China is currently struggling with slowing growth momentum, over leveraged corporate sector, and overvalued currency. It is afflicted by rapid credit growth and a risky property market. The rebalancing from investment to consumption it promised to carry out is not likely to happen in the near future, as it needs to work on its investment and export to ensure that its growth momentum does not falter. Its recent measures of controls on outbound investment are a sign that China is braced for trouble. The seriousness with which the President-elect of the United States is expected to pursue his trade policies vis-a-vis China will have repercussion on China’s export regime. Consequently, we can expect an increase in dumping of goods from China to its other trading partners. As India is a leading importer of goods from China, it is one of the markets which are most likely to face dumping of goods from China. India should have a strategy to meet the expected increased dumping of goods from China.
India’s imports from China have increased dramatically since its accession to the World Trade Organization (WTO) in 2001. From US$15.6 billion in 2006, it has shot up to US$61.6 billion in 2015. This increase still constitutes 2.6% of the total Chinese exports. India’s exports to China have more or less remained stagnant during this period. It has marginally increased from US$10.2 billion in 2006 to US$13.39 billion in 2015. This works out to a decrease of our share of exports from 8.4% to 5%. Our bilateral trade deficit has increased from US$5.4 billion to US$48.21 billion. China’s major items of exports to India are mobile phones, fertilizers, computing processing machines, LCD panels, solar cells, electric lamps, steel, coke, motorcycle parts, lithium batteries, air conditioners and active ingredients of drugs. Our major items of exports to China are copper, cotton yarn, cotton, HSD (high speed diesel), castor oil, aluminium ores and concentrates, xylenes and polished diamonds. Iron ore was our major item of export until a ban on mining was imposed in certain areas in the country for environment reasons. If entry into Chinese market is not governed by further non trade barriers, India’s exports would have improved significantly.
India’s industry is handicapped by over leveraging and excess capacity, which prevents further private sector investment from being committed. In addition, IIP growth rates are not picking up. For the first half year, the growth rate is negative in both manufacturing and in IIP total. Economic growth is expected to go down to 6% this year on account of demonetisation of Rs 500 and Rs 1,000 notes. As the momentum of growth has been lost on account of demonetisation, it will take a few more quarters for the economy to catch up to 7.5% growth rate. Any attempt at taking a medium term view will have to be conditioned by short term considerations as well.
China has been aggressively pursuing its exports to other countries for maintaining growth momentum and providing employment to its labour, moving from agriculture to the manufacturing zones. China resorts to dumping of its goods to various countries. Dumping, in simple terminology, is selling one’s goods to other countries at prices which are lower than the prices at which they are sold in its domestic market. As China practises dumping, as evidenced by the number of anti-dumping cases against its exports by various countries, in its accession to the WTO, specific provisions were incorporated to enable other trading partners to follow a methodology which specifically recognised this factor. A 15-year transition provision agreed to in the WTO enabled importing countries to calculate dumping margin in a manner which took into account costs of a comparable country. This treatment of Non Market Economy status to China’s exports in anti-dumping cases was to continue till December 2016. The time has now come for all countries who have not so far granted market economy status to Chinese exports in their anti-dumping cases to review their position.
Over the past two years, numerous anti-dumping cases have been decided by the US, European Union and India against People’s Republic of China. Analysis of semi-annual reports of the WTO from 2014 till the most recent period (January-June 2016) shows that the US conducted more than 200 investigations of different nature (fresh investigation, review investigation, circumvention, etc), while the EU conducted more than 100 cases, and India conducted more than 125 investigations over this period in respect of imports from China. These cases reveal that goods are still being dumped by China to its trading partners’ markets. Barring very few cases, the bulk of the investigations carried out by the three countries has determined China to be a Non Market Economy (NME) for the purpose of dumping investigations.
The US has incorporated necessary provision in its Trade Preferences Extension Act, 2015 to have the option of dealing with anti-dumping cases against China in specific cases treating China as NME. This gives the US necessary authority to disregard costs provided by Chinese manufacturers and compute their costs from cost of production from a comparable third country in determining the dumping margin. EU has proposed to pursue a similar method in its regulations. This is not surprising in view of the number of cases of anti-dumping currently under process in these countries. A few countries have already granted Market Economy (ME) status to China in the past few years out of other strategic considerations. India has to take a stand shortly and it remains to be seen if it will follow the route taken by the US and EU.
India’s industry continues to be affected by dumping from Chinese manufacturers. Both EU and US have taken the view generally and in specific cases that the data provided by the Chinese government and their industries on costs and subsidies are opaque. China’s transition to ME has not been successful in the past 15 years. Most of its State Owned Enterprises (SOEs) are still controlled by considerations of the state in determining prices for exports and financial system in China is bearing the brunt of such decisions. The current problems faced by Chinese economy would certainly delay its transition to ME in the near future. It is important that Indian industry is not allowed to be affected by the practice of dumping from China. We should immediately carry out necessary amendments in our regulations governing treatment of dumped goods from China as has been carried out by US and EU. No other strategic consideration in our relationship with China should come in the way of this issue which impacts a large portion of our labour market.
R. Gopalan last served as Member, PESB. He was Secretary in the Ministry of Finance in the Department of Economic Affairs and in the Department of Financial Services. An IAS officer from Tamil Nadu, he conducted negotiations at the WTO on behalf of India.