Souring US Ties Prompt China to Seek Sweeter Trade With India

The ongoing trade war between China and the US is pushing Beijing to sweeten ties with neighboring India.

China's refiners are considering the purchase of unprecedented amounts of Indian raw sugar, with a delegation visiting the South Asian nation next month to meet mill officials and inspect logistics infrastructure, according to an Indian official. Refiners may buy the sugar "if prices are good enough," said Liu Hande, vice chairman of China Sugar Association.

The potential sales come amidst the tariff war that's prompting China to build stronger ties with other nations. The timing couldn't be better for India, where record output is forecast to boost domestic stockpiles. A deal on sugar would be the second such agricultural commodity agreement recently after China said it would import non-basmati rice, India's Ministry of Commerce said.

"China needs to show its open attitude to trading partners, and is likely to purchase a symbolic amount in a show of good will given its trade spat with the U.S.," said Zhan Xiao, a fund manager with Shanghai Buyun Investment Co.

The volume may not be as big as India expects, especially given China's large state stockpiles, estimated as high as 7 million tons, said Shanghai Buyun's Zhan. China Sugar Association's Liu agrees, adding that there's a chance the government may not purchase Indian sugar as stockpiles "are still quite high," and it's looking to reduce inventories, not increase them, he said.

Bumper Harvest

China's past actions signal that Zhan and Liu may be right. The country imposed high tariffs on imports in May last year to protect its local industry. Currently, sugar imports above annual quotas are taxed at 90 percent.

"We don't know how much import quota would be issued, or whether China and India would sign any agreement regarding low tariffs on imports," China Sugar Association's Liu said.

Despite the tariffs, the incentive for India to become a regular supplier to China is high. A bumper harvest is set to lift India above Brazil to become the world's number one sugar producer for the first time in 16 years, according to the U.S. Department of Agriculture. With a glut on its hands and benchmark sugar futures sliding to a decade-low this year, the Indian government is giving mills financial assistance to boost overseas sales.

India plans to export 2 million tons of raw sugar to China, starting in 2019, the Commerce Ministry has said. An Indian entity has already contracted with Cofco International Ltd. to export 50,000 tons, and the country is positioned to become a "significant" exporter to China, the government said.

"We want China to issue import permits to its refiners immediately," said Prakash Naiknavare, managing director of the National Federation of Cooperative Sugar Factories Ltd.