Reasons behind skewed imbalance bilatera
IRJMST
Vol 8 Issue 9 [Year 2017]
ISSN 2250 – 1959 (0nline) 2348 – 9367 (Print)
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 and sectorial complementariness for further economic engagement,
the comparative macro-economic performance of both economies may 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$61.7 billion in 2010. However, the expected target was significantly
underachieved to touch the level of 66.4 billion in 2012 mainly due to global economic slowdown.
During the last decade, the growing bilateral trade imbalance between China- India was not
taken care of which has resulted in manageable deficit even during the period of recession. During
the last decade, the growth of the trade deficit was robust for the period 2004-07 when the global
economy was booming. The trade deficit made a quantum jump in 2009 to reach a level of US$ 16
billion from US$ 11.3 billion in the previous year.
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Fig.1 India’s Export to China and Import from China
70
60
50
40
30
20
10
0
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
Source: UN Commodity statistics
Table1. Bilateral Trade between India and China
Value in US $ Billions
Source: UN commodity trade statistic
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
India’s Export
to China
1.35
1.70
2.27
4.25
7.67
9.76
10.27
14.61
20.3
13.7
20.8
23.3
18.7
17.0
16.4
13.4
India’s Import
from China
1.56
1.90
2.67
3.34
5.93
8.93
14.58
24.05
31.6
29.7
40.9
50.5
47.7
48.4
54.2
58.2
2016
11.8
58.4
Year
Trade Balance
Total Trade
0.21
0.2
0.34
0.91
1.74
0.83
4.31
9.38
11.3
16.0
20.1
27.2
29.0
31.4
37.8
44.8
2.91
3.6
4.94
7.59
13.6
18.69
24.85
38.72
51.9
43.4
61.7
73.8
66.46
65.4
70.6
71.65
46.6
70.2
Fig.2 Trade Balance and Trade Deficit
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IRJMST
Vol 8 Issue 9 [Year 2017]
ISSN 2250 – 1959 (0nline) 2348 – 9367 (Print)
Trade Balance and Trade Deficit
80
60
40
20
0
-20
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
-40
-60
Trade Balance
Total Trade
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.
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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.
During the recessionary period, the importance of the machinery sector imports continued
and the share of the mineral sector consolidated further. The combined import share of minerals and
machinery in total imports was reported to be more than 50 percent during slowdown fiscal years.
China follows a clear policy on imports, where the current import practice is to make either
significant value addition to imports. This signifies that China continues to import those products
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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, visà-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 Study
To analyze the Reasons behind skewed/imbalance bilateral pattern between India and China
3.2 Hypotheses
H01: There is no significant difference among respondent opinion (gender-wise, educationwise, experience-wise and organization-wise) regarding advocation for Yuan appreciation,
India should join hands with China’s major trade partners like the U.S, Japan andEU etc.
H02: There is no significant difference among respondent opinion (gender-wise, educationwise, experience-wise and organization-wise)regarding rising trade deficit with China despite
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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 educational 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
df
Mean Square
F
Sig.
Squares
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
Source: Primary Data
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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, educationwise, 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
Corrected Model
Intercept
Gender
Education
Experience
Organization
Error
Total
Corrected Total
Type III Sum of
Squares
7.958a
557.673
0.201
1.364
0.488
5.856
257.924
4586.000
265.882
Source: Primary Data
a.R Squared = 0.978 (Adjusted R Squared = 0.976)
Df
Mean Square
F
Sig.
9
1
1
2
2
4
294
304
303
.884
557.673
0.201
0.682
0.244
1.464
0.877
1.008
635.676
0.229
0.777
0.278
1.669
0.434
0.000
0.632
0.461
0.757
0.157
*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, educationwise, 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.”
Table3. Trade deficits 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.
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Source
Corrected Model
Intercept
Gender
Education
Experience
Organization
Error
Total
Corrected Total
ISSN 2250 – 1959 (0nline) 2348 – 9367 (Print)
Type III Sum of
Squares
21.825a
460.276
0.250
3.108
6.648
6.396
292.119
4215.000
313.944
Source: Primary Data
a.R Squared = 0.966 (Adjusted R Squared = 0.964)
Df
Mean Square
F
Sig.
9
1
1
2
2
4
294
304
303
2.425
460.276
0.250
1.554
3.324
1.599
0.994
2.441
463.240
0.251
1.564
3.345
1.609
0.011
0.000
0.616
0.211
0.037*
0.172
*Significant at 5% level of significance
Table3. points to the affirmation of the hypothesis (H 03) by majority of respondents across
categories as there is no significant difference among respondent opinion (gender-wise, educationwise and organization-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.
Majority of respondents (across categories ) agree with the research statement that on the
positive side, running a huge trade deficit with China is an indicator that India is sensible in
getting its imports needs met from one of the cheapest sources of goods. The fact that India is
running a huge trade deficit with China is a pointer towards the fact that the Chinese
manufacturing establishment is efficiently fulfilling the needs and requirements of hundreds
of millions of Indian consumers, traders and businessmen by providing finished goods at a
fraction of the cost of what Indian producers could manage to produce or could outsource
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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.
