Sino-India: More convergence than divergence

Vinod Anand/Faisal Ahmed | Updated on December 24, 2018 Published on December 24, 2018

Joining hands Despite differences on the trade front, the two countries have much to gain from cooperation   -  /iStockphoto

The way ahead is to focus on the political economy of complementaries and synergies between India and China

The Modi-Xi informal Wuhan Summit of May 2018 has contributed to Sino-India relations both in discourse and practice. However, given the geo-economic depth in relationship that the people of the two countries are seeking, there’s more to be done.

For this, the role of scholars and think-tanks is imminent. They can actually engage in thematic deliberations and provide pragmatic roadmap to their respec tive policy makers. On the table, they can converge and have divergences too. At a recent interaction between Indian and Chinese scholars at the Pangoal Institution in Beijing, both sides expressed their appreciation for the Wuhan Summit and also seemed wary on trade issues and protectionism.

But they had their own intellectual discomfort on the issue of bilateral trade imbalance.

Sino-India geo-economics is a complex phenomenon characterised by historical contexts and political narratives, and is reshaped every day by popular media representations in both countries. But the bilateral engagement must move on to the next level and the following points need utmost attention.

Trade issues

First is the issue of trade imbalance. India’s export to China stood at approximately $13 billion in 2017 of which just three sectors — organic chemicals (29); ores, slag and ash (26); and copper and articles thereof (HS Code 74) comprised a third of it. Moreover, imports from China accounted for approximately $72 billion in which just two sectors — electrical machinery equipment and parts etc. (HS Code 85); and machinery, mechanical appliances & parts etc. (HS Code 84) constitute more than 50 per cent of the total import.

Statistics reveal that in the total bilateral trade of $85 billion, India faces a negative trade balance of approximately $60 billion, which is a cause of concern. In the Beijing deliberations however, the Chinese scholars held a view that as India is industrialising, its imports from China are likely to increase disproportionately.

On the contrary, the Indian viewpoint is that the two countries need to focus on intra-industry trade, and work toward diversifying the trade basket, so that trade in other sectors can also increase. Moreover, there are marked similarities between their manufacturing policies — “Make in India” and “Made in China 2025”.

Both countries thus need to give more policy attention on liberalising investment regime and reducing supply-side constraints.

Secondly, the non-tariff barriers (NTBs) are a cause of concern. The Indian scholars raised the issue of NTBs imposed by China on Indian goods. These NTBs pertain to stringent rules on product certification and labelling standards; delays in customs clearances; and even restrictions related to port operations for re-exporters. In fact, in June, China expressed its desire to reduce tariffs on 8,459 goods from India and few other Asian countries in sectors like chemicals, agriculture, soybean, clothing, steel, aluminum etc.

Thirdly, the participation of India and China in mega-blocs is also imperative for understanding the evolution of bilateral relations. Both countries are looking forward to an early conclusion of the Regional Comprehensive Economic Partnership (RCEP). Both sides view RCEP as a rule-based agreement capable of deterring protectionist tendencies and trade war escalation.

With a successful conclusion of RCEP negotiations, trade war can take a back seat. This is because most of the production lines being relocated now owing to the fear of trade war are going to those countries which will ultimately come under the ambit of RCEP. So, the long-term net result of joining this mega-bloc will be beneficial to all consumers, including those of India and China.

Moreover, a major chunk of global trade today happens in intermediate goods, the role of global value chain (GVC) participation is imperative. In fact, it was because of the high participation of Chinese small and medium enterprises in the GVCs that China has enjoyed a 10 per cent growth rate for over three decades. There is a general consensus among scholars that both China and India are facing the heat of the US-China trade war.

Uncoventional energy

Fourthly, a key area which still needs more policy attention from both sides is the unconventional energy sector, as the hydrocarbon dependence of both countries is very high. Shale gas, coalbed methane and natural gas hydrates are now revolutionising the energy security discourse. China has already formulated Energy Production & Consumption Revolution Strategy (2016-30) which intends to increase the share of natural gas to 15 per cent of its energy requirements.

Also, India’s National Energy Policy, which focuses on vision for the near-term 2022 and medium-term 2040, has called for addressing challenges related to exploitation of these unconventional sources.

In China shale gas is found in the basins of Tarain, Tuha, Sichuan and Ordos, while in India there are shale gas deposits in Krishna, Godavari and Cauvery basins. Currently, both countries are looking for collaboration with other countries for harnessing their unconventional energy potential. It would be a win-win situation if India and China look at each other to address systematic gaps, develop regional storage hubs, and secure mutual cost advantages. Last but not the least, South China Sea geopolitics continues to be a popular discourse in itself in redefining Sino-India relations. In a recent visit by Indian scholars to China, the two sides deliberated on key issues at the National Institute for South China Sea Studies in Haikou, Hainan province.

The Chinese scholars clearly asserted their sovereignty over the Sea through the nine dash line and expressed hope the dispute would be resolved through negotiations with countries who have competing claims. The Indian scholars too registered their concerns for freedom of navigation in the South China Sea and their geo-economic interests in the Exclusive Economic Zone of Vietnam.

The way ahead is to focus on the political economy of complementarities and synergies between India and China. The outcome of this cooperation must benefit the people of the two countries

Anand is Senior Fellow at Vivekananda International Foundation, a New Delhi based think tank, and Ahmed is an Associate Professor at FORE School of Management, New Delhi.

Published on December 24, 2018

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