India China Trade Relations

Submitted by: Submitted to:

Manish Chaudhary Dr. Harendra Kumar

A1802016039
MBA IB 2016-18
India China trade relations are regulated by the India China JBC, which ensures a free
exchange of products and services between the two nations.

India China Trade Relations: Overview

India & China signed a Trade Agreement in 1984 which provided for Most Favored Nation
Treatment and later in 1994, the two countries signed an agreement to avoid double taxation.
The bilateral trade crossed US$13.6 billion in 2004 from US$ 4.8 billion in 2002, reaching
$18.7 billion in 2005. The India China trade relations have been further developed from
2006, with the initiation of the border trade between Tibet, an autonomous region of China,
and India through Nathu La Pass, reopened after more than 40 years. The leaders of both the
countries have decided to enhance the bilateral trade to US$ 20 billion by 2008 and further to
US$ 30 billion by 2010. According to the Indian Commerce Minister, Kamal Nath, China
would soon become India's largest trade partner within the next 2-3 years, after the US and
Singapore.

India China Bilateral Trade - India China Trade Statistics 2017

India and China are the two most populous countries and fastest growing major economies in
the world. They have come to play an increasingly leading role in world economic affairs and
posted aggressive growth rates amongst other things. India China trade relations are the most
important part of its bilateral relations. India China trade has observed rapid growth in the
recent year. Without being affected the massive economic growth of India and China, there is
no Free Trade Agreements (FTAs) between these two countries. China is the world’s largest
exporting country while India’s exports have been grown after 2009. In recent past years,
both India and China have been pursuing FTAs with a variety of countries particularly in
Asia. It is reported that no progress has been made towards the signing an FTA between India
and China. As China has gained a large footprint in international trade and India’s domestic
industry has declared notes of caution on several incidents over a possible FTA with China.

After the implementation of GST in India, the new rates of Custom Duty will be applicable
for the goods which are entering into India from China. The import duty on Chinese products
is increased for Indian importers. However, it is beneficial for Indian domestic producers and
it is assumed that India imports from China will be decreased. In this article, we are
discussing bilateral trade between India and China, India exports to China, India imports
from China and Sample data of India China bilateral trade statistics.

India China Bilateral Trade

China trades as much as five times more than what India does. China has emerged as an exports
driven economy with its growth rate of exports beating that of its imports. India’s export growth
rate is still covering behind its import growth rates. More than half of China exports come from
final processing goods and assembly of goods while India’s exports are primarily raw material
and labour oriented with items such as mineral fuels and precious stones. China is India’s
largest trading partner with bilateral trade at USD 69.39 billion (USD 69399176 thousand) in
2016, but it is heavily tilted in favour of China. India exports to China recorded USD 8916073
thousand in 2016 while India imports from China recorded 60483103 thousand during the same
period.

India China trade has a marked difference with India importing three times as much as it
exports to China. China exports to India have been growing at a rate than overall Chinese
exports as well as total Indian imports. China is extending its business to the Indian market at
a much quicker pace than any of its other export destinations. It is important to analyse the
potential effects of an FTA with China on India, a reduction of trade barriers could result in
mutual benefit.

India China Trade: India Exports to China

Cotton, ores and organic chemicals are the most exporting items from India to China. As per
the India China bilateral trade statistics, India exports to China is much lower than India
imports from China. India exports to China is declined by 14% between 2012 and 2016.
However, the share of China in India exports recorded 3% in 2016. India exports of cotton to
China worth USD 1263291 thousand registered in 2016 which is the top commodity exported
to China. According to India China trade statistics, India exports of cotton to China is down by
26% from 2012 to 2016.

The HS code 26 includes ores, slag and ash. India did ores export business from China with
the value of USD 1166195 thousand during the year 2016. The sales of this product to China
is also declined by 26% during the period of 2012-2016. While, India exports of product HS
code 26 to China is 89% of total export value generated from this product.

Organic chemical is third largest product of India exported to China. It comes under HS code
29 and recorded USD 785590 thousand from India exports to China. The growth value is
declined by 7% for this product during 2012-2016. Refer the below table to check the top
exports from India to China.

Product Value (USD Thousand)

Cotton 1263291
Ores, Slag & Ash 1166195
Organic Chemicals 785590
*Above stats are based on 2016 report

India China Trade: India Imports from China

China is the largest import partner of India. India imports from China worth is seven times of
India exports to China. Electronics, machinery and organic chemicals are the most importing
commodities from China. India imports of electronics items from China has been increased by
13% between 2012 and 2016 and recorded worth USD 20871193 thousand during the year
2016. This product come under HS code 85 which includes electrical machinery and equipment
and parts thereof, sound recorders and reproducers and other electronics items.

