India-China Relations And The Trade Imperative

India & China relations are expanding and deepening despite several divergences on many pertinent issues impacting the bilateral relations. China has continued to remain one of India’s leading trade partners in recent years, with the balance of trade heavily skewed in favor of China. In 2022, the trade imbalance breached the US$100 billion mark for the first time, as per the latest data released by Chinese customs. This exponential rise in trade is on account of an increase in the import of electronic goods, organic and inorganic chemicals, medicinal and pharmaceutical products, fertilizers, etc. from China. Moreover, investment flows from China to India have dampened over the last two years following India’s revised FDI policy in response to border skirmishes. In this article, we outline the latest trade between the two Asian neighbors.

Since the late 1950s, relations between India and China have been fraught with tension and conflict , yet the two countries have recently enjoyed a significant improvement in bilateral relations .The two countries are seen today as ordained to become major pillars of the international system. According to the most recent official data for April December 2022, China is India's top most merchandise supplier with 13.75% share ($75.87 billion) in total imports of $551.70 billion. The challenge has always been to bridge the differences of opinion from both sides. At the same time, one should not come to the conclusion that both India and China have always been at loggerheads.

Methodology of the Study

Secondary data obtained from published sources like various, international journals , RBI database, newspapers, articles, and websites on the internet, have formed an important component of this study and provide a foundation to it.

History

The last six decades of India-China relationships have seen more of mutual mistrust and suspicion than friendliness and cordial atmosphere. Rajiv Gandhi’s visit to China in December 1988 was the beginning of a new stage in India-China relations. It led to fundamental policy shifts. India and China agreed that this relationship would be fully normalized and would no longer be conditional upon prior settlement of the boundary question.

However, by the second half of the 1980s, some new factors came into play. One such factor was the close military encounter with China along the LAC in 1986–1987 in the Sumdorong Chu valley. India hoped that China would be more amenable to a boundary settlement on a realistic basis, willing to institutionalize peace through confidence-building measures. However, China was unwilling to settle the boundary question based on ground realities. China also halted the LAC clarification exercise in 2003; concern arose after the year 2000 over its rapid infrastructure buildup along the LAC and in Tibet. By the mid-2000s, the worsening trade imbalance was also becoming problematic.

Border Clashes

India had a history of clashes with China. Starting with the war of 1962 followed by the Nathu La and Cho La military clashes (Sikkim) in 1967, the 1987 Sino- Indian skirmish at the Sumdorong Chu Valley, the 2017 Doklam military standoff, and the recent Galwan clash in eastern Ladakh, in May-June, 2020

India’s ties with China have been testy at best but the two Asian economies managed to set aside differences in favor of a trade relationship. The relationship is likely to come under strain after a bloody clash in Ladakh’s Galwan valley on June 15 left 20 Indian soldiers dead, the heaviest toll in a clash with Chinese troops since 1975. This is an inflection point in the seventy-year relationship between Asia’s largest modern states.

The challenge has always been to bridge the differences of opinion from both sides. But a series of serious attempts have been made by both India and China to bridge the differences more particularly on the border issue. The deepening of relations was reflected when the two countries established the Strategic and Cooperative Partnership for Peace and Prosperity in 2005 and also signed A Shared Vision for 21st Century in 2008.

Economic Angle

“Despite Frosty Relations, India's Trade With China Reaches Record Levels” this is the latest statement that shocks everyone and force them to think why our country do that much trade with counter country that shares many disputes. But the fact is that trade has no enemy.

According to a brief on trade posted on the Indian Embassy website in Beijing, “The rapid expansion of India-China bilateral trade since the beginning of this century has propelled China to emerge as India’s largest goods trading partner by 2008”. According to data from Statista, foreign direct investment (FDI) from China to India stood at US$279.46 million and US$205.19 in 2021 and 2020, respectively, witnessing a considerable decline. However, in mid-2022, New Delhi started giving approvals to individual proposals on a case-by-case basis. 

Data released by the Chinese customs department on Friday showed that India-China trade between India and China has touched an all-time high of USD 135.98 billion in 2022 (a rise of 8.4% over the $125 billion mark a year earlier) while New Delhi's trade deficit with Beijing crossed for the first time a USD 100 billion mark despite frosty bilateral relations. The data said that China’s exports to India climbed to $118.5 billion (a 21.7% increase year-on-year) while China’s imports from India dwindled to $17.48 billion from $28.1 billion – a year-on-year decline of 37.9. The government is alarmed by a surge in imports of Chinese finished goods such as electrical machinery, furniture , medical instrument, and implements including kitchen cutlery , spoon, and forks worth billions of dollars ,which negates its strategy of Aatmanirbhar Bharat initiative.

Figure 1: Import to India (share in %)

While imports of raw materials and intermediaries from China are "good imports" as they help Indian firms manufacture value added items, large scale imports of finished Chinese goods are a matter of concern, as most of these items could have been produce locally. It is surprising that India is importing capital goods and machinery worth about $20 billion every year from China. Cumulatively, it is $200 billion in 10 years, which we could easily save through local manufacturing. India has been working to reduce its dependency on China, the nation’s main supplier of imports, in recent years.

Nilaya Varma, Co-founder of consultancy firm Primus Partners, said the government has the right focus and intention- to make India a global manufacturing hub- which is only possible through partnership, incentives and strong procurement policies. "From forks to capital equipment / goods, the Chinese import list shows the magnitude of the issue as well as potential for 'Make in India' that needs short- term, medium- term and long-term focus. PLI (production linked incentive) is one of the key initiatives, India needs additional and sustained efforts in this matter", he said.

Conclusion

"Crisis in India-China relations has best been managed, but not resolved". This was put forth by Shiv Shankar Menon in his book "Choices in the making of India's Foreign Policy" (Menon, 2016). The ongoing debate on India-China relations among the members of strategic and academic community has raised a number of issues including the future prospects and the major challenges confronting the bilateral relationships. Undoubtedly, India and China have emerged as the two rapidly growing economies and their bilateral relationship to a greater extent has assumed global and strategic relevance.

With the expansion of bilateral trade between India and China over the past several years, many Indian businesses have started establishing operations in China to cater to both their domestic and international clientele there. The trajectory of bilateral relationship has many positive as well as negative connotations. Putting across a final word on Sino –Indian relations seems next to impossible. It is the interplay of political, social, technological, and economic factors that will help decide the future trajectory of relations.

REFERENCES

Kumar, Arvind (2010) Future of India-China Relations: Challenges and Prospects. UNISCI Discussion Papers (24). pp. 187-196. ISSN 1696-22

Menon, ShivShankar (2016) Choices: Inside the Making of India's Foreign Policy. Massachusetts, Washington, DC: Brookings Institution Press, pp. 103-105

Rusko, C. J., & Sasikumar, K. (2007). INDIA AND CHINA: FROM TRADE TO PEACE? Asian Perspective, 31(4), 99–123. http://www.jstor.org/stable/42704610

Singh, S. (2008). India–China Relations: Perception, Problems, Potential. South Asian Survey, 15(1), 83–98

dbie.rbi.org.in/DBIE/dbie.rbi?site=home

thewire.in/trade/india-china-trade-deficit-2022-imports-exports

india-briefing.com/news/india-china-bilateral-trade-and-investment-prospects-26894.html/

doi.org/10.37948/ensemble

carnegieendowment.org/files/Gokhale_Galwan.pdf