PROJECT REPORT

ON

“INDO-CHINA TRADE RELATIONS”

“A critical analysis”

INTRODUCTION

India and China are the two largest countries in the world in terms of population; they are also
the fastest growing economies in the world. India and China together are home to the world’s
largest pools of skilled human resources, and there is a general consensus that these two
countries will continue to be the engines of global economic growth in the 21st century. Both
China and India have also consciously deepened their economic relations within Asia as is clear
from their dialogue partnership with ASEAN and signing of framework agreements for closer
economic cooperation with it in 2002 and 2003 respectively.

An Overview of China-India Economic Relations :

  China and India established diplomatic relationships on 1st April 1950. India and China
resumed trade officially in 1978. Both the countries signed a Trade Agreement (Most
Favored Nation Agreement) in 1984. Since 1988 when it was decided to extend the India-
China relationship at various levels, an elaborate framework for promoting trade and
economic relations has evolved over time.

 In 1994 the two countries signed agreements on avoiding double taxation.

Agreements for cooperation on health and medical science, MOUs on simplifying the
procedure for visa application and on banking cooperation between the two countries
have also been signed. Bilateral trade with China during 2004 has crossed the $ 10
billion mark.

 India-China total trade in goods for 2012 stood at US$ 66.57 billion, recording a
decline of almost 10%. This decline in overall bilateral trade can be attributed to decline
in both India’s exports to China (@20%) and India’s imports from China (@5%).
Commodity-wise, bilateral trade was dominated by reactors, boilers, machinery,
etc.; electric machinery, sound equipment, etc.; organic chemicals; ores and
cotton. India’s exports to China for 2012 reached US$ 18.8 billion, recording a decline of
more almost 20% y-o-y whereas imports touched a total of US$ 47.75 billion, recording a
decline of more than 5% over the figure for 2011. Trade deficit for India for Jan-Oct,
2012 stood at US$ 29 billion.

 In 2012, India was the 15th largest trading partner of China with a share of 1.72% in
China’s overall trade, recording a decline of almost 10% y-o-y; 7th largest export
destination for China, comprising a share of 2.33% of overall Chinese exports
and 19th among the countries exporting to China with a share of 1.1% in overall
imports by China.

BILATERAL TRADE FIGURES FOR YEAR 2014:

Highlights:
 India-China total trade in goods for year 2014 stood at 39,990,795 lack, recording a
Rise of almost 12%
 India’s exports to China for 2014 reached Rs 9,059,278.33 lakh, recording a Rise of
more almost 23%.
  China’s exports to India for 2014 China touched a total of Rs 30,931,516.77 lakh,
la
recording a rise of almost than 1.5% over the figure for 2013
2013.

The overall bilateral trade figures for year 2014 released by the Department
of Commerce are as follows:

(Value in USD Million)

2012 2013 2014

Total India-China Trade 73,390.13 65,783.21 65,878.32

Growth % 24.47 -10.37 0.14
Share % 9.23 8.32 8.62

India’s Exports to China 18,076.55 13,534.88 14,829.31

Growth % 16.75 -25.12 9.56
China’s Exports to India 55,313.58 52,248.33 51,049.01
Growth % 27.22 -5.54 -2.30

India China Trade Figure

$160,000.00
$140,000.00
$120,000.00
$100,000.00
Amount

$80,000.00 Import from China

$60,000.00 Export to China
$40,000.00 India China Trade
$20,000.00
$0.00
2012 2013 2014
Year
INDIA’S EXPORTS TO CHINA FOR THE YEAR 2014:

 India exported 750,519 shipments valued at USD 14,829.31 Million to China.

 Shipments under HS Code 5201 accounted for 20.1% of the exports by value followed
by shipments under HS Code 7403 and HS Code 5205 which 5205 which accounted for
15.9% and 12.1% of exports respectively.

HIGHLIGHTS:

 Aircraft, spacecraft, animal or vegetable fats and oils and their cleavage products;
pre. Edible fats; animal or vegetable waxex, copper, cotton, mineral fuels,
mineral oils and products of their distillation; bituminous substances; mineral
waxes, nuclear reactors, boilers, machinery and mechanical appliance, ores,
slag and ash. , organic chemicals, plastic, salt; sulphur; earths and stone;
plastering materials, lime and cement
cement.. etc. continued to dominate the Indian
export basket.

