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India and China: important but fragile relations

No doubt that the bilateral trade between India and China develops at top speed since 1954 when both governments endorsed for the first time a trade agreement.

The bilateral trade from a USD 7.6 Billion in 2003 reached a record USD 73.9 Billion last year. However India's export to China is expected to decrease this year in particular on account of a significant decline in the export of iron which is India's biggest export product to China.

India's PM M.Singh and chinese Premier Wen Jiabao declared during the last G20 Summit that they intended to boost the trade between the two nations from an amount of USD 74 Billion in 2011 to USD 100 Billion by 2015. Yet China has become one of the largest trade partner of India.

Chinese export to India relies mainly on manufactured items while India's export relies more on primary products, raw material and intermediate products.

Thus,in Brazil the two leaders announced that China would invest in India's infrastructures and India export rice to China. But behind these official announcements India faces a huge problem which is illustrated by one single figure. The trade between the two countries leads currently to a deficit for India up to USD 40 Billion.

India needs in particular outside capital for it's infrastructures and China hunts for more minerals and food products. But will this new flow of business rebalance their trade exchanges?
Or should these trade relations be fully reassessed?

However even if the two countries agreed to expand their trade co-operation in different essential fields like finance, infrastructures,telecommunications etc...a mutual benefit relation can only rely on trust.
And here reappears a very sensitive question concerning a long running border dispute between the two nations. Now resolving this dispute could last.

Meanwhile the balance of trade could remain heavily in favour of China.

MT for Indiary
25th Oct. 2012

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