Beijing: Notwithstanding steps announced by India and China to reduce their trade deficit during Premier Li Keqiang's ongoing visit, Chinese analysts believe the imbalance is likely to keep growing in the short term due to structural problems.
"India's trade deficit with China is expanding. In the short term, that's hard to resolve. The imbalance is mainly because India has limited exports to China, while Chinese manufactured goods have a competitive advantage in the Indian market," Liu Xiaoxue, a researcher on South Asian studies at the Chinese Academy of Social Sciences said.
The slower growth pace in China in recent years, together with overcapacity in the steel and iron sectors and the Chinese government's tightening policies in the real estate sector, reduced demand for Indian raw materials, mainly iron ore and iron sand, which account for the bulk of Indian exports to China.
That's the reason behind India's increasing trade deficit with China, Liu told China Daily.
In the first four months of the year, Sino-India trade declined 6.2 percent year-on-year. Chinese exports increased 3.6 percent and imports decreased 24 percent, yielding a trade surplus of USD 8.83 billion, according to China's General Administration of Customs.
In 2012, bilateral trade dropped 10.1 percent, and China's exports went down 5.7 percent while its imports plunged 19.6 percent, leaving a trade surplus of USD 28.87 billion, compared with USD 27.17 billion in 2011 and USD 20.08 billion in 2010, according to customs data.
Indian officials say the iron ore exports from India also fell due to investigations into allegations of corrupt practices in mine sector.
"The trade imbalance is rooted in India's trade structure. India's trade deficit with China will not be reversed in the foreseeable future. Any change depends on whether India can export products that meet the demand of the Chinese market," Hu Shisheng, director of the Institute of South and Southeast Asian and Oceanian Studies at the China Institutes of Contemporary International Relations said.
"In fact, the trade deficit is likely to increase because India needs more Chinese manufactured products, and China diversified its sources for imports of raw material," Hu said.
Indian officials question such a premise as efforts by India's main products like IT and Pharmaceuticals have not gained access into Chinese markets mainly due to official curbs.
That is what some of the agreements reached between the two countries yesterday aimed to address.
"India has trade deficits with major manufacturing countries due to the depreciation of the rupee in recent years, its poor export advantages and robust import demand, especially for mechanical equipment, amid its economic transformation. But the trade deficit with China is remarkable," Hu said.
The expanding trade deficit with China, which accounts for one-third of India's overall trade deficit, has been a concern for India for many years and partially accounts for the frequent trade remedy investigations it launches into imports of Chinese products, the Chinese analysts said.
"Trade probes from India will remain frequent in the coming years as India's imports of low-end manufactured products from China dent its efforts to revive its manufacturing sector," Liu said.
"But trade investigations should be resolved under the World Trade Organisation framework."
Hu added that India's trade deficit with China is "no big deal and far from a safety concern".
"India should seize this period when Chinese exports have good quality and low prices, as prices of Chinese exports are rising.
"Expanding imports from China just benefits India because they lower its costs of economic transformation, enhance the living standard of its citizens and increase its exports to markets such as the United States and the European Union," Hu said.
Wang Shouwen, director of the Foreign Trade Department of the Ministry of Commerce, said that the Chinese and Indian economies are highly complementary and that bilateral trade has huge potential.
"In the future, the importance of Sino-Indian trade will be equal to that between the US and the EU," Wang said.
The two countries set USD 100 billion trade target for 2015.