NEW DELHI: India’s ever-rising trade deficit with China fell for the first time in 2018-19, but an analysis of trade data shows the country may be pushing its exports to India through Hong Kong to hide the actual extent of its trade surplus with India.
The commerce ministry on Friday said trade deficit with China narrowed by $10 billion in 2018-19 to $53 billion. Trade minister Suresh Prabhu tweeted: “Whopping reduction (in) trade deficit with China. Unprecedented. Exports increased substantially. Result of high-level engagement, strategic planning, coordination with stakeholders, market research, sustained efforts, constant monitoring, hand holding with exporters."
An analysis of data from the commerce ministry’s website shows India’s imports from Hong Kong have risen significantly for the same products that India imports from China. During 2018, India’s trade deficit with China narrowed to $57.4 billion from $59.3 billion, while India’s trade surplus with Hong Kong valued at $3.9 billion in 2017 turned deficit at $2.7 billion in 2018. India’s trade deficit with China and Hong Kong combined widened to $60.1 billion in 2018 from $55.4 billion in 2017.
Hong Kong is a founding member of the World Trade Organization (WTO) and even after the 1997 transfer of its sovereignty from Britain to China, it has remained a member of WTO as guaranteed under the “one country, two systems" principle. However, in recent years, Hong Kong has been at loggerheads with mainland China to protect its democratic nature as China is seeking greater say in its administrative processes.
The disproportionate rise in trade deficit with China, mainly due to rising import of electronic items, has been threatening India’s trade balance and has remained a key trade policy challenge for the government. With US President Donald Trump launching a trade war with China seeking to cut his country’s $419 billion bilateral trade deficit, China’s restrictive policies on imports have come back into focus. China is under increasing pressure to reduce its surplus with trading partners.
A query sent to a spokesperson of the Chinese embassy in New Delhi on 10 April remained unanswered.
To be sure, India’s exports to China rose 30.4% in 2018 to $16.5 billion. However, India’s exports to Hong Kong dropped from $15 billion to $13.3 billion, a net loss in exports of $900 million when taken together with China.
As complete disaggregated data for fiscal 2018-19 (April-March) is not available yet, calendar year data is used for easier comparison purposes. Fiscal data is likely to present similar trends.
While India’s import of spare parts for making mobile phones—its highest importing item from China by value—contracted 34.1% to $3.9 billion in 2018, import of the same item from Hong Kong rose 728% to $1.3 billion during that period. Similarly, import of LAN adaptor cards from China shrank 32% to $2.4 billion, while its imports from Hong Kong rose 173% to $546 million. Import of digital monolithic integrated circuits from China grew 358% to $1.5 billion, while import of the same item from Hong Kong surged 6017% to $1.4 billion.
A commerce ministry official said on condition of anonymity that China was capable of playing such tricks. “We should always be careful with China and consider China and Hong Kong as one country while calculating trade figures," added the official.
Biswajit Dhar, professor at Jawaharlal Nehru University, said that with instances of protests against China, including burning of Chinese products in India, it is shifting exports to India via Hong Kong to show a lower bilateral trade surplus with India.
“Chinese are doing it very smartly by targeting only those products that attract zero duty such as electronic items, because such products do not attract any scrutiny," he added.