Machinery, mechanical appliances, nuclear reactors, boilers and parts thereof come under HS
code 84. India imports of machinery items from China recorded USD 10728064 thousand
during the year 2016. India imports from China of machinery has been raised by 2% between
2012 and 2016.

Organic chemical is one of the largest commodities of India China bilateral trade. India imports
of organic chemicals from China recorded USD 5585553 thousand in 2016 and it has been
increased by 6% during 2012-2016. Go through the following table to check the top India
imports from China.

Product Value (USD Thousand)

Electronics 20871193
Machinery 10728064
Organic Chemicals 5585553
*Above stats are based on 2016 report

Here, we are providing the sample of India imports from China. It will help you to analyse the
India China trade relations and will give you a fair idea about the activities of trading
companies. Our trade report covers the following data fields which are given in the sample
below.

Date 26/November/2016
HS Code 62099090
 Product Description Readymade Baby Garments -A1786 Stylish Orange
Sweatshirt
Quantity (Pieces) 9
Value (USD) 36.03
Total Value (INR) 2479.44
Invoice Unit Price (USD) 3.3311
Indian Port Sahar Air Cargo
Foreign Country China
Indian Importer Name ***
Importer Address & More ***
details

Indian Exports to China under the India China Trade Relations

The principal items of Indian exports to China are ores, slag and ash, iron and
steel, plastics, organic chemicals, and cotton. In order to increase the extent of
exporting Indian goods to China, however, there should be a special emphasis
on investments and trade in services and knowledge-based sectors. The other
potential items of trade between India and China are marine products, oil seeds,
salt, inorganic chemicals, plastic, rubber, optical and medical equipment, and
dairy products. Great potential also exists in areas like biotechnology, IT and
ITES, health, education, tourism, and financial sector.

Chinese Exports to India under the India China Trade Relations

The main items that comprise Chinese exports to India are electrical machinery
and equipment, cement, organic chemicals, nuclear reactors, boilers, machinery,
silk, mineral fuels, and oils. Value added items like electrical machinery
dominates Chinese exports to India. This exhibits that Chinese exports to India
are fairly diversified and includes resource-based products, manufactured items,
and low and medium technology products. It is said that if India is to capture
the markets of China and enjoy profits, then it would have to discover new
merchandise and branch out its exports to China.

How to Fix India-China Trade

The Indian government is exploring the possibility of restricting the import of electronics and
information technology products from China. Ostensibly, the reason is to bolster security and
prevent data leakages. However, the immediate provocation for reviewing its trade agreement
with China was the India-China standoff at the Doklam plateau.
As both the countries have now agreed to deescalate the tension by withdrawing their troops,
India could now turn to trade issues with China, with the aim of correcting the present one-
way trade, where China continues to be the beneficiary because of its protectionist policies.

Although trade is skewed heavily in favor of China, any move to put a restriction on the
import of Chinese goods will hit Indian industries hard, as India imports over $22 million in
cheap electronics and information technology products for its own electronics and power
sectors.

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Chinese media had recently criticized India for imposing anti-dumping duties on more than
93 Chinese products. The anti-dumping duties on chemicals and machinery items imported
from China have already been in place for some time. Other Chinese products on which India
has imposed anti-dumping duties include steel and other metals, fibers and yarn, rubber or
plastic, electronics, and consumer goods.

The logic behind imposing anti-dumping duties is mainly to protect domestic industries, as
they are not able to match the price of cheap Chinese products. Anti-dumping duties aim to
create a level playing field for Indian manufacturers.

Yet any step to impose unreasonable restrictions of imports from China would amount to a
contravention of the World Trade Organization’s laws. Secondly, as local manufacturing
companies in India are not geared up to supply goods to the rising power and telecom sectors,
India may be forced to import such good from the United States and Europe at a prohibitive
cost, which may put an additional financial burden on these two sectors.

Today, China is India’s largest trading partner, with a bilateral trade of $71.5 billion. The
total imports from China during the last fiscal year stood at $61.3 billion against India’s
export to China worth $10.2 billion. The trade deficit, which stood at $37.2 billion a few
years ago, now stands at a whopping $51.1 billion.

One of the main reasons for this unfavorable trade balance is that India exports only raw
materials like iron ore and copper to China. The deficit can be reduced only when India starts
exporting value-added products. Unfortunately, the Indian manufacturing industries have to
go a long way before they are geared up to export value-added products to China.

