Beijing’s Bid to Bridge the Trade Deficit of over $100 billion with India

China has expressed willingness to address India’s $100 billion trade deficit by increasing imports of Indian goods and easing trade barriers. However, India remains cautious, fearing increased dumping of Chinese goods. Despite Chinese Ambassador Xu Feihong’s calls for stronger ties and fair business environments, experts warn this could favor China more than India. The deficit has widened due to falling Indian exports and rising Chinese imports. Resolving these issues requires trust-building, balanced policies, and addressing longstanding trade and geopolitical concerns.

China has recently indicated its willingness to address India's growing concerns over a record trade deficit, which is expected to hit $100 billion in the financial year 2024-25. This potential shift in trade relations comes as China faces mounting economic pressures from its escalating trade war with the United States. According to sources familiar with the matter, Beijing has informally reached out to New Delhi, suggesting measures to increase imports of Indian goods by reducing tariff and non-tariff barriers.

A Strategic Gesture Amid Global Trade Tensions

China's proposition comes at a time when it is grappling with hefty U.S. tariffs of 145% on all Chinese goods. While these overtures appear to be a step toward improving bilateral trade relations, India remains cautious. The principle of reciprocity complicates any quick resolution, as New Delhi fears that easing trade barriers for Chinese imports could exacerbate the dumping of low-cost Chinese goods into Indian markets.

Chinese Ambassador Xu Feihong has publicly emphasized the importance of fostering stronger economic ties. Speaking to a state-run media outlet, Xu suggested that China is open to increasing imports from India and attracting investments from Indian businesses. However, he also urged India to create a more transparent and equitable business environment for Chinese companies.

Trade Imbalance: A Persistent Challenge

Despite these gestures, experts believe that easing trade restrictions could disproportionately benefit China. The removal of barriers might facilitate direct imports of Chinese goods, some of which are currently routed through third-party countries with which India has free trade agreements, such as the ASEAN bloc. Critics argue that China leverages unfair trade practices, including subsidies and predatory pricing, to dominate global markets, often at the expense of competitors like India, the U.S., and the European Union.

India's trade deficit with China has been widening for years. Official data reveals that the deficit stood at $48.65 billion in 2019-20, dipped marginally to $44 billion in 2020-21 due to the pandemic-induced slowdown, and then surged to $85.08 billion by 2023-24. In the first 11 months of FY25, India's exports to China fell by 15.66%, while Chinese imports rose by 10.41%, further deepening the trade imbalance.

Addressing India’s Concerns

Indian officials have flagged several issues, including the lack of predictable trade arrangements and barriers to accessing Chinese markets. While China has previously promised to address these concerns, tangible progress has been limited. Key Indian exports, such as iron ore, petroleum products, and organic chemicals, struggle to gain traction in the Chinese market, while India continues to rely heavily on imports of Chinese electronics, machinery, and pharmaceutical ingredients.

Ambassador Xu, in his recent remarks, reiterated Beijing’s commitment to strengthening trade ties. He hinted at importing more Indian products and encouraged Indian enterprises to explore opportunities in China. However, such assurances have done little to allay India’s apprehensions, particularly given the history of strained relations following the 2020 military standoff along the Line of Actual Control (LAC).

Navigating Geopolitical and Economic Complexities

India’s cautious approach is rooted in broader geopolitical and security concerns. Since the LAC standoff, New Delhi has imposed stricter scrutiny on Chinese investments, banned numerous Chinese apps, and limited economic engagements. External Affairs Minister S. Jaishankar has also called for applying "national security filters" to foreign investments, signaling India's intent to prioritize security over economic expediency.

While China has pushed for the relaxation of trade-related restrictions, including more business visas and direct flights, India remains wary. The widening trade deficit underscores the need for a more balanced and sustainable trading relationship. However, achieving this equilibrium will require both sides to address longstanding issues and rebuild trust.

The Road Ahead

As China signals a willingness to mend trade ties, the ball is now in India’s court. Both nations stand to benefit from a more equitable trading relationship, but significant challenges remain. India must weigh the potential economic gains against the risks of over-reliance on Chinese imports. Meanwhile, China needs to back its promises with concrete actions, such as removing barriers to Indian goods and fostering a more transparent business environment.

The coming months will be crucial in determining whether these overtures translate into meaningful change or remain another chapter in the long-standing saga of Indo-China trade relations. For now, the deficit continues to loom large, a stark reminder of the complexities in balancing economic cooperation and national interests.