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Explained: In a tense year, India-China trade stayed robust

China got back to the top of India's trade partners' list in a year in which armies of the two countries remained locked in a tense standoff in eastern Ladakh.

Written by Prabha Raghavan | New Delhi |
Updated: February 27, 2021 9:29:47 am
Container boxes are seen at the Yangshan Deep Water Port, part of the Shanghai Free Trade Zone, in Shanghai, China in 2016. (Reuters Photo: Aly Song, File)

In 2020, even as relations with Beijing plunged to new lows and New Delhi took steps against Chinese-linked businesses, China reclaimed its position at the top of the list of India’s major trade partners, replacing the United States that had climbed to number 1 in 2019.

2020 trade with China

Trade between India and China from January to December 2020 stood at $77.67 billion. Though lower than the $85.47 billion traded between the countries in the 2019 calendar year, this figure was still higher than the $75.95 billion traded between India and the US last year.

In the (ongoing) financial year 2020-21, provisional data for the April-December period show China ahead of the US in India trade – $60.63 billion compared to $55.00 billion.

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Source: Ministry of Commerce and Industry

Trends in China trade

While India has been trying to reduce its trade imbalance and dependence on Chinese imports for several years now, it was only in 2018 that the US surpassed the value of goods that China traded with India in a financial year. However, India’s trade with the US took a major hit during the Covid-19 pandemic.

China got back to the top of the trade partners’ list in a year in which armies of the two countries remained locked in a tense standoff in eastern Ladakh. Also in 2020, India committed itself to self-reliance through the Atma Nirbhar Bharat campaign, and implemented measures to restrict Chinese investments in the country.

Dozens of China-linked apps were banned, a major infrastructure contract awarded to a Chinese firm was cancelled, and the import of certain kinds of power equipment was banned. Production-linked incentive (PLI) schemes were announced across sectors to reduce dependence on critical goods from China, even though building self-reliance in these critical sectors will likely take several years.

Exports and imports

Electrical machinery and equipment, at $17.82 billion, and nuclear reactors, boilers, machinery, and mechanical appliances, at $12.35 billion, continued to top the list of goods imported from China in 2020 — even though the imports of these goods dropped by nearly 11 per cent in the last calendar year compared to one year previously.

Exports of Indian iron and steel to China jumped by a massive 319.14 per cent over 2019, with shipments touching $2.38 billion during January to December 2020. Iron and steel exports to China in 2019 were around $567 million. Export of ores, slag, and ash increased by 62 per cent to $3.48 billion in 2020 from $2.15 billion in 2019.

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Overall, exports to China in 2020 were $17.12 billion — around 10.70 per cent higher than in 2019. In the April-December period of the 2020-21 financial year, exports to China were $15.26 billion, up from $12.92 billion in the same period of financial year 2019-20.

The increased exports, including those of iron and steel, could be the result of China’s focus on domestic infrastructure projects.

“The Chinese economy is undergoing a certain amount of change because China is focussed a lot on domestic demand… That way, it will need iron and steel for its infrastructure needs. Whenever infrastructure projects have been prioritised in China, India’s exports of iron and steel to that country have gone up,” Prof Biswajit Dhar of the Centre for Economic Studies and Planning at Jawaharlal Nehru University said.

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