Trade between India and China reached $125.6 billion in 2021, the first time bilateral trade has crossed the $100 billion mark, according to data released by China’s General Administration of Customs in January. To some extent, this shows that China-India economic and trade cooperation enjoys a solid foundation and huge potential for future development.
In 2000, bilateral trade totaled just $2.9 billion. With the rapid economic growth of China and India and the strong complementarity of their industrial structures, bilateral trade volume has maintained an overall growth trend in the past 20 years. India is a big market with a population of more than 1.3 billion. Economic development has promoted the continuous improvement of consumption level, especially the high consumption demand of the 300 million to 600 million middle class. However, India’s manufacturing industry is relatively backward, accounting for only about 15% of the national economy. Every year, it has to import a large number of goods to meet the demand of the domestic market.
China is the world’s largest manufacturing country with the most complete industrial sectors. In the Indian market, China can offer most of the products that developed countries can offer, but at lower prices; China can provide goods that developed countries cannot. Due to the lower income level of Indian consumers, quality and inexpensive Chinese goods are more competitive. Even for domestically produced goods in India, Chinese goods have a very high cost performance advantage. Despite the impact of non-economic factors, India’s imports from China have maintained strong growth as Indian consumers still mainly follow economic rationality when buying goods.
From the production point of view, not only Indian enterprises need to import a large amount of equipment, technology and components from China, but even foreign enterprises investing in India cannot do without the support of China’s industrial chain. India’s world-renowned generics industry imports most of its pharmaceutical equipment and more than 70 percent of its apis from China. Many foreign companies complained about Indian barriers to Chinese imports after a border conflict broke out in 2020.
It can be seen that India has a rigid demand for “Made in China” products in both consumption and production, which makes China’s exports to India far higher than its imports from India. India has been raising the trade deficit with China as an issue and has taken measures to restrict Chinese imports. In fact, India needs to look at china-India trade from the perspective of whether it benefits Indian consumers and the Indian economy, rather than from the mindset of “surplus means advantage and deficit means loss”.
Modi has proposed that India’s GDP rise from the current $2.7 trillion to $8.4 trillion by 2030, displacing Japan as the world’s third largest economy. Meanwhile, many international institutions predict that China’s GDP will reach 30 trillion US dollars by 2030, surpassing the US to become the world’s largest economy. This indicates that there is still great potential for future economic and trade cooperation between China and India. As long as friendly cooperation is maintained, mutual achievements can be achieved.
First, to achieve its economic ambitions, India must improve its poor infrastructure, which it cannot do with its own resources, and China has the world’s greatest infrastructure capacity. Cooperation with China can help India improve its infrastructure in a short time and at low cost. Second, India needs to attract foreign direct investment and industrial transfer on a large scale to develop its manufacturing sector. However, China is facing industrial upgrading, and the middle and low-end manufacturing industries in China, whether foreign or Chinese enterprises, are likely to move to India.
However, India has set up barriers to Chinese investment for political reasons, restricted Chinese companies’ participation in Infrastructure construction in India and hindered the transfer of manufacturing from China to Indian industries. As a result, the huge potential of China-India economic and trade cooperation is far from being tapped. Trade between China and India has grown steadily over the past two decades, but at a much slower pace than that between China and major regional trading partners such as Japan, South Korea, THE Association of Southeast Asian Nations and Australia.
Subjectively speaking, China hopes not only for its own development, but also for the development of Asia as a whole. We are happy to see India develop and eradicate poverty. China has argued that the two countries can actively engage in economic cooperation despite some conflicts. However, India insists that it will not be able to carry out in-depth economic cooperation until the conflicts between the two countries are resolved.
China is India’s largest trading partner in goods, while India ranks around 10th among China’s major trading partners. China’s economy is more than five times the size of India’s. China’s economy is more important to India than India’s economy is to China. At present, the international and regional industrial transfer and industrial chain restructuring is an opportunity for India. The missed opportunity is more disadvantageous to India than specific economic losses. After all, India has missed many opportunities.