Dec. 15: The first day of Chinese premier Wen Jiabao’s visit showed why India’s yawning trade gap with China is the way it is. Three Indian firms – Reliance Communications (RCom), SRM Energy and Reliance Power signed pacts for loans worth over Rs 21,000 crore or $4.5 billion. The loans, which are being extended by Chinese banks such as China Development Bank, China Datang and Exim Bank of China will go on to fund purchase of Chinese built equipment by these companies.
For instance, Chinese firms such as Huawei and ZTE are major suppliers of telecom equipment to Indian telephony majors such as RCom and Tata Teleservices. Huawei had recently announced that it would be investing a little over $2 billion in setting up manufacturing facilities in India.
Similarly, ADAG’s Reliance Power and several other power firms are sourcing electricity generation equipment from Chinese firms. Reliance Power signed an agreement for a Rs 5,000 crore loan pact on Wednesday for its Sasan ultra-mega power project of 3,960 megawatt.
SRE Energy has been extended a facility of Rs 6,357 crore for a 2,000 MW power project the latter is building in Tamil Nadu. Prices offered by Chinese vendors are believed to be much lower than those offered by firms from Western nations. One reason, it is alleged, is that China deliberately keeps its currency under valued, thereby giving its exporters an unfair advantage.
Interestingly, while China exports high technology items such as telecom and power generation equipment to India, India’s exports often tend to be natural resources such as iron ore.