 Among the products exported from India to China, iron ores, slag and ash (HS
26) and cotton, including yarn and fabric (HS 52) together constituted a
dominant share of 36%.

 Nickel and articles thereof

thereof. (HS 75); cocoa and cocoa preparations. (HS 18);
tobacco and manufactured tobacco substitutes
substitutes.(HS 24); aircraft, spacecraft, and
parts thereof. (HS 88) and aluminium and articles thereof (HS 76) recording
increase of 5630%, 142%, 844%, 543% and 4727% respectively.
 

(Data Source: Department of Commerce)

SN HS Description Value in RS. LACKS % Change

14/13
2013 2014
India 13,534.88 14,829.31 9.56

1 26 Ores, Slag And Ash 1,897.67 1,570.45 -17.24

2 52 COTTON. 3,410.51 3,833.41 12.40
3 74 Copper And Articles Thereof 2,010.97 1,841.65 -8.42
4 71 Nat Etc Pearls, Prec Etc Stones, Pr Met Etc; 87.69 125.52 43.14
Coin
5 29 Organic Chemicals 1,019.64 917.77 -9.99
6 39 Plastics And Articles Thereof 629.05 556.08 -11.60
7 25 Salt; Sulfur; Earth & Stone; Lime & Cement 608.15 677.71 11.44
Plaster
8 84 Nuclear Reactors, Boilers, Machinery Etc.; 434.85 481.24 10.67
Parts
9 27 Mineral Fuel, Oil Etc.; Bitumin Subst; 326.08 1,028.35 215.36
Mineral Wax
10 15 Animal Or Vegetable Fats, Oils Etc. & 378.32 293.88 -22.32
Waxes
11 41 Raw Hides And Skins (No Furskins) And 99.20 122.82 23.81
Leather
12 85 Electric Machinery Etc; Sound Equip; Tv 244.58 303.70 24.17
Equip; Pts
13 72 Iron And Steel 300.43 322.79 7.44
14 67 Prep Feathers, Down Etc; Artif Flowers; H 159.87 191.84 20.00
Hair Art
15 88 AIRCRAFT, SPACECRAFT, AND PARTS 9.62 411.19 4,172.95
THEREOF.
 Exported Items
$4,500.00
$4,000.00
$3,500.00
$3,000.00
$2,500.00
$2,000.00
$1,500.00
$1,000.00
$500.00
$0.00
HS 26 HS 52 HS 74 HS 71 HS 29 HS 39 HS 25 HS 84 HS 27 HS 15 HS 41 HS 85 HS 72 HS 67 HS 88

2013 2014

Distribution of Export Items

3% HS 26-Ores,
Ores, Slag And Ash
2%
3% HS 52-COTTON.
COTTON.

HS 74-Copper
Copper
3%
1%
2% 12% HS 71-Nat
Nat Etc Pearls

HS 29-Organic
Organic Chemicals

8% HS 39-Plastics
Plastics And Articles

HS 25-Salt;
Salt; Sulfur; Earth & Stone

4% HS 84-Nuclear
Nuclear Reactors, Boilers, Machinery Etc

HS 27-Mineral
Mineral Fuel, Oil Etc
5% 30%
HS 15-Animal
Animal Or Vegetable Fats

4% HS 41-Raw
Raw Hides And Skins

HS 85-Electric
Electric Machinery Etc

HS 72-Iron
Iron And Steel
7%
15% HS 67-Prep
Prep Feathers, Down Etc
1%
HS 88-AIRCRAFT,
AIRCRAFT, SPACECRAFt
India’s Import from China :

 India imported 16,332,302 shipments valued at USD 118.56 Billion from China.
 Top items imported from china includes:

 Electronic equipment:
 Machines, engines, pumps
 Organic chemicals
 Fertilizers
 Iron or steel products
 Plastics
 Medical, technical equipment
 Gems, Precious metal and coins
 Vehicles

 Major Importing Items with Harmonized System Codes (HS Codes) are mentioned
below with the value of their Shipments.

