India, China to hold talks to narrow trade deficit

Modi, Xi agree to set up high-level mechanism to better balance trade, raise volume of bilateral commerce and explore manufacturing partnership

India and China on Saturday agreed to set up a high-level dialogue mechanism to discuss ways to narrow the trade deficit and raise the volume of bilateral commerce as well as to explore manufacturing partnership.

The two sides agreed to set up the High-Level Economic and Trade Dialogue mechanism, as Prime Minister Narendra Modi nudged Chinese President Xi Jinping to take more measures to help narrow India’s widening trade deficit with China.

Modi and Xi held their second “informal summit” at a seaside resort at Kovalam near Chennai on Friday and Saturday. They agreed to “further deepen economic cooperation and to enhance closer development partnership”, Foreign Secretary Vijay Gokhale told journalists after the summit.

The two leaders also exchanged views on the negotiations among India, China and 14 other nations to conclude the Regional Comprehensive Economic Partnership (RCEP) agreement. Prime Minister conveyed to the Chinese President that India was looking forward to a balanced outcome of the negotiation that would take care of all pillars – trading in goods, trading in services and investment.

Xi noted Modi’s views on the RCEP negotiations and said that China and India should hold more discussion on this and the concerns of New Delhi would be taken into consideration, said Gokhale.

The High-Level Economic and Trade Dialogue mechanism the two leaders agreed to set up would be jointly led by Finance Minister Nirmala Sitharaman and Chinese Vice Premier Hu Chunhua.

Modi and Xi also agreed to develop a Manufacturing Partnership between India and China to encourage mutual investments in identified sectors. They tasked the officials to start giving shape to the manufacturing partnership at the first meeting of the newly set-up High-Level Economic and Trade Dialogue itself.

The volume of India-China bilateral trade grew by 13.19% to reach $ 95.54 billion in 2018. During the discussion over dinner on Friday, Prime Minister, however, conveyed to Chinese President that while the volume of the bilateral commerce had increased, the trade deficit had also widened from $ 51.72 billion in 2017 to $ 57.86 billion in 2018. He not only conveyed to Chinese President New Delhi’s concerns over the growing trade deficit but also proposed to set up a dialogue mechanism to address it. Xi accepted the proposal and the two sides finally agreed to put in place the mechanism.

Xi also conveyed to Modi that China welcomed investment from India, including in the pharmaceuticals and Information Technology sectors.

Since Modi and Xi held the first “informal summit” at Wuhan in central China in April 2018, Beijing did take certain measures to allay New Delhi’s concerns and simplified its regulatory processes to allow more imports from India, particularly for pharmaceuticals and certain agricultural products like soybean, rapeseed and non-basmati rice.

Modi conveyed to Xi on Friday and Saturday that while New Delhi appreciated Beijing’s initiative to simplify the regulatory processes for certain products, it had not yet translated into a significant rise in export of those products from India to China.

New Delhi nudged Beijing to provide greater market access in China for India’s pharmaceutical products and Information Technology services.

New Delhi sent out a positive signal to Beijing just ahead of Modi-Xi “informal summit”. It gave its nod for China’s telecom equipment manufacturing company Huawei to take part in 5G use case scenario demonstrations during India Mobile Congress, which would be held in the national capital from October 14 to 16. The government has not yet taken a call on Huawei’s plea to take part in the wider and broad-based 5G trials. But its nod for the company to present demonstrations on use case scenarios in partnership with Airtel and Vodafone-Idea in India Mobile Congress is apparently aimed at striking a positive note just before the meeting between Prime Minister and Chinese President.

President Donald Trump’s administration in Washington D.C. earlier this year banned Huawei’s products in the United States market; citing security concerns, particularly the possibility of China using its telecom equipment company for surveillance and espionage activities in America. It also barred US companies from supplying software and components to any entity based in China.

Trump Administration has also been pressing New Delhi not to allow Huawei of China to roll out the 5G high-speed data network in India. During its recent visit to New Delhi last week, US Commerce Secretary Wilbur Ross warned that India might expose itself to security risks if it allowed the use of Huawei’s 5G telecom equipment in India.

Beijing, however, has been calling upon New Delhi to take an “independent decision” on allowing Huawei’s plea for participation 5G trial in India.