Chinese trade with India remains a one-way street
When Indian Prime Minister Manmohan Singh spoke in Beijing of a 'historic need' for India and China to work together, he was looking beyond the border dispute that has plagued relations for half a century to freeing millions of the world's poorest from disease and economic deprivation. Paradoxically, this goal, and not any misplaced nationalistic or protectionist sentiment, forced him to decline Chinese requests for a free-trade agreement.
Though a quick resolution of the border dispute is complicated by nationalism, this does not affect Indian consumption patterns. Pragmatic and practical, Indians spurn without a second thought locally made goods for cheaper Chinese alternatives. That they are allegedly dumped on India does not stop anyone buying them. Dumping, defined as selling goods abroad at a cost lower than production, is only possible with state complicity, as it involves a complex transfer of profits from a successful sector to a failing industry. It should be welcomed by Indians because, in effect, the Chinese government is indirectly subsidising a rise in Indian living standards.
Nevertheless, shrill cries for a tax on imports from China - amounting to a tariff barrier - pierce the Sino- Indian discourse. Respected national daily newspapers warn darkly of a 'dependency syndrome'' in critical areas. But these are the voices not of India's poor but of pampered and protected rich industrialists whose captive markets are slipping away.
As an Oxford and Cambridge educated economist, Dr Singh is well versed in the theories and practices of free trade. He demurred about a free-trade agreement not because he opposes free choice, but because China has not reciprocated in opening its market to Indian goods. That might deprive Indian exporters of a market, but the real losers are China's consumers and manufacturers. If the Chinese government does indeed subsidise cost-inefficient industries with profits earned in other sectors, then it is setting a dangerous precedent. Such practices skew the market and rob it of its fundamental virtue - the ability to convey information about choices efficiently to all quarters. A shock in one sector of the Chinese economy will reverberate throughout the entire Chinese economic system.
Only the political courage to let the market run its course can contain the damage. Pharmaceuticals is a case in point in Sino-Indian trade. India boasts the largest number of US Food and Drug Administration approved plants outside the United States. Pharmaceuticals are a core Indian competency and exports to western markets have grown by 19 per cent year-on-year for the past three years, ahead of the world average growth rate of 6 per cent. Yet, India's pharmaceutical exports to China have grown by just 3 per cent.
Indian pharmaceuticals' failure to penetrate China is due to Chinese non-tariff barriers, manifest in long and complicated registration procedures, prohibitively expensive drug import licences and inordinately protracted customs checks. Ultimately, even if a foreign firm enters China, the drug-distribution system operates mainly through hospitals which, in practice, give preference to locally produced drugs since they are cheaper. The ultimate sufferer is the Chinese patient, who is denied inexpensive, world-class medicine.
As the 19th-century British politician Richard Cobden wrote: 'Free trade is God's diplomacy and there is no other certain way of uniting people in the bonds of peace.' Nationalistic Indian voices that risk upsetting a relationship on which the future of one-third of humanity depends can be silenced if China matches India and lowers trade barriers. That would pave the way for the free-trade agreement Beijing wants. The ultimate beneficiary would be the common man, not big Asian business. The goodwill generated might even prove a solvent for seemingly intractable problems like the border dispute.