 Shipments under HS Code 8517 accounted for 12.2% of the imports followed by
shipments under HS Code 8471 and HS Code 9801 which accounted for 5.7% and 5.0%
of imports respectively.

Imports Shipment from China:

Month Total Value Of Imports

January 2014 3,950,825,441
February 2014 3,325,734,598
March 2014 3,437,836,442
April 2014 3,859,739,129
May 2014 4,172,842,621
June 2014 4,143,541,713
July 2014 4,328,218,125
 Total Value Of Imports
$5,000,000,000
$4,500,000,000
$4,000,000,000
$3,500,000,000
$3,000,000,000
$2,500,000,000
$2,000,000,000
$1,500,000,000
$1,000,000,000
$500,000,000
$0
Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14

Total Value Of Imports

Harmonized System Codes of Top Importing Items:

Sub Chapters Items Included

8517 Telephone sets, including telephones for cellular networks or for other
wireless networks
8471 Automatic data processing machines an units thereof; magnetic or optical
readers.
9801 All items of machinery including prime movers, instruments, apparatus
and appliances, control gear.
3105 Mineral or chemical fertilizers containing two or three of the fertilizing
elements nitrogen, phosphate
8528 Monitors and projectors, not incorporating television reception apparatus
Reception apparatus for television, whether or not incorporating radio-
broadcast receivers or sound
2941 Antibiotics
3102 Mineral or chemical fertilizers
2942 Other organic compounds
7106 Silver (including silver plated with gold or platinum), unwrought or in
semi-manufactured forms
8541 Diodes, transistors and similar semi-conductor devices; photosensitive
semi-conductor devices
2933 Heterocyclic compounds with nitrogen hetero-atom(s) only
Compounds containing an unfused pyrazole ring (whether or not
hydrogenated) in the structure)
7304 Tubes, pipes and hollow profiles, seamless, of iron (other than cast iron) or
steel
8473 Parts and accessories (other than covers, carrying cases and the like)
suitable for use solely
8414 Air or vacuum pumps, air or other gas compressors and fans; ventilating or
recycling hoods
Total Value of Each Importing Item and Their Shipment:

Sub Chapter Total Value (USD) No. Of Shipments Avg. Value per Shipment

8517 14,559,691,095 844,900 17,232

8471 6,805,434,422 409,918 16,602
9801 5,953,163,199 16,560 359,491
3105 2,269,834,772 2,053 1,105,618
8528 2,062,206,764 52,575 39,224
2941 1,992,802,901 17,150 116,198
3102 1,842,273,252 803 2,294,238
2942 1,642,042,154 25,963 63,245
8541 1,549,531,984 193,111 8,024
7106 1,484,296,006 424 3,500,698
2933 1,480,977,275 21,391 69,234
7304 1,398,347,181 50,928 27,457
8708 1,274,187,857 209,612 6,079
8473 1,271,076,803 458,377 2,773
8414 1,260,933,795 126,197 9,992
 Import Distribution

8517-Telephone
Telephone sets

8471-Automatic
Automatic data processing
machines
9801-All
All items of machinery
12%

3105-Mineral
Mineral or chemical fertilizers

6% 8528-Monitors
Monitors and projectors

2941-Antibiotics
Antibiotics
5%
3102-Mineral
Mineral or chemical fertilizers
2%
2% 2942-Other
Other organic compounds
2%
2% 8541-Silver
Silver
61% 2%
1%
1% 7106-Diodes,
Diodes, transistors and
1% similar semi-conductor
semi devices
1%
1% 2933-Heterocyclic
Heterocyclic compounds
1%

7304-Tubes,
Tubes, pipes and hollow pr

8708-Parts
Parts and accessories

8473-Air
Air or vacuum pumps

other
Reason behind Current Account Deficit from China:

 The imbalance is mainly because India has limited exports to China, while Chinese
manufactured goods have a competitive advantage in the Indian market.
 Competitiveness in areas like manufactured goods and readymade garments is being
challenged by other contraries.
 Chinese government's tightening policies in the real estate sector, reduced demand for
Indian raw materials - mainly iron ore and iron sand, which account for the bulk of Indian
exports to China.

