Reasons behind skewed/imbalance bilateral pattern between India and China
Col. Kuldip Singh,
Ph.D Research Scholar
Dept. Of Business Administration,
Chaudhary Devi Lal University, Sirsa
Abstract
The present study reveals that India and China are the two fastest growing countries of the world, the possibility of an economic rapprochement among them to seize the synergies of their development is an important issue for research. Both the countries ha ve witnessed transitions in their economic policies during the last two-three decades and the irreversible nature of economic liberalization has enabled each nation to integrate with the world economy. While analyzing the existing patterns of their trade a nd sectorial complementariness for further economic engagement, the comparative macro-economic performance of both economies ma y be examined in recent years need to be examined.
Keywords: Skewed, imbalance, bilateral trade, India, China, Trade Relation
1. Composition of Bilateral Trade
Bilateral trade between India-China has grown rapidly in last two decades. In 2001 China was behind several countries including Belgium and Singapore as its share in the total trade of India is concerned, China shared 3.5 percent of India's total trade whereas the US shared 14.4 percent, the UK 5.1 percent and Belgium 4.1 percent of total India's trade. However, in the past few years trade has picked up significantly after Chinese became a member of WTO. China has now emerged as the largest trade partner of India from 2008-09. The trade scenario changed significantly since 2009 with a sizable increase in India's bilateral imports. China not only jumped up in its ranking among India's lead bilateral trade partners but also splashed the Indian market with its exports, causing serious bilateral trade imbalances. It is now sharing nearly 9 percent of India's total trade in 2012. Bilateral trade turnover jumped by nearly nineteen times, from US$ 3.6 billion in 2001 to nearly US$ 66.4 billion in 2012 and US$ 70.2 billion in 2016. It was estimated that India-China trade will cross US$ 60 billion in 2010 and further to 125 billion in 2012. The expected target was almost achieved when trade reached US$61.7 billion in 2010. However, the expected target was significantly underachieved to touch the level of 66.4 billion in 2012 mainly due to global economic slowdown.
Fig.1 India’s Export to China and Import from China
Source: UN Commodity statistics
Table1. Bilateral Trade between India and China Value in US $ Billions
Source: UN commodity trade statistic
Fig.2 Trade Balance and Trade Deficit 0
10 20 30 40 50 60 70
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
I dia’s Export to Chi a I dia’s I port fro Chi a
Year India’s Export to China
India’s Import
from China Trade Balance Total Trade
2000 1.35 1.56 0.21 2.91
2001 1.70 1.90 0.2 3.6
2002 2.27 2.67 0.34 4.94
2003 4.25 3.34 0.91 7.59
2004 7.67 5.93 1.74 13.6
2005 9.76 8.93 0.83 18.69
2006 10.27 14.58 4.31 24.85
2007 14.61 24.05 9.38 38.72
2008 20.3 31.6 11.3 51.9
2009 13.7 29.7 16.0 43.4
2010 20.8 40.9 20.1 61.7
2011 23.3 50.5 27.2 73.8
2012 18.7 47.7 29.0 66.46
2013 17.0 48.4 31.4 65.4
2014 16.4 54.2 37.8 70.6
2015 13.4 58.2 44.8 71.65
Source: UN commodity trade statistics
With an increase in the two-way trade, the trade deficit increased exponentially, and it may not be sustainable for a long period. While the trade gap was reported at US$ 0.21 million in 2000, which has increased alarmingly to US$ 44.8 billion in 2015 and 46.6 billion in 2016. However, export of India to China was 1.35 billion in 2000 which has increased to 20.8 billion in 2010 and in 2016 reduced to 11.80 billion
Its current bilateral trade is larger than the combined bilateral trade of Germany, the UK and Japan with India.During the last decade, the growing bilateral trade imbalance against India was not corrected, while taking an unmanageable shape even during the current episode of recession.
