Xi, Modi agree on new trade mechanism at seaside talks in India

Chinese President Xi Jinping and Indian Prime Minister Narendra Modi agreed to set up a new mechanism to discuss trade during two days of informal talks in southern India that were aimed at re-calibrating strained ties between the nations.

India raised its concerns about the China-led Regional Comprehensive Economic Partnership, Indian foreign secretary Vijay Gokhale told reporters Saturday in the seaside town of Mamallapuram. The contentious issues of China’s Huawei 5G network and India’s decision to revoke the special autonomous status of Kashmir were not discussed, Gokhale said.

The talks between the leaders of the world’s two most populous countries came amid border disputes and trade tensions. China is India’s second-largest trading partner with current two-way trade of $87 billion, and the two sides have targeted $100 billion in trade by 2020.

Modi told Xi that “it is important that RCEP is balanced – that a balance is maintained in trade in goods, trade in services and investments,” Gokhale said. Xi said China “is ready to take sincere action” on trade and “to discuss in a very concrete way how to reduce the trade deficit,” Gokhale said.

Chinese vice premier Hu Chunhua and Indian finance minister Nirmala Sitharaman will lead the new mechanism which seeks to smooth concerns in the trade relationship that’s currently skewed in China’s favor. The countries agreed on a partnership to create more jobs in manufacturing and will deepen defense communication, Gokhale said.

India is under increasing pressure to decide whether it will be a part of the RCEP – which aims to create the world’s largest trading bloc – as China seeks to conclude the negotiations by November. India’s primary concern is the pact may lead to an influx of cheap Chinese goods, which could further widen New Delhi’s nearly $55 billion trade deficit with Beijing.

Both RCEP and India need each other, said Amitendu Palit, senior research fellow at the Institute of South Asian Studies at the National University of Singapore, noting New Delhi was expected to table a final series of offers and requests on market access at the last ministerial meeting on the trade deal.

“These are likely to cover its concerns on opening up sensitive sectors like dairy and steel, through appropriate import safeguards and long phase-out of tariffs,” Palit said in an email Saturday. “Much of India’s concerns at RCEP have been driven by fears of Chinese imports. It is therefore not accidental that the Modi-Xi summit is taking place at a time when the RCEP is heading for a finish.”

This is the second straight “informal” meeting between the leaders, after their interaction in Wuhan, China in April last year.

It comes as China navigates a trade war with the U.S. and months-long protests in Hong Kong, while India is trying to revive an economy that’s seeing the slowest expansion in six years. New Delhi had also previously expressed annoyance over China’s support of neighbor and rival Pakistan regarding India’s actions in Kashmir, a region both Islamabad and New Delhi claim.