“Indian officials say the iron ore exports from India also fell due to investigations into
allegations of corrupt practices in mine sector. China's imports from India mainly
comprise raw materials specifically iron ore so this is the one of the reason behind India’s
current account deficit.”

 India imports a large number of manufactured capital goods, which are much cheaper to
purchase from China than elsewhere.
 India has to grow in manufacturing led exports because we are not a country very much
endowed when it comes to some of the natural resources which need for our economic
growth particularly energy
 Not good in manufacturing…
so India has to grow in manufacturing led exports because we are not a country very
much endowed when it comes to some of the natural resources which need for our
economic growth particularly energy. This will help to decrease in trade deficit.
 Limited market access to Indian products in China is one of the major reasons for
widening deficit.
The limited market access afforded to Indian products in China is also a contributing
factor to the growing trade deficit. Indian IT services exports also face barriers in China
and therefore unable to compensate for the deficit on account of our merchandise trade
with China.
 Decline in export of agriculture products like coffee, tea, spices, sugar etc.
 Too much depend on China for electronic products.
Government restrictions :

 There are number of export products on which restriction have been levied by the custom
department and department of commerce which requires prior approval from this
departments before exporting those products which involve lots of paper work, which
leads to corruption and thus create problem for new person who wants to enter in this
trading business leading to deficit export.
 No initiative is taken by this department to educate people about different government
benefits available for them in trading internationally and how can they claim them rather
than just issuing books containing policies.

Potential for Expansion in Trade :

By exploring the export performances and specialization patterns of China and India, we assess
their trade competitiveness and complimentary vis-à-vis each other as well as with the rest of the
world. Our analysis indicates that

 India faces tough competition from China in the third markets especially in clothing,
textile and leather products.
 There is a moderate potential for expanding trade between the two countries.
 China poses a challenge for the East Asian economies, the US, and most of the European
countries especially in medium technology industries.
 India appears to be a competitor mainly for its neighboring South Asian countries.
 Complementary exists between the imports of China and India, and the exports of the US,
some European states and East Asian countries, especially Japan, Korea, Malaysia,
Singapore and Thailand, implying opportunities for trade expansion; and finally.
 The export structure of China is changing with the exports of skill intensive and high
technology products increasing and those of labor-intensive products decreasing
gradually. This suggests that challenges created by China in traditional labor-intensive
products might reduce in the long run.
With the growth in bilateral trade between India and China in the last few years, many Indian
companies have started setting up Chinese operations to service both their Indian and MNC
clientele in China. Indian enterprises operating in China either as representative offices,
Wholly Owned Foreign Enterprises or Joint Ventures with Chinese companies are into
manufacturing (pharmaceuticals, refractory’s, laminated tubes, auto-components, wind
energy etc.), IT and IT-enabled services (including IT education, software solutions, and
specific software products), trading, banking and allied activities. While the Indian trading
community is primarily confined to major port cities such as Guangzhou and Shenzhen, they
are also present in large numbers in places where the Chinese have set up warehouses and
wholesale markets such as Yiwu. Most of the Indian companies have a presence in Shanghai,
which is China’s financial center; while a few Indian companies have set up offices in the
capital city of Beijing. Some of the prominent Indian companies in China include Dr.
Reddy’s Laboratories, Aurobindo Pharma, NIIT, Bharat Forge, Infosys, TCS, APTECH,
Wipro, Mahindra Satyam, Dr. Reddy’s, Essel Packaging, Reliance Industries, SUNDARAM
Fasteners, Mahindra & Mahindra, TATA Sons, Binani Cements, etc. In the field of banking,
ten Indian banks have set up operations in China. State Bank of India (Shanghai), Bank of
India (Shenzhen), Canara Bank (Shanghai) and Bank of Baroda (Guangzhou), have branch
offices, while others (Punjab National Banks, UCO Bank, Allahabad Bank, Indian Overseas
Bank, Union Bank of India etc.) have representative offices. Apart from PSU banks, private
banks such as Axis, ICICI also have representative offices in China.

