India’s trade deficit with China widens
May 11, 2011

India’s trade deficit with China yawned even wider during the first four months of 2011, to a higher than expected US$11.4 billion in April as Chinese exports increased. India’s trade deficit with China has grown 13 times between 2004-05 and 2009-10, whereas the bilateral commerce increased by three-and-a-half times, reflecting a huge advantage that accrued to the neighbouring country.

India’s trade with China touched US$23.58 billion at the end of April, a 20.2 percent year-on-year increase, according to numbers released by China’s General Administration of Customs (GAC). Bilateral trade was driven by a 26.2 percent increase in Indian imports, mainly of machinery and heavy equipment, which amounted to US$14.5 billion. Indian exports to China were up 11.7 percent in April from a year earlier, a rise attributed by officials to the resumption of iron ore exports following a recent ban and a sharp increase in exports of yarn.

Additionally, China’s exports rose at a time when its imports fell, increasing its trade surplus with other nations. While China’s exports were up 29.9 percent, imports grew 21.8 percent. Analysts have mixed opinions on cause and effect of the trade surplus – while some attribute the lower-than-expected imports to a rise in commodity prices. For instance, China’s imports of iron ore — India’s biggest export to the country — fell 15 percent from March. Others, however, express concern that the surprisingly low import figures reflect a general slowing down in the Chinese economy and the effects of rising inflation.

As China remains the largest foreign holder of US debt at US$1.154 trillion as compared to Japan’s US$890.3 billion as of February this year, the Middle Kingdom is increasing its bargaining power around the world.  During the third round of the China-U.S. Strategic and Economic Dialogue held in Washington the two countries signed the U.S.-China Comprehensive Framework for Promoting Strong, Sustainable and Balanced Growth and Economic Cooperation. The signed document made clear that the two countries will have broader, closer and more extensive economic cooperation on the basis of mutual respect and mutual benefit.

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