1.1 Structure of India’s Import from China
In recent years, India's imports from China have been diversified, and certain sectors continue to dominate in the bilateral trade. India's imports from China comprise both agricultural and manufacturing products. India imports small quantities of agricultural products and they cover, nearly one percent of its total bilateral imports. These products are mainly from the fruits and vegetable category. India's bilateral imports are mostly concentrated in the manufacturing sector. Five dominant sectors comprising of chemicals, machinery, base metals, textile & clothing contributed around 85 percent to bilateral imports in 2008. Whereas in 2016 the major import was of electrical machines, reactors and boilers, chemicals, plastic and fertilizers which constituted 36.7 Billion of total import which is 62 percent of total import. Two major components that India imports from China are electrical machines and equipment & nuclear reactor and boiler which constitute 21.06 and 23.2 percent of total imports in 2012 whereas in 2016 it was 28.9 and 17 percent respectively.
Some of the sectors such as minerals, plastic products, automobile sector and cinematography products also witnessed substantial penetration in the domestic market. According to the UN trade statistics, India's bilateral imports were US$ 24.05 billion in 2007 and increased to US$ 29.7 billion in 2009, despite being affected adversely by the global meltdown during that time. Robust growth has been noticed in some of these sectors which are generally technology-intensive in nature, thus enjoying a high demand elasticity in the domestic market. Imports are seen as declining in some sectors due to the Chinese policy restriction of exports in order to conserve domestic resources. In terms of the composition of India's bilateral imports from China, sectoral shares are declining for minerals, pulp products, textiles & clothing, and base metals. India's bilateral pattern of imports clearly shows that demand for technology-intensive products is increasing in the domestic market whereas demand for labour intensive and resource-based products is gradually fading in recent years.
-60 -40 -20 0 20 40 60 80
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Trade Balance and Trade Deficit
China's global pattern of export is similar to its bilateral exports to India. Agricultural products constitute a small proportion of China's total export but are expanding over the years. Contrary to its earlier practice, mineral fuel, mineral oil and products from the country's trade basket is declining. Its export to India has consistently reduced from 2008 to 2016. Manufacturing exports dominate Chinese global export. Some of the major sectoral drivers of exports are textiles and clothing, machinery, auto sector, and chemicals. Other important export sectors are plastics, footwear, cinematography products, etc. and many of these have grown fast in the pre-crisis period. Continuous up-gradation of technology, product development, constant rise in R&D expenditure and indigenization of foreign technology along with FDI, are the important factors for the structural transformation taking place in Chinese export.
1.2
Structure of India’s Exports to China
India's exports to China have highly concentrated in few sectors taking the lion's share of the total bilateral exports. These dominant sectors are mostly resource-based and labour intensive in nature, though some of them are partially technology-intensive sectors. Agricultural exports are a significant portion of the total bilateral exports of India. The shares of sectors like fruits & vegetables as well as fats & Oil are picking up recently.
During 2016 the major sectors of export were cotton, ores slag and ash, natural and precious stone, metal & organic chemical. A major export is cotton which was valued 1.1 billion in 2008, increased to 4.09 billion in 2012 but decreased to 1.2 billion in 2016 but still accounting for more than 10 percent of total export.
The share of the ores slag and ash has declined significantly. During 2008 it was 14.3 billion which has reduced to 4.2 billion in 2012 and further to 1.2 billion in 2016. However, both mineral and base metal sectors have complemented each other in focusing exports to the market of China. From the base metal sector, substantial exports are made in the form of iron ores, slag and ashes. In the process, base metal sector became one of the largest export sector of India to China. During recession, textiles & textile products share increased significantly with textile fibres and yarns export increasing from US$10.4 million in 2008 to US$ 55.4 million in 2012 to further US$ 93.64 million in 2016. Besides textiles, mineral and metal products, India has major export interest in the chemical sector including pharmaceutical products. Bilateral exports are also significant in certain sectors like animal products, fruits and vegetables, processed food, footwear, cement and machinery & mechanical appliances. Some of these sectors have not only enjoyed a high export share but have also continued to maintain high growth in recent years, which has also been true of some dynamic sectors such as prepared food, minerals, cement, etc. The nature of India's bilateral export basket indicates that these sectors fall mostly in the categories of resource-based and labour intensive products. India's attempts to export technology-intensive products have been much below its potential as shown from its current engagement with China. India needs to improve its export efforts to meet the specific import requirements of China if it has to have wider market access without a bilateral free trade agreement. Along with this, it is important to examine the import structure of China from the rest of the world.