According to information available with the Embassy of India, close to 100 Chinese
companies have established offices/operations in India. Many large Chinese state-owned
companies in the field of machinery and infrastructure construction have won projects in
India and have opened project offices in India. These include Sinosteel, Shougang
International, Baoshan Iron & Steel Ltd, Sany Heavy Industry Ltd, Chongqing Lifan Industry
Ltd, China Dongfang International, Sino Hydro Corporation etc. Many Chinese electronic, IT
and hardware manufacturing companies are also have operations in India. These include
Huawei Technologies, ZTE, TCL, Haier etc. A large number of Chinese companies are
involved in EPC projects in the Power Sector. These include Shanghai Electric, Harbin
Electric, Dongfang Electric, Shenyang Electric etc. Chinese automobile major Beijing
Automotive Industry Corporation (BAIC) has recently announced plans to invest US$ 250
million in an auto plant in Pune. TBEA a Xinjiang-based transformer manufacturer has
firmed up plans to invest in a manufacturing facility in Gujarat. During the visit of Premier
Wen to India, Huawei announced plans to invest in a telecom equipment manufacturing
facility in Chennai.

The presence of complementarities and suggests the potential of an even faster growth. At
the present rates of growth, bilateral trade is likely to cross the US$ 10 billion target in
2004/05 set by Premier Zhu Rongji. Hence, it would not be unrealistic to set a target of US$
30 billion by 2010. However, the India-China trade is still concentrated in a few products
especially the low value added raw materials and minerals dominating India’s exports. The
challenge is to make trade more broad- based and diversified in favor of manufactured goods
rather than raw materials while sustaining a healthy expansion of trade. For this, a great deal
of attention needs to be paid to trade facilitation besides addressing the issues of relevant
tariff and non-tariff barriers. It is believed that trade facilitation itself could lead to further
strengthening of the India-China economic linkages by bringing down the present level of
high transaction costs. The steps that could be considered include streamlining customs
procedures and moving towards a more comprehensive electronic data interface in customs
administration and information exchange, having a bilateral pre-shipment inspection
agreement, mutual recognition agreements on standards, and harmonization of conformity
assessment procedures among others. Trade facilitation could also cover cooperation to
facilitate trade financing and cooperation between export-import banks of the two countries.

A large potential exists for trade in services and investment. Barriers to trade in services
need to be addressed systematically to exploit the potential of trade in services for mutual
benefit. Such potential appears to exist in areas such as IT and IT enabled services,
biotechnology, education, financial sector, education, health care, tourism, among other
sectors. The potential is yet to be fully exploited. Investments can be undertaken by Indian
enterprises in China, not only for supplying the Chinese domestic market but also for exports
in the third countries. Similarly Chinese companies can explore investment opportunities in
India for domestic market and for exports. Bilateral investment flows could be facilitated by
bilateral investment protection and promotion agreement, among other policies. In addition,
an organized institutional promotion by business chambers and governmental agencies may
be fruitful. Economic relations could be further strengthened with improved transport
linkages and connectivity. While some progress has been made on air connectivity between
India and China, the frequency of direct air links is still low.

Economic cooperation between India and China also has to look beyond just promoting trade
and investment. It could cover much broader areas including: to strengthen cooperation and
information exchange between Government agencies and related institutions; exchange
development experiences and promote technology and industrial cooperation in the fields,
such as agriculture and rural development, electrical and electronics sector, project
contracting. Given the fact that both China and India are highly dependent on imports of
petroleum and gas, mutual cooperation in energy security is also of strategic importance;
exchange experiences in the management of economy, such as city management, poverty
relief and social security, development of SMEs, disaster management, water resource
management.

The cooperation between China and India will lay foundations for the two countries to
establish a Regional Trading Arrangement (RTA). It is expected that India-China RTA will
be conducive to bringing the potential of economic cooperation into full play. Furthermore,
with mutual cooperation and coordination of their positions in negotiations in WTO, they
make contributions to building a more pro-development multilateral trade and financial
architecture. China-India cooperation has the potential to benefit one third of humanity and
also promote a broader regional economic integration in Asia.

