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Imbalances in India China Trade Relations


Amidst the popular ongoing border yips between India and China, there had been calls for a ban on Chinese apps. Two lengthy lists of applications have been done away with already and there is an indication towards banning or restrictions on Chinese goods. The move seems validly pertinent and in the interest of domestic industries. Moreover, India has been showing a negative balance of trade in its bilateral trade with China. However, the anti-Chinese sentiments need to be explored in light of various important aspects of economic, trade and technology based relations between the two countries .

These aspects include understanding the entire extent and axis of imbalance in Indo-China relations, the reasons for increased Chinese presence in the Indian market today, how this overwhelming presence is impacting domestic Indian industries and whether in this backdrop, India can afford to boycott China or not?

Moving further we would also have a look at the government steps taken to straitjacket Chinese dependence and also to promote domestic production. How good is demanding the holistic development of absolute domestic manufacturing at the cost of limiting Chinese imports in the current scenario?

The Imbalance In India China Trade Relations

Chinese dominance in trade has been extensive and evident. Let's trace the numeric chain to spot the overall changes over the years.

The easiest indicator is The bilateral trade between the two countries that has increased from USD 38 billion in 2007-08 to around USD 89.6 billion in 2017-18 ( average of four quarters).

In 2013-14, Chinese imports were approximate to the tune of about 11.6% of all Indian imports; by 2017-18, this had increased to about 16.6%.

Although India's imports from China have increased manifold , the same cannot be said for India's exports to China. China formed 6.5% of India's exports in FY10, which is the highest in the last 10 years. In FY20, China accounted for 5.3% of India's total exports. However, China is the 3rd top destination for India's exports. The dip looks insignificant but in its entirety, it's huge. USA and UAE have been our staple customers in terms of Indian exports.

The trade deficit with China at around $63 billion constitutes more than 40% of India's whole trade deficit. COVID-19 opened another dimension of overall dependence: India’s imports from China have risen in the month of June and July 2020 by about 7.2% whereas the exports to China have contracted by 1.4%. The primary reason for increased import is the immediate need for medical supplies such as masks, PPE kits etc.

Why is China proactively present in our market? 

Despite the National Manufacturing Policy (2011) and the Make in India initiative (2014), brought to strengthen the manufacturing sector, the share of manufacturing in GDP has remained stuck between 15 and 17 per cent. Significant share of this additional demand is filled by Chinese imports.

Foreign Direct Investment (FDI) Regime: The liberalisation of FDI policies which have gained momentum in the previous decade, have also had a negative impact on the manufacturing sector. Companies already weakened by adverse import competition, became easy targets for foreign investors. This was evidenced by the steeply increasing cases of takeovers of Indian entities in recent years.

Liberalization of trade: Fast-track trade liberalisation resulting in the lowering of average import duties on industrial products from 33% in 2000 to below 9% in 2008 is a major factor. India also had to remove all the quantitative restrictions on imports, such as import licensing in 2001. An expansionist China was thus provided an opportunity.

Poor global competitiveness of domestic industries: Marketplace model deterred taking any significant measures to prepare the industrial sector for an open economy. On the contrary, China had adopted industrial policies, which enabled their industries to not only face import competition, but to also gain global competitiveness in the process.

Chinese trade is parented by the Chinese government: Chinese goods are much more competitive than Indian goods mainly due to the efforts and support of the Chinese Government. A large number of companies which are dominant players in exports are government controlled enterprises. (China is not recognized by WTO as a market economy mainly because of the lack of transparency in its trade policy).