China Worries in India’s RCEP Decision

India’s refusal to sign up for the Regional Comprehensive Economic Partnership (RCEP) agreement in Bangkok earlier this month says as much about the state of India’s relations with China as it does about its place in the global trading regime.

There is no doubt that India is in many way not ready for the additional challenges and pain its domestic industry and agriculture will face with accession to RCEP especially since the economy is still recovering from the self-inflicted damage of demonetisation in 2016 and a poorly-executed roll-out of the GST less than a year later.

But there is not an insubstantial argument to be made about the consequences of opening up under RCEP to a Chinese economy that still is far from being an open market economy. China has a non-transparent legal system, offers multiple hidden subsidies to its state and private enterprises and is actively engaged in predatory and coercive practices against foreign enterprises both at home and abroad in order to get the latter to part with technology. The RCEP deal under these circumstances would be the equivalent of giving the Chinese a FTA with India that they have long desired.

Under RCEP, India would have to reduce or eliminate duties on about 74-80 percent of goods imported from China over a period of time[1] with no guarantee at all that the Chinese would meet their own obligations. Despite years of talks, Indian concerns still center on opening up the Chinese market to Indian pharmaceuticals and IT services as well as expanded quantities of agricultural exports – sugar and rice, for example. While Indian pharma majors have finally begun to see greater opportunities in China, this is less the result of Indian efforts as China’s own desire to reduce the cost of drugs for its public health system. Indian IT services continue to stand no great chance in the Chinese market.

Meanwhile, Indian economic policy towards China continues to be based on the hope that improvement is around the corner.

For instance, it was reported that Indian Prime Minister Narendra Modi made a Powerpoint presentation to Chinese President Xi Jinping on the trade deficit during the Mamallapuram summit.[2] One cannot imagine a more pointless exercise given the nature of the Chinese economy and of the mercantilist approaches to global trade that China’s leaders have pursued despite their avowed commitment to globalization. The Prime Minister’s action simply underlines the lack of purchase that the Indian side has with the Chinese bureaucratic and political system.

What is more, Hardeep Puri, Minister of State for Civil Aviation and Commerce while describing the Modi-Xi meeting also pointed out that the Chinese too had ‘some grievances, quite a few’. He said that the Chinese believed India was ‘being less than equitable when it comes to 5G and Huawei.’ [3] The fact that Puri, himself a former diplomat who should know the value of words and perceptions, should mention this at an open forum suggests that the Indian government believes this is a valid Chinese concern. Essentially, this means that the Indian government thinks it is okay for the Chinese to constantly scale up their demands while the Indian list of demands has hardly changed over the decades. To equate providing access to Chinese 5G with its attendant security problems to the export of more Indian agricultural products speaks to a major weakness in the Indian government’s thinking and approaches towards China.

There appears to be a lack of willingness to call China out on its double standards and its unmet promises even as it continues to be obliquely referred to as a concern by several BJP leaders. For instance, on the eve of the Bangkok meet the party’s general secretary Ram Madhav called it ‘an elephant in the room’.[4] Later, Defence Minister Rajnath Singh also justified India’s decision to not join – what was interesting was that he chose to make these remarks while inaugurating a bridge in Arunachal Pradesh on the border with China.[5]

Officially, China has reacted cautiously to India’s RCEP decision. Responding to questions, the Chinese foreign ministry spokesperson called RCEP ‘a two-way and complementary arrangement’, highlighting China’s imports from India had increased by 15 percent in the past five years and a willingness ‘to join all parties to resolve the outstanding issues for India through further negotiations’.[6]

But elsewhere, the Chinese are not holding off on criticism of India. The state-owned Global Times, was quick off the block with a 5 November piece headlined, ‘Fear of Chinese products keeps India away from regional trade bloc’ arguing the Indian government was ‘hobbled by the lack of power to make major decisions’.[7] One article carefully highlighted stories of Indian enterprises interested in doing business with China or in joining the RCEP[8] while another called India’s move ‘shortsighted’ and said that ‘[n]ationalism and political divergence’ were denying India the RCEP dividend.[9]

The Chinese criticism might not be entirely off the mark but their self-interest too, is evident. References in this context to the ‘US-launched trade war on China’,[10] suggests that the Chinese are facing some significant impact as a result. Access to the Indian market is possibly, therefore, of some importance as a solution to what is going on with the Americans and explains why there is hope that ‘Beijing and New Delhi could find new areas for economic and trade cooperation’.[11] But the challenge for India remains, as its Trade and Commerce Minister, Piyush Goyal, put it ‘to develop capability to prevent unnecessary influx of Chinese goods’.[12] How India will develop such capability with or without the RCEP remains to be seen.

This article was originally published as Jabin T. Jacob, ‘India, RCEP and the China spectre’, Moneycontrol, 18 November 2019.

REFERENCES

[1] https://www.business-standard.com/article/pti-stories/rcep-trade-ministers-to-meet-in-bangkok-on-friday-ahead-of-leaders-summit-119103101433_1.html

[2] https://www.thehindu.com/news/national/narendra-modi-presented-trade-data-to-xi-jinping-hardeep-singh-puri/article29779997.ece

[3] https://www.thehindu.com/news/national/narendra-modi-presented-trade-data-to-xi-jinping-hardeep-singh-puri/article29779997.ece

[4] https://www.livemint.com/news/india/as-concerns-over-china-mount-india-may-take-more-time-to-sign-rcep-11571646425116.html

[5] https://www.business-standard.com/article/pti-stories/pm-stayed-out-of-rcep-keeping-in-mind-northeast-s-economic-interests-rajnath-119111501042_1.html.

[6] https://www.fmprc.gov.cn/mfa_eng/xwfw_665399/s2510_665401/2511_665403/t1713475.shtml

[7] http://www.globaltimes.cn/content/1169023.shtml

[8] http://www.globaltimes.cn/content/1169186.shtml,

[9] http://www.globaltimes.cn/content/1168970.shtml

[10] http://www.globaltimes.cn/content/1169144.shtml