India’s Trade Relationship with China

What’s in today’s article?

• Why in the News?
• India – China Trade Relationship
• Other Economic & Commercial Issues Between India and China
• News Summary
• Strategic Implications of This Dependency

Why in the News?

• India’s imports from China crossed $101 billion in 2023-24 from about $70 billion in 2018-19.
• Also, China’s share of India’s industrial goods imports has risen from 21% to 30% over 15 years.
• According to the Global Trade Research Initiative (GTRI), which released the above-mentioned data, Chinese imports to India will rise sharply in coming years.

India – China Trade Relationship

• Since beginning of the last decade, bilateral trade between the two countries recorded exponential growth.
• From 2015 to 2022, India-China bilateral trade grew by 90.14%, an average yearly growth of 12.87%.
• In 2022, the overall trade with China increased by 8.47% year on year to reach $ 136.26 billion, crossing the $ 100 billion mark for a second time in a row.
• Trade Deficit:
  • The trade deficit came at $101.28 billion, in China’s favour, as India’s imports from China witnessed an increase by 118.77% to reach $118.77 billion.
  • Meanwhile, India’s exports to China decreased by 37.59% year on year to reach $17.49 billion.
• Reasons for India’s Trade Deficit w.r.t. China:
  • The growth of trade deficit with China could be attributed to two factors:
• Narrow basket of commodities, mostly primary, that we export to China and
• Market access impediments for most of our agricultural products and the sectors where we are competitive in, such as pharmaceuticals, IT, etc.
  • Our predominant exports have consisted of iron ore, cotton, copper, aluminium and diamonds/ natural gems.
  • Over time, these raw material-based commodities have been over-shadowed by Chinese exports of machinery, power-related equipment, telecom equipment, organic chemicals, and fertilizers.
• Bilateral Investments:
  • According to the Ministry of Commerce of China, Chinese investments to India in the year of 2021 was $63.18 million.
  • On the other hand, Indian investment into China for the year 2021 was $6.32 million.

Other Economic & Commercial Issues Between India and China

• Cooperation in the Petroleum Sector:
  • India and China are working on the areas of cooperation in the petroleum sector to leverage upon the sheer size of the market of two countries.
  • The Petroleum Secretary visited Beijing in October 2018 followed by visit of Vice Minister of NEA to New Delhi in February 2019 and September 2019.
  • Constitution of a JWG and draft MOU on cooperation is under consideration.
  • However, there has been no progress on this since onset of COVID-19.
• Double Taxation Avoidance Agreement (DTAA):
  • India and China signed the DTAA on 18 July 1994 and the Agreement came into force on 21 November 1994.
  • Both the countries agreed to revise the DTAA in its entirety and the revised DTAA was signed in May 2018.
• Social Security Agreement:
  • With the steady increase in number of personnel/professionals that are being employed both in India and China.
  • The Social Security Agreement assumes important role.
  • India shared a draft SSA to Chinese side in October 2016.
  • However, there is a divergence as far as ‘Totalisation’ clause is concerned.
• Bilateral Investment Treaty:
  • India has sent notice to China to terminate the Bilateral Investment Promotion Agreement and proposed initiation of negotiations on Bilateral Investment Treaty.
  • Subsequently, India has taken a position that instead of signing a separate BIT with China, we may cover this under the chapter on Investment in RCEP.
  • However, following India’s decision to not join the RCEP, the issue has not been taken up with the Chinese side.

News Summary

• The Global Trade Research Initiative (GTRI), a think-tank, has recently published a report discussing India’s Trade Relationship with China.
• As per the report. India’s imports from China crossed $101 billion in 2023-24 from about $70 billion in 2018-19.
• China is the top supplier in eight major industrial sectors, including machinery, chemicals, pharmaceuticals, and textiles.
• India’s total merchandise imports stood at $677.2 billion in 2023-24, of which 15% or $101.8 billion worth goods were sourced from China.
  • Of these, $100 billions of imports were in major industrial product categories, amounting to 30% of such imports, and that share stood over 70% for some products.
  • Fifteen years ago, China’s share of the same goods’ imports was 21%, the study said.
• China also accounted for 29.2% of chemicals and pharmaceuticals imports into India, 25.8% of plastic product imports and 23.3% of automobile sector inbound shipments.
• A lower dependence on China was seen in the case of iron, steel and base metal imports, with just 17.6% share of inflows coming from the neighboring nation.
• The report suggests that Chinese imports will continue to rise sharply in the coming years.

Strategic Implications of This Dependency

• The strategic implications of this dependency are ‘profound’ and affects not only economic but national security dimensions, the study said.
• “This is imperative not only to mitigate economic risks but also to bolster domestic industries and reduce dependency on single-country imports, especially from a geopolitical competitor like China,” it said.
• As per the study, India had exported $10 billion worth of goods to China in 2005, and enjoyed a trade surplus with its neighbor between 2003 and 2005.

After 2005, Chinese goods dominated trade flows, steadily magnifying the trade deficit for India.

Q1. What is the McDonald and McMahon Line?

In the Northern Sector, it is called the MacDonald Line while in the Eastern Sector it is called the McMahon Line. While India recognised these lines as the successor state of the British Empire, the Chinese have always disavowed them.

Q2. What do you mean by RCEP?

 The Regional Comprehensive Economic Partnership is a free trade agreement among the Asia-Pacific nations of Australia, Brunei, Cambodia, China, Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand, and Vietnam.

Source: Up 2.3 times in 15 years, India’s Chinese import bill to rise further