The Hindu Business Line : Cabinet okays signing of investment pact with China

As the Chinese President, Mr Hu Jintao, is making his maiden visit to India early next week, the Union Cabinet on Thursday gave its nod for signing a Bilateral Investment Promotion and Protection Agreement (BIPPA) with China for 10 years.

As Mr Hu is accompanied by a 150-strong business delegation, BIPPA's clearance by the Cabinet would send positive signals, particularly, at a time when there were some concerns about New Delhi's alleged bid to block Chinese investments in what it called security-risk areas. In fact, the Minister for External Affairs Minister, Mr Pranab Mukherjee, said at a meeting that India does not target any particular country for blocking investments on security grounds.

Bilateral Trade

Officials in the Commerce Ministry told Business Line that bilateral trade was running in India's favour since 2003 with New Delhi enjoying a trade surplus with China of $907.81 million in 2003, $1,746.94 million in 2004 and $ 843.17 million in 2005. But, in the first eight months of 2006, India saw a trade deficit of $1,793.48 million.

Bilateral trade volume has gone up from $2,914 million in 2000 to $18,717 million in 2005, while such trade turnover during January-August 2006 touched $15,959.62 million.

The composition of India's exports to China showed a very high concentration of basic raw materials such as ores, slag, ash, iron and steel and plastic, with minor contribution from organic chemicals, inorganic chemicals, cotton yarn, fabric, salt, sulphur, earth stone, precious stones and metals, food waste, animal feed, hides and skins fish and seafood.

On the other hand, India's imports from China include machinery, electrical machinery, organic chemicals, which together account for 50 per cent of India's total imports from China with the rest consisting of silk, silk yarn, fabric, impregnated textile fabrics, iron/steel products, glass and glassware, tanning dye, paint, putty and manmade filament, fabric and plastic.

As India's exports of iron ore, the predominant export item in the basket declined this year, it had an effect on overall trade volume, pushing the country into trade deficit for the first time in three years.

Though the emergence of deficit with China now keeps the mandarins in the Ministry worried, they might use the visit of Mr Hu to seek greater market access for soft products such as fruits and vegetables, which currently face some non-tariff barriers in the form of stricter sanitary standards.

As regards investment, the Chinese have been upset with the recent decision by New Delhi to prevent higher volume of investment by companies such as Kaidi Electric Power Company, Huawei Technologies (telecom equipment major) and China Harbour Engineering Company on grounds of security.

This attitude is being seen in the light of the meagre investment flow from China so far, which between August 1991 and October 2005 is estimated by Indian authorities at $2.03 million, while Chinese figures show this at $47.35 million. Against this, Indian investments by domestic companies in China were far higher, valued at around $ 130 million.

Though Chinese officials were on record that the low investment flow into India stemmed from Chinese perception of inadequate business environment hobbled by inflexible labour laws in India, the recent decision by India to subject Chinese investments into areas considered security risk had them only worried further.

Trade policy analysts said that now that India wants to engage with China, a major member of the WTO too, it should go all the way to ensure that investments from China into India should be allowed as long as this will help India in imbibing Chinese art of mass manufacturing and customisation and simultaneously by being competitive in price and quality.

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