Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
UK Energy Firms Scamming Customers Out of Their Best Fixed Rate Gas Tariffs - 23rd Sep 21
Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Should School Children be Jabbed with Pfizer Covid-19 Vaccine To Foster Herd Immunity? - UK - 23rd Sep 21
HOW TO SAVE MONEY ON CAR INSURANCE - 23rd Sep 21
Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
Trading Crude Oil ETFs in Foreign Currencies: What to Focus On - 22nd Sep 21
URGENT - Crypto-trader event - 'Bitcoin... back to $65,000?' - 22nd Sep 21
Stock Market Time to Buy the Dip? - 22nd Sep 21
US Dollar Bears Are Fresh Out of Honey Pots - 22nd Sep 21
MetaTrader 5 Features Every Trader Should Know - 22nd Sep 21
Evergrande China's Lehman's Moment, Tip of the Ice Berg in Financial Crisis 2.0 - 21st Sep 21
The Fed Is Playing The Biggest Game Of Chicken In History - 21st Sep 21
Focus on Stock Market Short-term Cycle - 21st Sep 21
Lands End Cornwall In VR360 - UK Holidays, Staycations - 21st Sep 21
Stock Market FOMO Hits September CRASH Brick Wall - Dow Trend Forecast 2021 Review - 20th Sep 21
Two Huge, Overlooked Drains on Global Silver Supplies - 20th Sep 21
Gold gets hammered but Copper fails to seize the moment - 20th Sep 21
New arms race and nuclear risks could spell End to the Asian Century - 20th Sep 21
Stock Market FOMO Hits September Brick Wall - Dow Trend Forecast 2021 Review - 19th Sep 21
Dow Forecasting Neural Nets, Crossing the Rubicon With Three High Risk Chinese Tech Stocks - 18th Sep 21
If Post-1971 Monetary System Is Bad, Why Isn’t Gold Higher? - 18th Sep 21
Stock Market Shaking Off the Taper Blues - 18th Sep 21
So... This Happened! One Crypto Goes From "Little-Known" -to- "Top 10" in 6 Weeks - 18th Sep 21
Why a Financial Markets "Panic" May Be Just Around the Corner - 18th Sep 21
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21
Is This the "Kiss of Death" for the Stocks Bull Market? - 14th Sep 21
Where Are the Stock Market Fireworks? - 14th Sep 21
Play-To-Earn Cryptocurrency Games Gain More and Is Set to Expand - 14th Sep 21
The CashFX TAP Platform - Catering to Bull Investors and Bear Investors Alike - 14th Sep 21
Why every serious investor should be focused on blockchain technology - 13th Sep 21
SPX Base Projection Reached – End of the Line? - 13th Sep 21
There are diverse ways to finance the purchase of a car - 13th Sep 21
6 Tips For Wise Investment - 13th Sep 21 - Mark_Adan

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

India, China Face Trade Choices

Economics / Asian Economies Nov 02, 2016 - 12:50 PM GMT

By: Dan_Steinbock

Economics

In the coming years, China and India must decide whether their bilateral ties will be based on economic cooperation, political facilitation and strategic trust - or economic walls, political barriers and strategic containment.

In early October, militants attacked an Indian army camp in Indian-administered Kashmir, killing a soldier. In this contested region, the two nuclear powers, India and Pakistan, have occasionally been close to devastating military friction. In the mid-October BRICS Summit, India's Prime Minister Narendra Modi called Pakistan "mother-ship of terrorism."


However, fringe groups went further and a unit of the Indian right-wing Hindu nationalist organization, Vishwa Hindu Parishad, torched a pile of 200 Chinese-made electronics in West Bengal. For now, opportunistic political attacks remain marginal but there are concerns that determined fringes could aim higher. In turn, these efforts are compounded by past mistrust on the quality of some Chinese goods, and deliberate hoaxes.

Today, China is India's largest trade partner. However, New Delhi has a huge trade deficit with China, which many Indians also perceive as the key partner of Pakistan.

How serious are these threats to boycott, ban and embargo Chinese products by Indians?

Avoiding economic mistakes

Despite recent calls against Chinese products, China has currently a dominant position in many sectors and Chinese investments are sought and welcomed by companies of all sizes across the vast India. Exports from China are estimated at $2.3 trillion (of which a fourth is accounted by electronic equipment), up over 20 percent since 2011.

Industry and bilateral lobbies see strong trade relations as vital to both nations but hope and expect that trade will grow more balanced over time. But official trade and investment cooperation remains fairly new between New Delhi and Beijing. While Chinese are concerned for potential trade barriers, Indians fear that overcapacity challenges could pave way for dumping by China.

Nevertheless, banning or boycotting Chinese products would be the wrong thing in the wrong time. It would harm India economically, politically and strategically.

