Trade bloc: Can we trust China?

Globalisation and regionalisation of trade and investment are drawing in all countries and becoming an irresistible trend in Asia. China is at the centre of this new structure. Since 1992 in particular, as investments in labour-intensive manufacturing from Taiwan, Hong Kong, the US, Japan, Europe and Southeast Asia have moved in a rising wave though the open Chinese door, steeply raising its trade profile.

Textiles, clothing, toys, electrical goods, furniture and TVs from China have dominated Western markets for several years now. Newer products — computers, portable electric lamps, synthetic dyes, railway locomotives, steel tubing and casing for oil wells, radio navigation equipment, and even ships — are now being exported in growing quantities. China is also becoming a large exporter of industrial commodities, with steel exports nearly quintupling in the first quarter of this year compared with a year ago. The Uruguay Round agreement to phase out textile quotas from January this year has also been a huge boon for it: many expect China to account for half of all world textile production in five years.

The challenge to India’s trade could not be framed any more explicitly. But India too can take full advantage from the new arrangements and ongoing economic and technological shifts to become the second hub of global manufacturing.

By keeping its currency tightly pegged to the dollar, which has declined over the past three years, China has made its goods even more competitive in countries using currencies like the euro that have appreciated against the dollar. This has helped China export more, and discouraged businesses in China from importing. Their labour laws too are highly flexible, working hours long, and wage rates low — practices that are well below acceptable standards in most democracies.

It is in these areas that India would have to remain alert, and use bilateral and multilateral mechanisms under the WTO to ensure fair competition. Also, there is no immediate case for free trade with China. Indian infrastructure, tariff rates, modernisation are not yet prepared for a fully open economy. China has taken 25 years to reach here.

However, these are not arguments for not trading but for speedier reforms and capability build-up. There is simply no alternative but to trade when the rest of the world is creating deep interdependence with China. The consequences of not trading would be worse. India should not distrust China. It must engage and compete both for the world and the large China markets: the fate of its industry and services, and of employment for its millions, depends on it.