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Taking the opportunity

US-China trade war has the potential to mark a positive shift in the Sino-Indian trade relations–boosting Chinese investment in India

Taking the opportunity
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Green shoots are visible in the Sino-India trade relation as an impact of the US-China trade war, notwithstanding global trade which is embroiled in disarray. In other words, a third force became a key role-player to cool off Sino-India trade relation, even though a long parley was bilaterally made before. Disgruntled by the big trade balance and alleging China for dumping goods, trade relation is now seen with a volte-face of China, surging imports from India and restricting exports to India.

In 2018-19, India's exports to China made a great leap vis-à-vis abating imports. Its exports to China zoomed by 25.6 per cent, while imports declined by 7.9 per cent. China emerged as the third biggest export destination for India, after the US and UAE. Given this paradigm shift, a bulk of trade deficit between the two countries was lowered. Trade deficit plunged to US$ 53 billion in 2018-19 from US$ 63 billion in 2017-18.

The trigger in exports was due to petroleum and agriculture and allied products. Both these account for one-third of India's exports to

China. Exports of these two product groups increased by 89.8 per cent and 92.6 per cent respectively in 2018-19. Among the agricultural products, the notable increases in exports were raw cotton (278.7 per cent), marine products (345.4 per cent) and spices (42.9 per cent).

With China retaliating against the US's high tariff trade war, the scope for India's exports to China enhanced. For example, opportunities galore for big export of raw cotton after China bent towards India to compensate for the loss of imports from the US. China imposed 25 per cent tariff on imports of cotton from the US as retaliation. Of the 5 billion bales of cotton imported yearly by China, 40 per cent are imported from the US. China does not impose any customs duty on cotton imports from India.

Similarly, in the run-up to enhance soybean imports from India as a countermeasure, China dropped import duty on soybean from India. With China imposing 25 per cent tariff on imports from the US, large scope emerged for India to export soybean to China.

China is the world's biggest buyer of soybean and the US has been the biggest supplier to China. Annually, China imports $39-40 billion worth of soybean from the world. Of these, more than one third is imported from the US ($13 billion in 2017).

On the import front, the U-turn was mainly due to a decline in imports of electronic goods. This product group is the main component of India's imports from China. They account for nearly one-third of India's import from China. Imports of electronic goods from China dropped by 29.4 per cent in 2018-19, dragged mainly by fall in imports of telecommunication equipment. It declined by 52.5 per cent in 2018-19.

Thanks to Chinese investment in telecommunication in India, it resonated a negative impact on imports from China. Currently, six big Chinese companies are producing mobile phones in India. According to a survey report, Chinese mobile phones, manufactured in India, made a great leap with a 51 per cent market share in India.Chinese brands like Xiaomi, Vivo, Oppo, Huawei, One Plus outplaced Indian brands like Micromax, Lava, and Karbon.

Trade war generated a new synergy of the economic relationship between the two countries, reducing the political rivalry. Both India and China now oscillate in the hope for warming the relation in trade and investment. Till the trade war broke, India was eager to improve the relation with China, with an aim to dwarf the burgeoning trade deficit. But, China was reticent. After the trade war, China bent towards India and vies for India's heart for improving economic ties. "A new day has dawned for the two countries, which were once at odds", according to Global Times–the Chinese official media.

Till the Modi-led BJP government came into power, trust deficit owing to security concern played a key role. After Modi led BJP government was installed, China has been on investment binge. Chinese investment has become a driving force for start-ups, digitisation besides electronic manufacturing.

With the trade war making a major turnaround in India-China relation, hopes are raised on China being the next lead foreign investor in India. Given the manufacturing in China becoming costlier after the tariff hike by the US, investors in China will dislocate their productions bases in India and other countries.

According to Standard Chartered Bank, India and China will be the two major wings for global growth. By 2030, China and India will be the second and third-biggest economies, next to the US, while outsmarting Japan and Germany.

China is seen not as a foe, but rather an opportunity after the trade war broke. Trust deficit began to dilute and bonhomie between the two leaders rose. Both have vowed to make a relook to their economic relation and endeavour for a joint partnership for growth, instead of a brickbat.

Needless to say, Modi was never averse to China. He visited China four times as Chief Minister of Gujarat when security concern was at the peak. His priority was to seek Chinese investment. Parallelly, China exhorted India's potential as an important destination for investment. "India has a wealth of experiences in utilizing international capital. There is no doubt it has become more attractive to foreign investors", according to Zjao Gancheng, Director of Centre for Asia Pacific Studies at Shanghai Institute of International Studies.

As of the end of 2017, the Chinese Ministry of Commerce recorded Chinese investment in India of more than US$ 8 billion. Start-ups, infrastructure and electronics manufacturing have become the key areas for Chinese investment.

Chinese investment synchronises Make in India

initiative. Digitisation, Start-up are the key targets of Make in India. India has a robust IT industry, that operates at cheaper costs in India than in China. By investing in these areas, China is in a unique position to give a challenging shape to Make in India.IPA

(The views expressed are strictly personal)

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