India and China are making plans to introduce reciprocal credit lines with the aim of boosting still further the already burgeoning volumes of trade between the two countries.

Bilateral trade recorded between the two countries in 2000 was US$3 billion but by 2003 it had surged to a record US$7.6 billion.

Opening discussions

Soaring levels of trade have prompted the export credit agencies (ECAs) of each country to get together to look at ways of facilitating even more trade between the two giant exporting countries according to Indian officials.

The two ECAs have already had "an initial exchange of views on exchange of reciprocal lines of credit to finance project exports in each other's country", according to Export-Import Bank of India (Eximbank India) chairman and managing director T C Venkat Subramanian.

Indian proposal

This is the first time the two ECAs have entered into such discussions and it seems as though India is taking a lead in the talks.

"The Exim Bank of India, with the approval of the government of India, has also proposed a reciprocal credit line," according to Subramanian, who concedes that more talks are needed before an arrangement is finalised and the Chinese side are currently studying the Indian proposal.

Chinese U-turn

If China accepts the agreement, this would mark a change of approach at the Export-Import Bank of China (Eximbank China).

China's ECA does not currently finance imports, unlike the Eximbank India which finances both imports and exports.

L/C confirmation

Subramanian says that bilateral letter of credit confirmation facilities may feature in the reciprocal trade finance arrangements that he believes would boost trade between the two countries from the current US$7 billion to US$20 billion "within a short period."

Bilateral trade between India and China of US$3.1 billion the first quarter of 2004 already exceeds the annual volume of trade worth in 2000.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.