Economically, it would hurt India more than China, especially over time. In development, India is now where China was some 10-15 years ago. It needs aggressive modernization, industrial expansion, infrastructure investment and inclusive urbanization to lift hundreds of millions of people from abject poverty. In this quest, affordable but quality products made in China can provide immense consumer welfare.

The potential of a great takeoff has existed for decades; it can only be realized through focus on economic reforms at home and peaceful external relations regionally. As long as this promise is unrealized, India is likely to continue to suffer from periodical balance of payments challenges.

When China launched its reforms, Deng Xiaoping did not foster "Made in China" campaigns. First, China had to learn to manufacture things that had adequate quality and were affordable. Today, the mainland is in a different position, but it took several decades. Slogans do not make competitiveness; productivity does.

In fall 2014, Modi's government launched the "Make in India" initiative to encourage multinational and national companies to manufacture their products in India. Last year, India also became the top destination globally for foreign direct investment (FDI), surpassing both the U.S. and China.

Nevertheless, India's trade deficit with China has soared in the past few years and exceeded $51 billion in 2015. While India should be vigilant against deficits, protectionism won't help, and could turn against the manufacturing initiative.

Favoring investment against politics

Politically, bans or boycotts would slow progress in bilateral relations. Moreover, the timing couldn't be worse.

In the past, China was mainly the recipient of foreign direct investment (FDI). However, in the past few years, Chinese multinationals have not only expanded domestically but initiated broad-scale internationalization. As a result, Chinese outward FDI now exceeds their investments at home.

In the regional neighborhood, that's a once-in-a-lifetime opportunity and – even more importantly – an effective way to learn more about Chinese manufacturing.

Furthermore, China's huge Road and Belt (B&R) initiative has potential to serve as a catalyst for the kind of infrastructure investment that India needs and that's provided by the new emerging-economy multilateral banks (Asian Infrastructure Investment Bank, the BRICS New Development Bank).

The accumulation of Chinese products in India today is not a win-lose proposition. It could mean the accumulation of Indian products in China in the future. But while Chinese products became known for their cheap prices a decade or two ago, they were shunned initially until they proved their competitiveness in price and quality – as once was the case with Japan, Korea, and Taiwan.

In each case, it was the gradual opening of the economy that facilitated positive change – not new walls.

Beware of strategic miscalculations

Strategically, bans or boycotts could foster the perception in Beijing that Indian trade policy is subject to the U.S. pivot in Asia, as the U.S. and India remain the largest sources of trade remedy probes against Chinese goods, respectively.

In China, there is some unease about New Delhi, particularly vis-a-vis Washington. While India's primary defense contractor is Russia, New Delhi has a central role in the U.S. pivot to Asia, particularly among those who see India as the South Asian front of containment.

In turn, Chinese-Pakistan ties are longstanding. What is now fueling this relationship is the China-Pakistan Economic Corridor (CPEC), a portfolio of projects under construction at an estimated $50+ billion. The goal is to rapidly expand and upgrade Pakistani infrastructure. The CPEC is seen as an extension of China's B&R initiative. In Pakistan, it is expected to create 700,000 jobs directly in 2015-30 and to add 2-2.5 percent to its annual economic growth.

While the focus of China-Pakistan cooperation is economic, it has strategic aspects as well. But the foundation of the bilateral ties is predicated on economic development.

Naturally, India enjoys proud independence in foreign policy. In the past, periods of non-alignment highlighted this autonomy and efforts at South-to-South cooperation. Today, India shows interest in strategic cooperation with Japan, Australia and other countries that figure centrally in the U.S. pivot to Asia, which may account for some caution in China.

However, the appropriate way to build bilateral strategic trust is increasing economic, political and strategic cooperation – not new barriers.

Keeping eye on the prize

Despite political and strategic differences, both China and India can greatly benefit from bilateral and multilateral cooperation, as evidenced by the BRICS activities, the AIIB, and the BRICS NDB.

In this cooperation, perhaps still another aspect could be, at least over time, a purposeful effort to China-India Economic Corridor. It might be something to discuss and develop in bilateral summits – and something that would complement existing regional initiatives in which the two already work together.

From India's standpoint, there is another multilateral area that could prove even more vital, particularly in the short-term. China is currently leading the G20; Beijing seeks to foster globalization against protectionism. In the coming years, that is critical to India.

Between the 1980s and 2008, China benefited greatly from global economic integration, through foreign investment and export-led growth. That will be even more vital to India, which must industrialize and urbanize at a time, when major advanced economies suffer from secular stagnation and emerging economies can no longer benefit from export-led growth as they have in the past.

Indeed, any new protectionist barriers between China and India would only result in a tit-for-tat responses that ultimately would impair economic progress in both nations – while benefiting the perceived and tacit adversaries of the two nations.

Dr. Dan Steinbock is an internationally recognised expert of the nascent multipolar world. He is the CEO of Difference Group and has served as Research Director at the India, China and America Institute (USA) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Centre (Singapore). For more, see www.differencegroup.net   

© 2016 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in