Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
VR and Gaming Becomes the Metaverse - 7th Dec 21
How to Read Your Smart Meter - Economy 7, Day and Night Rate Readings SMETS2 EDF - 7th Dec 21
For Profit or for Loss: 4 Tips for Selling ASX Shares - 7th Dec 21
INTEL Bargain Teck Stocks Trading at 15.5% Discount Sale - 7th Dec 21
US Bonds Yield Curve is not currently an inflationist’s friend - 7th Dec 21
Omicron COVID Variant-Possible Strong Stock Market INDU & TRAN Rally - 7th Dec 21
The New Tech That Could Take Tesla To $2 Trillion - 7th Dec 21
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21

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