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Calls to boycott China have been shrill over the past week, and in Siliguri, police detained BJP members after a protest. (AFP)
Calls to boycott China have been shrill over the past week, and in Siliguri, police detained BJP members after a protest. (AFP)

Dolls to drugs, trade links run deep

India has a high level of dependence on China both as a supplier and as a market, shows an analysis of the top 50 items in the trade basket

There’s a basic raw material that’s essential to make synthetic penicillin. It’s called 6-APA, and, curious as it may seem, it’s a useful gauge of the pulls and pressures of India-China trade relations.

In the first 11 months of 2019-20, 99.7% of the chemical compound, crucial to making life-saving antibiotics, came to India from one country: China.

Last year, India imported 6-APA worth $162 million (about 1,200 crore) in total. It’s not just pharmaceutical ingredients that come in bulk from China. In 2019-20, China’s share in Indian imports of plastic dolls was 93%. In integrated circuits, 97%. It goes on.

From gadgets to toys, simple to complex, essential to non-essential, raw materials to intermediates to finished goods, China’s presence in the Indian import basket is overwhelming.

As Indian policymakers weigh their options for retribution against China on a border conflict, and possible levers to redraw the balance of power, that’s the conundrum they face when they consider where they can strike China to make it hurt. On the trade front, what can hurt China will also hurt India.

India’s trade equation with China is lopsided. In 2019-20, India sent goods worth $15.5 billion to China, covering 3,284 product categories as per an 8-digit export-import classification code. The same year, China shipped $62.4 billion of goods to India, covering 6,809 product categories. For India, that’s a negative trade balance of $46.9 billion.

For further perspective on scale and lop-sidedness, consider this: the value of the top six items of India’s imports from China exceeded the value of the top 50 items of India’s exports to China. Thus, to ascertain India’s dependence on Chinese imports, and its substitutability, three factors need to be considered within a product: volume of imports of that product from China, the share of China in India’s imports for that product, and the end use of that product in India.

Graphic: Mint
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Graphic: Mint


SIZE OF PRODUCTS

The first factor is size. Until 1991, the year in which India opened its economy in a significant way to the world, the share of China in India’s exports and imports was less than 1%. It started growing incrementally. The kicker came in the early part of this century, when agreements under the World Trade Organisation platform started dismantling trade barriers globally.

China’s exports, and its economy, took off. The trade lines between India and China started diverging. In 2004-05, China accounted for 6.7% ($5.6 billion) of India’s exports and 6.4% ($7.1 billion) of India’s imports. India’s trade deficit with China was $1.5 billion. It’s now $46.9 billion. In 2019-20, China accounted for 14.1% of India’s imports, far more than the share it occupied in India’s exports (chart 1).

SHARE OF PRODUCTS

To ascertain concentration, we looked at India’s basket of top 50 items imported from China and exported to China. On the import side, in 44 of the 50 items, China is India’s largest foreign supplier. On the export side, in 31 of the 50 items, China is India’s largest foreign market.

In a significant number of these items, China’s share is overwhelmingly large. On the import side, in 30 of these 50 items, the share of China in India’s imports from all countries for that item is above 50%. Concentration is seen on the export side as well, but to a lesser degree: in 23 of India’s top 50 exports to China, the share of China exceeds 50%. In other words, China is important to India on both sides of the trade equation (chart 2).

The leading Chinese item of import to India was mobile phones and components. At a value of $4.9 billion, China accounted for 44% of this product’s imports by India. In every top 10 item of Chinese imports, the share of China in India’s total imports is sizeable: 78% in solar cells, 74% in organic chemicals, 61% in transmission equipment, and so on (chart 3).

On the export side, the top 10 Indian items to China cover high and low concentration. There’s electric transformers, where China accounts for 95% of all Indian exports, and iron ores and concentrates (88%). But there’s also fish and cotton, where China accounts for about a quarter of Indian exports (chart 4).

STAGE OF PRODUCTS

Then, there are trade linkages. India’s dependence on Chinese imports in India goes beyond finished goods, and passes through raw materials and intermediates in a significant way.

According to the UNCTAD-Eora Global Value Chain Database, over the past decade, the contribution of Chinese imports to Indian exports has increased manifold.

An indicator in this database is foreign value-added (FVA) in gross exports. This is a measure of the value added by imported inputs in a country’s exports. A recent Plain Facts piece by Mint’s Nikita Kwatra (bit.ly/31rc5Wz) showed that China’s share in FVA of India’s exports increased from 1.8% in 2009 to 34.1% in 2019. In other words, be it imports or exports, India is inextricably linked to China.

Still, if India were to impose trade barriers on China, which countries can fill in? For each of the top 50 items of India-China imports and exports, we looked at the top 3 trading partners of India other than China. It’s a list of countries that creates an imperative of India having a ‘look east’ policy (see panel below). Breaking away from China on the trade front without causing short-term shocks or trickle-down damage is not easy for India.

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