China mostly imports minerals and manufacturing products from the rest of the world, and agricultural import forms a small proportion of its total imports. Agricultural imports were less than 8 percent of its total imports in 2016, and more than half of such import was concentrated in fruits and vegetables. In the non-agricultural segment of imports, minerals is an important sector for China, but its imports of machinery products from the rest of the world is very high.
that are critically required by the domestic economy. The structure of the import basket shows a definite trend, where it is focused on natural resource-based products and technology-intensive products. Technology-intensive imports constitute nearly two-thirds of its total imports where the shares of primary as well as labour-intensive imports in the total are relatively smaller than that of knowledge-intensive sectors. As China's import focus is shifting towards knowledge-intensive products, India has to change its bilateral export basket to accommodate more technology-intensive products for wider market access in China. India's closer engagement with China in the global production network could be a possible way to improve its technology-intensive exports. India has to evolve a strategic approach to deal with the frequent use of NTBs (Non Tariff Barriers) by the Chinese authorities and to address product standard issues for achieving uninterrupted access to the Chinese market, which is expanding fast as seen by trends in the last decade in addition India has to increase its export to China by adopting latest technological intensive products and global value chain.
2. Review of Literature
Stanlcy Nollen et al, (2007) Associate the industry performance in India and China. Australian Chamber of commerce and Industry. Laid stresses on the integration of Indian and Chinese economics in China India and investigate that a China India nation, if realized, can become the second largest economy in the world behind United States. Betina Dimaranan assume that if India and China are combined especially in their high-tech industries, they can provide a hard competition in the global markets.
Yuefen Li et al (2008) Analyze that in order to keep broad-based, fast and balanced growth, both the countries have to restore sectorial imbalances and encourage technology up gradation. Ramesh Sharma (2008) review the evaluation of join agricultural business of China, India and AFTA.
Qureshi M.S., Wan G. (2008) This identify the export performances and specialization patterns of China and India with special focus on their trade competitiveness complementarities, vis-à-vis each other as well as with the rest of the world. Through their work they suggest that the challenges, created by China in the exports of traditional labour-intensive products might reduce in near future. It provides detail information about the India China trade expansion.
Mallhieu Bussiere and Arnaund (2008) Analyses the integration of China and India into the global economy. It presents estimates the overall degree of their trade intensity and the depth of their bilateral trade linkages, as well as selected measures of revealed comparative advantage. Also reviews the key characteristics of the two countries’ domestic economics that are relevant to their global integration and analyses their financial linkage. Considering trade in goods, the overall degree of China’s trade intensity is higher than fundamentals would suggest, whereas the converse is true for India. Chinese goods exports seem to compete increasingly with those of mature economies, while Indian exports remain more low-tech. China’s exports of services tend to complement its exports of goods, while India’s exports are growing only in deregulated sectors, such as IT-related services.
3. Research Methodology
3.1 Objective of the StudyTo analyze the Reasons behind skewed/imbalance bilateral pattern between India and China 3.2 Hypotheses
imposition of need-based anti-dumping duties represents Gap in Productivity between the two countries, especially in mmanufacturing.
H03: There is no significant difference among respondent opinion (gender-wise, organization wise, age-wise,education-wise, experience-wise) regarding whether India should target improvements in its own productivity and competitiveness to balance trade with China by making Indian exports more competitive in the international market.
3.3 Research Design and Sampling Plan
The present research being exploratory cum descriptive in nature, primary data has been collected from a sample of 305 participants related to international trade including Govt. officials handling foreign trade (26 participants), Indian Institute Of Foreign Trade (IIFT) faculty(19), Trade bodies(122), IIFT students(102) and Management Consultants(36) having diverse educat ional and professional experience from the National Capital Region using judgmental sampling technique through a structured questionnaire. A 5-interval Likert scale from Strongly Disagree (measuring 1) to Strongly Agree (measuring 5) has been employed to measure the psychographics (attitudes, interests and opinion) of respondents. Secondary data has been collected from diverse offline and online national/international research publications. The Research Instrument (Questionnaire) comprises of 35 key research statements eliciting critical information from the respondents (apart from relevant demographic information having a bearing on their psychographic attitudes, interests and opinions) and has been divided into five sections covering the five broad research objectives.
