India has taken its growing concerns of trade imbalances to China’s doorstep. In regular circumstances, this would have passed unnoticed, buried among other business news. But in the India-China context, trade is a strategic asset, as important as the boundary dispute.

India-China trade figures have been a source of comfort while other aspects of bilateral ties have gone through the wringer. Standing at $52 billion by end-2008, it is the shining statistic that everybody uses to show that things are not so bad. But behind this figure is the uncomfortable fact that India’s exports to China are overwhelmingly primary products like iron ore, its imports are manufactured goods and sophisticated equipment. In an article dated September 17 in the Chinese government’s official magazine Beijing Review, China stated that this was essentially because India perceived China as a “threat” … “China-India trade relations are an economic issue, but political and security factors are influential, too.” Attributing India’s so-called “defensive posture” to its insecurity about China, the Chinese article said it was due to “an Indian fear of China's rapid development, along with an aversion to Chinese products. This has diminished the Chinese market in India.”

For the first time, the Indian government has not taken this lying down. In an official response to the article, the Indian embassy in Beijing refuted the Chinese stand in an official article in the same magazine this week. Saying that bilateral relations were not a “zero-sum” game, India responded to China in its own language, as an official article in an official publication. Taking a much more positive approach to the bilateral relationship, India refuted a stand by Chinese official media that there is little political trust. The trade imbalance, India points out, is strange, given that India is not a primary products exporter to other countries. So why is it that only resource and labour-intensive stuff like iron ore end up in China? “The trade basket with China is an exception, not a rule. .. The problem is that restricted market access and tariff/non-tariff barriers have limited the scope for growth,” said India. Laying out the gamut of concerns of Indian industry, India said Chinese policies, which give its domestic companies preference, local content stipulations, sharp increases in import duties on manufactured equipment have constrained Indian exports to China.

While Chiense companies are capturing Indian market share with their exports of power plant equipment, Indian companies find that exporting fertilizer, coal gasification and refinery plant equipment to China confronts huge tariff and non-tariff barriers. IN 2002, China agreed to allow 17 Indian agriculture products in, but until now only three products have been cleared. Strongly refuting China’s contention that in protectionism India was the global forerunner, India pointed to the fact that it dropped investigations against import of Chinese car tires.

Indian officials say there are no bars against Chinese investment in India, and certainly, in the case of winning projects in core sectors, Chinese companies are raking in about $12 billion, projected to go up to $45 billion. What India is saying is, there is no “China threat” and India is no longer protectionism, but could the boot possibly be on the other foot?