India – China Trade relations

• China still remains the largest source of critical imports for India, from mobile phone components to pharmaceutical ingredients, and India is working on a multi-pronged strategy to reduce this reliance, which is a bigger concern than the imbalance in trade.

• The trade deficit is not in dollars, it is in overdependence.
• “A mobile phone requires 85% content coming from one country. If China were to stop the active pharmaceutical ingredients (APIs) for penicillin, we would not be able to produce it in this country. When somebody controls your production, that is a sentiment which raises concern.”
• Mr. Chadha said that India was working on a multi-pronged strategy to reduce this dependence, ranging from the Production Linked Incentive (PLI) scheme to boost domestic manufacturing, a global effort involving India’s foreign missions to find alternatives to China, and the use of free trade agreements (FTAs) with other trading partners.

• COVID-19 had helped accelerate this change. When production in China was hit early in 2020, although its economy would recover by the summer and become the only major economy to avoid contraction last year, India shared with its foreign missions lists of items critically dependent on China, following which the missions linked up with suppliers in their countries.
• What offered opportunities for India was the push from many countries to not necessarily relocate from China - which still remains integral to global supply chains - but to diversify, with future capacity expansion up for grabs. The PLI scheme is hoping to capture that diversification.
• China still remained the biggest source of India’s imports, but imports last year fell 10.8%, the lowest since 2016.
• Two-way trade in 2020 reached $87.6 billion, down by 5.6%, while the trade deficit declined to a five year-low of $45.8 billion.
• Mr. Chadha noted that steel imports had fallen from a high of $2.8 billion to less than $1 billion, with China replaced by South Korea in part because of an FTA. India in 2019 withdrew from the Regional Comprehensive Economic Partnership (RCEP), which would have put India and China in the same trading bloc.
• On the trade front with China, he said India’s exporters had struggled for years but made little headway because of a number of non-tariff barriers. In 2018, both sides signed a number of protocols, including for rice and tobacco, but “none of this materialised in substantial trade”. India’s exports to China did, however, cross $20 billion for the first time last year.

India – China Trade relations

• India’s trade with China declined last year to the lowest level since 2017, with the trade deficit narrowing to a five-year low as the country imported far fewer goods from its northern neighbour.
• Bilateral trade slid 5.6% to $87.6 billion, according to new figures from China’s General Administration of Customs (GAC).
• India’s imports from China shrank by 10.8% to $66.7 billion, marking the lowest level of inbound shipments since 2016.
• India’s exports to China, however, jumped 16%, crossing the $20 billion mark for the first time to a record high of $20.86 billion.
• The trade deficit, a source of friction in bilateral ties, shrank to $45.8 billion, the lowest level since 2015.
• While there was no immediate break-up of the data for 2020, India’s biggest import in 2019 was electrical machinery and equipment, worth $20.17 billion.
• Other major imports in 2019 were organic chemicals ($8.39 billion) and fertilisers ($1.67 billion), while India’s top exports that year were iron ore, organic chemicals, cotton and unfinished diamonds.

Appetite for iron ore

• The last 12 months saw a surge in demand for iron ore in China, as a slew of new infrastructure projects aimed at reviving growth after the COVID-19 slump lifted consumption of steel.
• Total iron ore imports in Asia’s largest economy rose 9.5% in 2020.
• The drop in India’s imports from China largely mirrored a decline in overall inbound shipments last year as domestic demand slumped in the wake of the pandemic.
• That makes it difficult to determine whether 2020 is an exception or marks a turn away from the recent pattern of India’s trade with China, especially since there is, as yet, no evidence to suggest India has replaced its import dependence on China by either sourcing those goods elsewhere or manufacturing them at home.
• The dip in exports to India bucked a strong year for Chinese exports, which surged 10.9% in December and grew 4% in 2020, aided by the economic recovery in China while many countries worldwide remained in various stages of lockdown.
• The full year’s export performance marked a sharp turnaround for the world’s second-largest economy, which saw its GDP contract 6.8% during the height of the COVID-19 outbreak in the first quarter, while foreign trade fell 4.9% year-on-year over the first five months through May.
• With a stringent lockdown containing the outbreak in China by the summer, the economy rebounded to grow 3.2% in the second quarter and 4.9% in the third, with China’s industries humming back to life even as much of the rest of the world remained in varied states of lockdown.

‘Positive growth’

• China was “the world’s only major economy to have registered positive growth in foreign trade in goods,” said Li Kuiwen, spokesperson of the GAC, with China’s foreign trade and exports in the first 10 months of the year accounting for a record 12.8% and 14.2% share of the global totals, respectively.
• That was reflected in the annual export figures, as China posted sharp increases with most of its major trading partners.
• Exports to the ASEAN bloc, China’s largest trading partner last year with bilateral trade amounting to $684 billion, rose 6.7%, while exports to the EU, China’s second-largest trading partner, also rose 6.7% as total trade reached $649 billion.
• Despite the trade war with the U.S. and the pandemic, two-way trade was up 8.3% to $586 billion, with China’s exports rising 7.9% to reach a record $451 billion.
• The trade surplus with the U.S. expanded to $317 billion in 2020, compared with the $288 billion figure at the end of President Donald Trump’s first year in office in 2017, underlining the limited impact of his tariff measures as he ends his presidency.