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International Issues/ Economy/ Foreign Affairs

Indian Trade deficit with China…needs correction!

Indian exports to China is US $ 11 billion while the imports from China is around US $ 38 billion. Now, this is disturbing as we do not want to remain just importing community amongst trade partners in the global equation. As such there is too much global competition building up in India with excessive FDI inflows resulting in excessive foreign exchange reserves..more than US $ 250 billion ( i am not very sure about this figure but i reckon it should be more.

We have paid the price by encouraging the East India Company to set up trade in India that resulted in loss of freedom becoming an English colony nearly 250 years ago. I understand Mr Anand Sharma, Indian commerce minister, will address this ‘trade deficit’ with China in the coming week. He should realise it will not be easy to negotiate with a trading partner that is a communist country. I am sure this must be the trade advantage for china while discussing with any other trade partner in largely democratic world. Over the years, China is the best manufacturing location, strongest economy if not the largest, and has become very self-reliant. The growth rate of the economy is 9% in the year compared to 13% in the previous year largely due to recession in other countries who “buy more and sell less” from/ to china. There is a constant effort to raise domestic demand by Chinese Premier Wen Jiabo that will ensure that there are no job losses!

Premier Wen Jiabo, I am sure, must be disturbed about the state of the American economy…like all other countries are! But China has more reasons to be perturbed due to the security of Chinese investments in the USA, especially the $700 billion US Treasury bonds that the Chinese government held at the end of last year. China is the biggest holder of US bonds with Japan coming second with over $ 600 billion worth of these bonds. The bonds were purchased with hard economic sense – to keep up the liquidity in the US market to allow for Chinese export growth.

The policy worked well till the global economic meltdown hit America…wealthiest/ largest market, its severest ever, perhaps more than the great depression as some economists estimate.

Will China pull down its protectionist shelters? Probably to an extent. Imports in China are already falling more rapidly than exports due to global recession! Excessive Imports or Exports, both create unemployment and job losses in an increasingly restless society trying to grapple with global recession. China should operate in a Win-win situation wherein others’ economies are not shaken up too much due to trade deficit.

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About Raman Ramamurthy

I am a Management consultant, an avid reader, play Lawn tennis in my leisure time and love Music. Presently, I am settled in India along with my wife and my son.

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