Balassa, B. (1965).Trade Liberalisation and Revealed’ Comparative Advantage. The Manchester
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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 and sectorial complementariness for further economic engagement,
the comparative macro-economic performance of both economies may 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$61.7 billion in 2010. However, the expected target was significantly
underachieved to touch the level of 66.4 billion in 2012 mainly due to global economic slowdown.
During the last decade, the growing bilateral trade imbalance between China- India was not
taken care of which has resulted in manageable deficit even during the period of recession. During
the last decade, the growth of the trade deficit was robust for the period 2004-07 when the global
economy was booming. The trade deficit made a quantum jump in 2009 to reach a level of US$ 16
billion from US$ 11.3 billion in the previous year.
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Fig.1 India’s Export to China and Import from China
70
60
50
40
30
20
10
0
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
Source: UN Commodity statistics
Table1. Bilateral Trade between India and China
Value in US $ Billions
Source: UN commodity trade statistic
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
India’s Export
to China
1.35
1.70
2.27
4.25
7.67
9.76
10.27
14.61
20.3
13.7
20.8
23.3
18.7
17.0
16.4
13.4
India’s Import
from China
1.56
1.90
2.67
3.34
5.93
8.93
14.58
24.05
31.6
29.7
40.9
50.5
47.7
48.4
54.2
58.2
2016
11.8
58.4
Year
Trade Balance
Total Trade
0.21
0.2
0.34
0.91
1.74
0.83
4.31
9.38
11.3
16.0
20.1
27.2
29.0
31.4
37.8
44.8
2.91
3.6
4.94
7.59
13.6
18.69
24.85
38.72
51.9
43.4
61.7
73.8
66.46
65.4
70.6
71.65
46.6
70.2
Fig.2 Trade Balance and Trade Deficit
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Trade Balance and Trade Deficit
80
60
40
20
0
-20
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
-40
-60
Trade Balance
Total Trade
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.
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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.
During the recessionary period, the importance of the machinery sector imports continued
and the share of the mineral sector consolidated further. The combined import share of minerals and
machinery in total imports was reported to be more than 50 percent during slowdown fiscal years.
China follows a clear policy on imports, where the current import practice is to make either
significant value addition to imports. This signifies that China continues to import those products
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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, visà-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 Study
To analyze the Reasons behind skewed/imbalance bilateral pattern between India and China
3.2 Hypotheses
H01: There is no significant difference among respondent opinion (gender-wise, educationwise, experience-wise and organization-wise) regarding advocation for Yuan appreciation,
India should join hands with China’s major trade partners like the U.S, Japan andEU etc.
H02: There is no significant difference among respondent opinion (gender-wise, educationwise, experience-wise and organization-wise)regarding rising trade deficit with China despite
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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 educational 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
df
Mean Square
F
Sig.
Squares
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
Source: Primary Data
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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, educationwise, 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
Corrected Model
Intercept
Gender
Education
Experience
Organization
Error
Total
Corrected Total
Type III Sum of
Squares
7.958a
557.673
0.201
1.364
0.488
5.856
257.924
4586.000
265.882
Source: Primary Data
a.R Squared = 0.978 (Adjusted R Squared = 0.976)
Df
Mean Square
F
Sig.
9
1
1
2
2
4
294
304
303
.884
557.673
0.201
0.682
0.244
1.464
0.877
1.008
635.676
0.229
0.777
0.278
1.669
0.434
0.000
0.632
0.461
0.757
0.157
*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, educationwise, 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.”
Table3. Trade deficits 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.
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Source
Corrected Model
Intercept
Gender
Education
Experience
Organization
Error
Total
Corrected Total
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Type III Sum of
Squares
21.825a
460.276
0.250
3.108
6.648
6.396
292.119
4215.000
313.944
Source: Primary Data
a.R Squared = 0.966 (Adjusted R Squared = 0.964)
Df
Mean Square
F
Sig.
9
1
1
2
2
4
294
304
303
2.425
460.276
0.250
1.554
3.324
1.599
0.994
2.441
463.240
0.251
1.564
3.345
1.609
0.011
0.000
0.616
0.211
0.037*
0.172
*Significant at 5% level of significance
Table3. points to the affirmation of the hypothesis (H 03) by majority of respondents across
categories as there is no significant difference among respondent opinion (gender-wise, educationwise and organization-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.
Majority of respondents (across categories ) agree with the research statement that on the
positive side, running a huge trade deficit with China is an indicator that India is sensible in
getting its imports needs met from one of the cheapest sources of goods. The fact that India is
running a huge trade deficit with China is a pointer towards the fact that the Chinese
manufacturing establishment is efficiently fulfilling the needs and requirements of hundreds
of millions of Indian consumers, traders and businessmen by providing finished goods at a
fraction of the cost of what Indian producers could manage to produce or could outsource
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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.
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