India is one of the largest manufacturers of generic drugs. But it has not been able to export
to China because of Beijing’s protectionist policies. While Indian pharmaceutical companies
exporting generic drugs to the United States and Europe, as most of the drugs have received
FDA and EU approval, it is quite striking that China does not allow imports of drugs from
India.
Indian pharmaceutical companies have taken up the issue with the Indian Commerce
Ministry to facilitate export of generic drugs to China, especially since a Chinese delegation
completed inspections of their manufacturing facilities a year ago. The Indian Commerce and
Industry Minister has also taken up the matter with his Chinese counterpart in this regard.

Healthy trade between two countries has the potential to reduce tensions. The leaders of both
the countries have so far shown flexibility in improving relations. India should reconsider
imposing restrictions on Chinese goods, as it has the potential to aggravate an already fragile
status quo. China, on its part, should help India reduce the trade deficit by importing generic
drugs and IT enabled services.

Chinese companies have huge investments in the cell phone business, telecom, and power
sectors. Such goods have become the backbone of India’s own manufacturing. One of the
reasons for the popularity of Chinese goods is that they are cheap, compared to locally
manufactured goods, as well as comparable imports from the United States or other Western
countries.

If India decides to put an embargo on Chinese goods, and decides to import from other
countries, it would involve a huge cost escalation which would translate into rising costs of
goods and services, such as power generation. Similarly, the telecom and IT industries, which
depend on import of hardware from China, will also be affected.

Despite the Indian prime minister’s “Make in India” initiative, India is finding it difficult to
increase its manufacturing capabilities in a short time span. Until India is able to create a
sound manufacturing base, it should refrain from imposing any unreasonable restrictions on
Chinese goods, as it would stand to suffer more than China. It must be mentioned here that
the Chinese exports to India account for only two percent of its overall exports. In case of any
boycott of Chinese products, it is the Indian manufacturing companies that will be hit the
most.

Both the Chinese president and the Indian prime minister are known for their mature
leadership and gravitas. Both should immediately engage in a dialogue to defuse the tension
between the two countries. The BRICS forum scheduled in September in China would be the
ideal platform for both the leaders to address the trade imbalance.

How India is beating China in Trade – another angle

Imports are the purpose of trade, imports are why we trade at all. Thus, India gaining more in
imports from China is winning, not losing, at trade. That this mistake is common does not
excuse it.
Just when India is pushing for solar energy (targeting 100 GW by 2022, 1 GW = 1,000 MW),
Vikram Solar is hurting. Last quarter, capacity utilisation stood at half, even after exporting a
fourth of its produce. "We are fighting the Beijing factor. Over 80% of India's solar
component supplies have been hijacked by the Chinese." he says. Aggressive pricing on the
back of state subsidy, a protectionist outlook and cheap finance have allowed Chinese
manufacturers to outprice their domestic counterparts. Products of Vikram Solar are 8-10%
costlier than Chinese imports. India's aggressive solar energy targets would mean business
worth over $40 billion for component manufacturers over the next five years.

The point being that we want solar cells in order to be able to produce energy. If we can get
those cells 8% cheaper then that's a win for us, we get to produce electricity more cheaply.
This is true whether China subsidises manufacture or not. In fact, if it does, then this is a
subsidy from Chinese tax payers to Indian electricity consumers--and who doesn't like free
money?

China is India's largest trading partner, with bilateral trade at $71.5 billion, but it is heavily
skewed in favour of China. India imports $61.3 billion worth of Chinese products while it
exports just $10.2 billion worth of goods to China. From -$37.2 billion in 2011-12, trade
deficit has widened in the last six years to -$51.1 billion.

Exports are the things we have to sweat over so that other people, foreigners, can consume
them. Imports are that sweat of foreigners that we get to consume. Who doesn't like to
consume the labour of others? Think this through for a moment. Imagine that I live in a fine
house. Is this to my benefit or the benefit of the builder? I'm really pretty sure that this
benefits me more than him. Equally, if I can and do consume fine food is this more to my
benefit than that of the farmer? I'm really pretty sure it is more to my benefit, yes.

That India imports more from China than it exports to it is evidence that India is winning at
trade--for imports are the very purpose of trade in the first place.
How China beats India hollow in trade and dominates Indian homes,
markets and economy
Reference:

https://www.forbes.com/sites/timworstall/2017/07/16/how-india-beats-china-at-
trade/#45ce711d48c8
https://business.mapsofindia.com/trade-relations/india-china/
https://thediplomat.com/2017/08/how-to-fix-india-china-trade/
http://www.exportgenius.in/blog/india-china-bilateral-trade-india-china-trade-statistics-
2016-110.php

https://economictimes.indiatimes.com/news/economy/foreign-trade/china-dominates-indian-
homes-markets-and-economy-as-trade-deficit-widens/articleshow/59611452.cms