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Even amid a lingering 22-month border stalemate, two-way trade between India and China hit an all-time high, with the trade balance in favor of China. What explains this phenomenon? How does India deal with this reality?


A continuous phenomenon that has profoundly transformed the international economy and trade over the past two decades has been the deep penetration of Chinese-made products, initially low-cost and then technologically advanced, into the markets of almost every country in the world. India alone has not been immune to this phenomenon, causing trade figures to surge even as tensions along the border have continued. In such a scenario, given that India also refuses to give in to Chinese hegemonic ambitions in Asia, which effectively undermines its interests, makes the former’s flourishing trade relations with the latter “paradoxical”.

What the numbers say

Even amid an unresolved border issue and the continuing series of talks at military and diplomatic levels to diffuse a 22-month border standoff, 2021 has seen India’s two-way trade with China cross the hundredth for the first time. billion US dollars, reaching 125.6 billion dollars. ., and up about 43.3% year-on-year, according to the latest figures released by China’s customs administration last month. Meanwhile, the Indian figures show a slight shift, but this reflects the same trend. However, 2020, the first year of the pandemic, saw a decline in overall trade as the industrial sector contracted. At the same time, Indian import demands for medical equipment such as PPE kits, masks and gloves saw an increase over the year.

Out of total bilateral trade in 2021, India imported goods worth $97.5 billion. from China, when it could only export $28.1 billion worth of goods to China, pushing India’s trade deficit to $69 billion, which had been steadily shrinking for three years to 2019, to increase again with the advent of the pandemic. This is a serious cause for concern for India, as the prospect of China’s militarization of trade in the future looms on the horizon, if not an imminent possibility, similar to what Australia had to cross in 2020-2021.

What is bought and sold

India’s well-known pharmaceutical industry is still heavily dependent on Chinese supplies of Active Pharmaceutical Ingredients (APIs), as nearly 70% of them are imported from China, including those used to manufacture several life-saving drugs. Similarly, the Indian automotive sector depends on Chinese imports of mechanical components and machinery. While Chinese-made end products such as electronic gadgets, toys and cheap plastic products have continued to dominate Indian markets for several years now, India’s main exports to China happen to be intermediate goods. such as iron ore, cotton, seafood and raw materials. .

Indian exports, especially of finished goods, are constrained by a narrower set of items to offer and there is a lack of market access in China for sectors where India has a comparative advantage such as pharmaceuticals, agricultural products and information technology. However, Indian exports to China also registered a record rise last year, after the fall seen in 2020, due to the industrial contraction caused by the pandemic. While China is India’s second largest trading partner, behind the United States, India is only the 15and largest trading partner, as shown by Chinese customs data for 2021.

Meanwhile, according to data from India’s Department of Commerce, of the 8,455 different items imported from China in the previous year, 4,591 items showed an upward trend. A comparable security trade anomaly scenario also exists in the dynamics of China’s relations with ASEAN countries. Despite tensions and overlapping claims in the South China Sea, where the Chinese have recently asserted themselves, the ASEAN bloc remains China’s biggest trading partner in 2021.

The bigger picture

Despite China’s provocative behavior on the security and diplomatic fronts, India’s reliance on China has shown no signs of letting up in the recent past. The most recent examples of Chinese provocation include the sending of a Chinese soldier involved in the Galwan incident in 2020 as one of the torchbearers of the Beijing Winter Olympics, which India chose to diplomatically boycott, the abduction and alleged torture of an Indian boy from the state of Arunachal Pradesh, and the attribution of so-called “standardized” names for places in the Indian state, and the promulgation of a controversial border law as a means of unilaterally enforcing his baseless claims to India’s border lands. Moreover, the reciprocal building of infrastructure in both sides hints at an alleged “security dilemma” scenario in which nuclear-armed neighbors could be stuck for decades now.

While India has opted to stay out of the world’s largest free trade agreement, the China-led Regional Comprehensive Economic Partnership (RCEP), which came into effect earlier this year, due to the fear of unlimited dumping of Chinese products and the prospect of a competitive challenge for the Indian domestic producers of the members of the grouping, China has gone on to double its trade links with the ten ASEAN countries, as well only with India’s two Quad partners – Japan and Australia – present in the grouping, most of whose members have one problem or another with China.

In fact, the size of China’s economy is almost five times that of India and there is also a huge gap in overall overall national power between the two countries, with China being the second largest economy in the world since 2010. , claiming the place by surpassing Japan, and a permanent member of the United Nations Security Council since 1971, taking the seat replacing Taiwan. China is now an undisputed great power with lofty hegemonic ambitions in mind, as to its place in Asia and the world.

This is reflected in its struggle with the liberal US-led international order and the presentation of its iconic alternatives such as the trillion-dollar Belt and Road Initiative (BRI), parts of which cross the territory. claimed by India under Pakistani control. The image of the United States as a champion of free trade was badly tarnished during the years of the Trump administration (2017-2020), which China took advantage of to strengthen its own commercial networks around the world as a new alternative offered to the nations of the world with a suspicious message of “shared prosperity”.

How is India doing?

Of all the countries in China’s neighborhood, India and Japan could probably be the only two countries to refuse to be part of a potentially financially vulnerable China-centric intercontinental network of connectivity, trade and infrastructure development. At the same time, the two countries have deep-rooted trade ties with the Asian giant, as does Australia, a fact underscored by the entry into force of RCEP earlier this year.

India, Japan and Australia collectively fear that an over-reliance on China entails various but mitigable risks, as uneasy ties on the political, diplomatic and security fronts could incite the China to militarize trade one day, and combined with the vulnerabilities posed by the global crisis. disruptions such as the Covid-19 pandemic necessitated a proactive step by the three countries in April 2020, called the Supply Chain Resilience Initiative (SCRI). It aimed to diversify supply chain risk across a group of reliable countries rather than relying on just one or a few.

Domestically, India has taken several measures over the years such as the billion dollar economic stimulus package known as the Self-Reliant India Mission (Atmanirbhar Bharat Abhiyan), launched in May 2020 , aimed at reducing the country’s dependence on imports, without being protectionist. , while emphasizing capacity building for domestic producers to manufacture quality and globally competent goods for both domestic use and export.

Following the June 2020 Galwan incident, the Indian government introduced a new set of rules to effectively restrict foreign direct investment (FDI) from China and to avoid risks of opportunistic corporate takeovers Indian companies by Chinese companies, which may have legal ties or obligations. obligations to the state. Dozens of Chinese apps have been phased out by the Indian government as a follow-up measure and Chinese companies have also been barred from 5G trials and deployment in India. A “boycott of China” movement has also taken shape in India since the Galwan incident. Despite all these developments, trade relations between the two countries reflect an upward trend, as noted earlier, but not overall economic relations, including investment and other areas, due to ongoing tensions along the frontier.

Despite all the efforts made by the Indian government to decouple and diversify from the clutches of the Chinese economy, a complete disconnect seems far-fetched at present, given the available facts and figures. However, with a clearly defined, goal-oriented and facilitative policy framework, combined with the revitalization and diversification of the country’s industrial base with the support of enterprises of all sizes – micro, small, medium or large – there is no It is not impossible for a young, tech-savvy nation like India with enough entrepreneurial flair to at least achieve a digitally more secure balance of trade with China in the near future, from which it can progress towards more students.