3.4 Research Tools
Analysis of data has been done using various descriptive and inferential statistical tools like Frequency distribution, Percentage, Arithmetic Mean, ANOVA, Reliability Analysis (Cronbach’s Alpha). For hypothesis testing and analyzing significant difference Analysis of Variance test using General Linear Model (Univariate Analysis) was applied employing SPSS 20.
4. Data Analysis and Interpretation
To analyze the reasons behind skewed/imbalance bilateral patterns between India and China. This objective has 3 hypotheses which are formulated to achieve this objective. A General Linear Model (Univariate) test has been applied to check the significant level (gender-wise, education-wise, organization-wise and experience-wise) of the entire hypotheses to achieve this objective.
Table1. One of the most important reasons why India is running its biggest trade deficit with China is China is the most competitive exporter among all countries.
Source Type III Sum of Squares
df Mean Square F Sig.
Corrected Model 8.921a 9 0.991 1.182 0.306
Intercept 548.255 1 548.255 653.911 0.000
Gender 0.651 1 0.651 0.777 0.379
Education 1.621 2 0.810 0.967 0.382
Experience 3.732 2 1.866 2.226 0.110
Organization 1.483 4 0.371 0.442 0.778
Error 246.497 294 0.838
Total 4493.000 304
Corrected Total 255.418 303
a.R Squared = 0.890 (Adjusted R Squared = 0.888) *Significant at 5% level of significance
Table1. points to the affirmation of the hypothesis (H01) by majority of respondents across
categories as there is no significant difference among respondent opinion (gender-wise, education-wise, experience-wise and organization-wise) regarding the assumption that one of the most important reasons why India is running its biggest trade deficit with China is China is the most competitive exporter among all countries.
The value of adjusted R Squared is 88.8%, which represents that percentage of variation explained by all variables. Additionally, taking into account the mean value (3.74) and S.D (0.919) along with little statistical difference among respondent opinion it could be concluded that the majority of respondents across categories validate the null hypothesis “There is no significant difference among respondent opinion (gender-wise, education-wise, experience-wise and organization-wise) regarding that one of the most important reasons of India running its biggest trade deficit with China is because it is the most competitive exporter among all countries.”
Table2. On the positive side, running a huge trade deficit with China is an indicator that India is sensibly getting its imports needs met from one of the cheapest sources of goods.
Source Type III Sum of Squares
Df Mean Square F Sig.
Corrected Model 7.958a 9 .884 1.008 0.434
Intercept 557.673 1 557.673 635.676 0.000
Gender 0.201 1 0.201 0.229 0.632
Education 1.364 2 0.682 0.777 0.461
Experience 0.488 2 0.244 0.278 0.757
Organization 5.856 4 1.464 1.669 0.157
Error 257.924 294 0.877
Total 4586.000 304
Corrected Total 265.882 303
Source: Primary Data
a.R Squared = 0.978 (Adjusted R Squared = 0.976) *Significant at 5% level of sig.
Table 2 points to the affirmation of the hypothesis (H02) by majority of respondents across
categories as there is no significant difference among respondent opinion (gender-wise, education-wise, experience-wise and organization-wise) regarding the assumption that On the positive side, running a huge trade deficit with China is an indicator that India is sensibly getting its imports needs met from one of the cheapest sources of goods.”
The value of adjusted R Squared is 97.6%, which represents that percentage of variation explained by all variables. Additionally, taking into account the mean value (3.77) and S.D (0.938) along with little statistical difference among respondent opinion it could be concluded that the majority of respondents across categories validate the null hypothesis “There is no significant difference among respondent opinion (gender-wise, education-wise, experience-wise and organization-wise) regarding that on the positive side, running a huge trade deficit with China is an indicator that India is sensibly getting its imports needs met from one of the cheapest sources of goods.”
