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Millennium Post

Hidden agenda?

Chinese media outrage over a shrinking deficit in India-China trade may be an attempt to obscure Chinese frustration with Indian efforts to counter its global economic expansionism

Hidden agenda?
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Chinese official English daily — Global Times — was irked by the narrowing down of trade deficit with India. Opposing it as a trendsetter, it warned that the downturn was unsustainable. It unravelled that the shrinking trade deficit bounced back in July 2020. It increased by USD 3.34 billion. This implied that India's dependence on China was irreversible. To this end, Chinese media warned against India's decoupling from China, which might open a Pandora's box. It accused India of triggering economic tension by blocking Chinese apps, denying Chinese FDI approval through the automatic route, imposed stricter regulations for Government procurement, restricted the import of colour TVs and so on.

Incidentally, the narrowing trade deficit between India and China was not sudden. It started in the past two years. The downturn was steep during COVID-19. The trade deficit declined by over 22 per cent during the past two years and heightened to 49 per cent during the first two months of COVID-19 in the country (April-May 2020). The main characteristic of the trade structure between the two countries has been China's gushing export to India, vis-à-vis India's nominal export to China. This caused a wide trade deficit. Reasons attributed to the somersault in the trade deficit were pandemic-stricken China's loss of prominence as a stable source for the global supply chain. Factories were closed and the foreign investors were encouraged to shift their production bases. Also, India's hunt for an alternative to China and intensifying protectionism perked up deceleration in the trade deficit.

China's strong belief in India's over-dependence on it is a gaffe. India is already on the hunt for an alternative to China. Much success was achieved when India's imports were greatly diversified. The simultaneous increase in imports from Vietnam has become a major challenge to imports from China. During 2017-18 to 2019-20, imports from Vietnam surged by over 45 per cent. The major components of the import surge were electronic and telecommunication items. Incidentally, these items were akin to imports from China. These very items were responsible for the widening trade deficit between India and China. Eventually, Imports of these items from China witnessed a steep fall between 2017-18 and 2019-20.

Needless to say, the Chinese media's outburst surprised many, given the fact that India's share in China's global trade is minuscule. India's accounts for only 2 per cent in China's global trade. Even though China is the biggest source of imports for India, it is not vice versa. India accounts for 3 per cent of China's global exports. Why is it then that the shrinking trade deficit with India sent China into a jittery mood?

The real reason lies somewhere else. It is not a trading factor only. There may be other issues which made China perturbed. China is known for its ethnocentric chauvinism for seizing global power. After losing the race to becoming the low-cost hub for the world's workshop, China pitched for global projects as a new strategy to recoup its global economic power. BRI (Belt and Road Initiative) and RCEP (Regional Comprehensive Economic Partnership) are the cases in point. BRI manifests the tenet of its global political and economic outreach through the development of infrastructure and RCEP is a ploy to seize trade power in Asia.

India has always been an opponent to China's global projects like BRI and RCEP. It argued that they represent Chinese economic expansionism in the emerging economies. It decoded that BRI has been China's domestic challenge and not a global issue. China had overcapacity issues and was engulfed by rising unemployment. To revive exports, BRI was the noble strategy to expand export by developing infrastructure with the help of a Chinese loan. Similar was the objective behind RCEP. China had a FTA with ASEAN. China targeted the India market through ASEAN FTA proxy. India is not a participant in both BRI and RCEP.

India played a key role in sending a caution message to the participants to BRI and RCEP. It expressed concern regarding debt distress after Sri Lanka lost Hambantota port. China-Pakistan Economic Corridor (CPEC) project is another case in point, which was attuned to undermining the sovereignty of a country. Eventually, the BRI turned into a curse on developing nations. Several developing nations inched towards debt distress and some of them slipped into a debt trap. According to the Centre for Global Development report, eight countries are on the edge for a debt trap. BRI is now known as a predatory Chinese loan. Several countries have woken up to the risks of the BRI loan. In a warning message, Malaysian Prime Minister Mahathir said, "BRI has become the new version of colonialism".

India's thrust on protectionism and self-reliance strongly influenced the USA and EU after COVID 19 outbreak — the major trading partners of China. This led to the retreat of GVC (global value chain), according to the Peterson Institute of International Studies. It nudged the countries towards having a second thought on import dependence in the GVC model and turned inwards for the development of a domestic supply chain. China has been at the hegemony in GVC.

India's opposition to BRI is now becoming a lesson for participant countries, who are slipping into the clutches of a debt trap. India's refusal to join RCEP evoked second thoughts among the members on China's genuine aim for trade expansion in the block. It irked China when Japan followed suit, the third biggest export destination for China. Arguments were levelled against RCEP, depicting It as a political goal of China through economic expansionism.

This created concern in China against India's continuous drubbing to its global economic projects. Hence, the 'hidden' reason for China's outrage.

The writer is an Adviser, Japan External Trade Organisation (JETRO), New Delhi. Views expressed are personal

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