Recommendations :

 For Exporters :
 Exporters should be well aware of the Benefits from government as it keeps
on changing.
 More skilled and experienced labors should be used.
 They should analyze the market carefully.

 For Government :
 Transportation Services:
 A uniform system of customs valuation, duties and documentation may be
evolved across all ports of entry in both the countries.
 To strengthen cooperation in transportation services, it is recommended that
China and India should ensure that ports facilitate easy movement of goods.
With increased movement of goods and passengers between India and China,
gradual increase in shipping lines and intensity of marine transportation, as
well as, increase in flights including direct flights, may be undertaken.
 The two countries should work closely to improve logistics services and
reduce delays at ports. Lowering of costs and expansion of shipping and air
transport facilities could enhance competitiveness of this sector in the two
countries.
 Procedures for handling goods at ports and customs clearance may be
simplified and made more efficient

Tourism and Related Services:

 To facilitate trade it is recommended that related departments of both countries

conduct further discussion on the possibility of opening their markets to
individual travelers. The travel and tourism industry in each country needs to
establish its presence in the other, and develop attractive tourist packages and
products keeping in mind the consumer psyche of each country’s tourists. The
governments of both countries could provide greater facilitation for enterprises
of the counterpart to start business operations in the field of tourism services in
domestic market, such as setting up tourist offices in India and China
respectively, making available each country’s cuisine in the other through
exchange of chefs, and setting up of joint promotion councils in tourism, all of
which can greatly promote the development of tourism sector. The two
countries could also work together to promote MICE and health tourism.

Information and Communication Technology:

  It is recommended that companies from India and China should continue to
explore each other’s markets. The two countries can use their core
competencies in hardware and software to increase their share of world’s trade
and gain greater access in third country markets.

 Industry association such as NASSCOM may closely interact with its

counterpart organization in China to promote co-operation in this sector. Both
countries should work together to enforce copyright and reduce piracy.
Moreover, the software enterprises of both countries can easily adapt to the
ever changing high-tech market and strengthen their status in global market by
having more joint research projects, enhancing the exchange of technological
personnel and cooperation in training.

Education Services:

 To promote bilateral education services, the two governments should fully implement the
bilateral visa agreement and discuss further means to promote people-to-people
exchanges including exchange of students. The Ministry of Human Resource
Development, India and Ministry of Education, China should facilitate collaboration
between the research institutes of the two countries. Exchange of students between the
two countries can be facilitated through more scholarships. Exchange of teachers will be
mutually beneficial and can be facilitated through intergovernmental agreements. In
India, there is a requirement of Chinese speaking teachers while in China there is a
requirement of English speaking teachers. Governments of the two countries can
facilitate the cross-country movement of qualified teachers in such areas. The two
 countries should remove restrictions on participation of educators and trainers.
Restrictions should also be removed from offering education and training on the Internet.
 India and China can also explore the possibilities of co-operation in R&D, in areas such
as biotechnology, medicine, non-conventional energy, computer software, etc. Exchange
of scientists and technical persons between the two countries would facilitate such co-
operation. India and China should negotiate a customs cooperation and mutual assistance
agreement as early as possible to improve customs supervision efficiency through
bilateral cooperation and promote trade facilitation.

CONCLUSION

This brief overview of India-China trade shows that the magnitude of trade has expanded
rapidly over the past few years. This indicates the presence of complementarities and suggests
the potential of an even faster growth.

Bilateral trade between the two countries have grown rapidly over the past few years indicating
the presence of a vast potential for further growth. Substantial complementarities characterize the
economic structures of China and India. China is emerging as a significant link in the
manufacturing chain of the world while India’s potential for the knowledge-based services and
manufacturing is being noticed. These complementary strengths of the two economies can be
further exploited for mutual benefit. Their geographical proximity, similar cultural values, and
large size of their economies can facilitate exploitation of these synergies. They can also pool
their resources for improving their international competitiveness, and can fruitfully share their
development experiences and cooperate in the critical area of energy security. India- China
economic cooperation has the potential to benefit nearly two fifths of humanity with spill over
effects on the rest of the world. This cooperation could also be instrumental in promoting broader
regional economic integration in Asia.

THE END