control instruments and apparatus (imports $34 million, exports $2 million) and photographic apparatus/equipment and optical goods (imports $56 million, exports $4 million).

Chapter 2 of the Joint Study Group report notes these features with distress. `India-China trade', it says, `is still concentrated in a few products especially the low value added raw materials and minerals dominating India's exports.' The challenge, the report adds, is to make trade more broad-based and diversified favouring manufactured exports from India rather than raw materials.

And yet the `List of commodities with unexploited potential for exports from India to China' annexed to this chapter of the Report, is almost entirely confined to precisely the sort of commodities that we say we want to move away from.

The only attempt the Report makes to break away from the shackles of the past is a plea to promote trade in services (particularly IT) and cross-border investments. There are no signs of these possibilities having been seriously confronted.

Nowhere in the report is there a matter of fact assessment of why this `natural' development has not come about naturally; of its own accord. There are also some deeper issues involved. India simply cannot match Chinese costs, or offer them competitive prices; in part because they have pegged their currency to the plummeting dollar, but for a host of other reasons as well: which can be summed up in the term `steadfast commitment'.

India may well achieve what it says it desires on the trade front. But, looking back, in 2008, we may still find ourselves feeling frustrated that things have not turned out quite the way we expected them to.

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