Source Type III Sum of Squares
Df Mean Square F Sig.
Corrected Model 21.825a 9 2.425 2.441 0.011
Intercept 460.276 1 460.276 463.240 0.000
Gender 0.250 1 0.250 0.251 0.616
Education 3.108 2 1.554 1.564 0.211
Experience 6.648 2 3.324 3.345 0.037*
Organization 6.396 4 1.599 1.609 0.172
Error 292.119 294 0.994
Total 4215.000 304
Corrected Total 313.944 303
Source: Primary Data
a.R Squared = 0.966 (Adjusted R Squared = 0.964) *Significant at 5% level of significance
Table3. points to the affirmation of the hypothesis (H03) by majority of respondents across
categories as there is no significant difference among respondent opinion (gender-wise, education-wise and organization-education-wise) regarding the assumption that Trade deficit is not just beneficial to the Chinese exporters of goods but also Indian Consumers who get it cheap compared to other exporting Nations, making it a win-win situation for both China and India. But there is significant difference regarding experience-wise (because p-value is less than 0.05)
The value of adjusted R Squared is 96.4%, which represents that percentage of variation explained by all variables. Additionally, taking into account the mean value (3.59) and S.D (1.019) along with little statistical difference among respondent opinion it could be concluded that the majority of respondents across categories validate the null hypothesis “There is no significant difference among respondent opinion (gender-wise, education-wise, experience-wise and organization-wise), regarding trade deficit is not just beneficial to the Chinese exporters of goods but also Indian Consumers who get it cheap compared to other exporting Nations, making it a win-win situation for both China and India.”
5. Findings
Majority of respondents (across categories) agree with the research statement that one of the most important reasons why India is running its biggest trade deficit with China is it is the most competitive exporter among all countries. The main reason why India is running its biggest trade deficit with the China is unlike the EU, the U.S. and West Asian Arab countries (all of which import huge quantities of processed and semi processed goods and a select few services from India) China imports very less of these value-added products but exports the maximum number of value-added finished products (from the high-end to the low-end) and given the fetish of Indian consumers for low-cost products, China happens to trump all other countries (viz. the export-oriented economies of ASEAN) and thus emerges as the most competitive exporter of finished goods among all other countries.
from other countries, thus it is the never-ending demand (rather the greed) of burgeoning Indian middle class which is responsible for the huge trade deficit India runs with China.
Majority of respondents (across categories) agree with the research statement that trade deficit is not just beneficial to the Chinese exporters of goods but also Indian consumers who get it cheap compared to other exporting nations, making it a win-win situation for both China and India. The fact that the Chinese goods are substantially cheaper than locally produced goods is one of the major reasons why the trade gap with China is increasing at an alarming pace and there is no sign that it would be arrested very soon. Since Indian consumers (from the upper to the lower middle class) benefit a lot through cheap Chinese goods, China alone cannot be blamed for the huge imbalance in trade and if India wants to correct the anomaly then We should limit Our consumption of non-essential consumer goods just like We tried to rein in Our unrestrained appetite for gold in the recent years.
References:
Arellano, M. and S. Bond (1991). Some test of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies, 58, 277-299.
Athukorala, Prema-Chandra (2009). The Rise of China and East Asian Export Performance: Is the Crowding-Out Fear Warranted?. The World Economy, 32(2), 234-266.
Bagnai, Alberto (2009).The role of China in global external imbalances: Some future evidences. Economic Review, 20 (3), 508-526.
Bahmani-Oskooee, M., Mohtadi, H., and Shabsigh, G. (1991). Exports, growth and causality in LDCs: A re-examination. Journal of Development Economics, 36, 405–415.
Bair, J. and E. Dussel Peters (2006). Global Commodity Chains and Endogenous Growth: Export Dynamism and Development in Mexico and Hoduras World Development, 34(2), 203-221.
Balance, R. H., H. Forstner and T. Murray (1987). Consistency Tests of Alternative Measures of Comparative Advantage. Review of Economics and Statistics, 69, 157-61.
