Tensions between India & China have only increased during the current financial year of 2020-21 because of the border standoff and even COVID-19. However, this has not impacted the share of India’s trade with China in its overall trade. Here is a review of the trends of India’s trade with China for the first four months of 2020-21.
China is one of India’s leading trade partners. In fact, prior to 2018-19, India’s highest trade volume was with China, a place occupied by the USA since then. However, in terms of the value of goods imported by India, the imports from China still form the major share. In an earlier story on Factly, we explored the nature of goods imported from China and the trends over the past few years. We had observed that the imports from China not only form a major part of India’s imports but are critical for certain sectors, forming inputs and raw materials for various industries. Unless there is input substitution where India either identifies other sources for these imports or augments domestic production, there is going to be continued reliance on China for the sustenance and growth of our economy.
China holds the status of Most Favoured Nation (MFN) with India facilitating smoother trade between the two countries. The government recently informed the Lok Sabha that there is no proposal to withdraw the MFN status to China. However, the recent border stand-off between the two countries coupled with China being seen as the reason for COVID-19 pandemic have contributed towards diplomatic tensions. Furthermore, time & again there are calls for banning of Chinese products among the general public.
But what are the recent trends in trade with China ? Is there any visible shift in the overall trends? Are there any changes in the trade of specific goods ? We try exploring these questions with the trade data for the first four months of 2020-21 and comparing it with the same period in 2019-20.
Share of ‘Trade with China’ increased in the first four months of 2020-21
Responding to a question in Lok Sabha on 21 September 2020, the government provided the data of trade with China for the top 50 commodities for the first four months (April to July) of 2020-21. As per this information, the total value of India’s trade during this period i.e. April-July’2020 was USD 164.66 billion. This is comparatively less that the overall value of trade during the same period of 2019-20, when it was USD 277.68 billion. This fall in 2020-21 is on expected lines due to the lockdown and its impact. This fall is also reflected in the figures for trade with China.
The total trade with China during the first four months of 2020-21 is USD 23.88 billion compared to that of USD 29.03 billion in 2019-20. In spite of the fall in value, what is significant is the increase in the share of trade with China of India’s overall trade. Trade with China during the first four months of 2020-21 constituted 14.5% of the India’s overall trade compared to 10.5% during the same period in 2019-20.
The increase in the share of trade with China to an extent can be attributed to the fact that most of India’s trading partners were also going through lockdown phases due to COVID-19 and China was one of the few countries that was opening up during this period.
China’s increased share in overall trade is contributed by both Exports & Imports
India has a negative trade balance with China i.e. the value of imports from China is higher than the value of exports to China. Further, the share of imports from China out of the total Imports is higher than the share of exports to China out of the total Indian exports.
In the earlier story, we had observed that India’s trade balance with China has improved slightly over the past couple of years contributed by an increase in the value of exports and a fall in the value of imports. The trend is visible even during the first four months of 2020-21. While the value of India’s overall exports fell to USD 75 billion during the first four months of 2020-21 compared to USD 107.2 billion during the same period in 2019-20, the value of exports to China has increased. During the first four months of 2020-21, the value of exports to China was USD 7.3 billion compared to USD 5.6 billion during the same period in 2019-20. This means that the share of exports to China out of India’s total exports increased from 5.2% in this period for 2019-20 to 9.7% in 2020-21.
This increase of share in the first four months could also be because the trade with most of the other countries had not opened up yet, there by resulting in larger share of exports to China.
In the case of imports, there is a fall in value of imports from China which is in line with the trend in overall imports. However, the share of imports from China has increased in the first four months of 2020-21 compared to the same period in 2019-20. During April to July of 2019-20, imports from China accounted for 13.8% of India’s total imports, which increased to 18.5% during the same period in 2020-21.
Increase in exports to China can be attributed to export of Iron & Steel along with Iron Ore & Plastic
As observed in this story, there is a fall in the value of Imports from China during the first four months of 2020-21 compared to that of same period in 2019-20. Few of the major import commodities from China include – Electronics Components, Telecom Instruments, Industrial Machinery , Chemicals etc. The overall value of imports for each of these items has seen a fall in the first four months of 2020-21 compared to 2019-20 with the exception of Drugs & Drug Intermediates. For each of these top import items, the value of imports from China has also come down. The trend highlighted earlier that the share of imports from China out of total imports is has increased in the first four months of 2020-21 is reflected in most of the import items, especially the top import items.
The increase in exports to China is contrary to the trend in overall exports during the first four months of 2020-21. This can be attributed to few of the top export commodities. Although there is an increase in the value of exports of few of the top export commodities, to both China and other countries, there are few items whose increase is prominent.
Iron Ore, which is the largest export Item to China, saw its share out of India’s total exports increase from 75% in the first four months of 2019-20 to around 91% in the same period of 2020-21. Considering the volume, this is a sharp increase.
Further, the share of export to China for Iron and Steel was around 5% during the first four months of 2019-20 which increased substantially to 36% of the total exports during the first four months of 2020-21, the current financial year. A similar large-scale increase is observed in the export of Plastic materials to China.
Increase of China’s share in India’s overall trade may be due to the current limitations in global trade
The trade data for the first four months of 2020-21, as provided by the government in the Lok Sabha, indicates that there is an increase in the share of trade with China. However, this might not be a sustainable trend.
The government has ruled out revoking the MFN status to China, which indicates that there might not be any major policy changes in trade with China in light of the ongoing situation. However, certain steps are being taken at the commodity level.
It has to be noted that China was one of the first countries to open up its economy after the COVID-19 pandemic induced lockdowns, thanks to it being the origin country of the virus. India & most of the countries it trades with like USA, Singapore, Western European countries, Gulf Countries etc. are yet to open up trade completely to the pre COVID-19 levels. Hence, it would be early to describe increase in exports to China and China’s overall trade share as a significant and persisting trend.
Data for the subsequent months and the entire financial year of 2020-21 may offer a better perspective on these emerging trends. With the USA & Western European countries experiencing a second wave of COVID-19, even data for the entire year of 2020-21 might not be enough to ascertain any sustainable trends.
Featured Image: India’s trade with China
