Asian Insider

India-China trade strong despite border tensions

Indian analysts note decoupling from China not easy, no matter what government says

Trade ties between China and India remain strong, despite the border issues between the two Asian giants that led to their most serious clashes in recent memory last year.

China looks set to remain as India's largest trading partner this year, based on current figures, after overtaking the United States last year.

Chinese and Indian media reported that trade had gone up 70 per cent year on year to at least US$48 billion (S$63.7 billion) in the first five months of 2021.

The trend underlines how the economic relationship between the two, at least when it comes to trade in goods, has held fast in spite of bilateral ties being weighed down by the border troubles, which led to the call for the boycotting of Chinese goods.

Nationalist sentiment also grew in India amid a push for "atmanirbhar", or self-reliance.

One key factor for China overtaking the US as India's top trading partner last year was an increase in Indian exports to China, which jumped by 16 per cent over 2019.

"In the last two years, exports were flagging. But it picked up... reversing a decline. That has been due to Chinese markets opening up and the Chinese economy recovering much better than all others. China is focusing on a lot of infrastructure investment and our exports of iron and steel have gone up," said Professor Biswajit Dhar of Jawaharlal Nehru University and a former member of the Board of Trade.

He added: "One thing is clear - that despite all the rhetoric on anti-China and all that, business will do what is best for it. So if the market is opening up there, business is not going to hold back. Second thing is that despite what the government was talking about, decoupling from China, it's not easy to decouple from China. Even if you want it, it can only happen over the medium term."

India and China saw the worst outbreak of hostilities in more than four decades following a violent clash in the Ladakh region in June last year, in which both sides suffered casualties.

A build-up of troops and weaponry ensued in the area and tensions spilled over into the economic relationship, overturning a longstanding policy of separating the two issues.

India banned 267 Chinese apps for alleged data misuse, ordered increased scrutiny on Chinese investments and has not invited Chinese firms for 5G trials.

Most Indian consumers, however, appear to have ignored the call for a boycott of low-cost Chinese goods, still preferring them amid a decline in household earnings due to the lockdowns from the Covid-19 pandemic.

A survey by LocalCircles, a non-profit, found that the increase in Chinese imports so far this year could be attributed to life-saving medical equipment and medical oxygen during the second wave of the pandemic.

Still, the Indian government has been looking at ways to reduce dependence on China in areas such as pharmaceuticals and electronics.

A key positive for India from the latest figures is that the trade deficit with China has come down to around US$45 billion, the lowest in five years.

Commerce Secretary Anup Wadhawan had said in April that bilateral trade was "more balanced today".

But analysts have noted that India still has some way to go towards achieving its aim of reducing the trade deficit by exporting more value-added goods instead of raw materials.

In the first four months of this year, for instance, China imported 20.28 tonnes of iron ore from India, about 65.7 per cent more than the 12.24 tonnes in the same period last year.

"I feel that, over a period of time, we need to look into replacing raw materials with value-added exports. Demand in China for raw materials will go down in the next three or four years. Even least developed countries are looking into value-added exports," said Dr Ajay Sahai, director-general and chief executive of the Federation of Indian Export Organisations.

He added: "Export of raw materials is a double-edged sword as it also increases raw material prices in the country they are being exported from. We need to have manufacturing capabilities."



    In 2020


    In 2019



    In 2020


    In 2019

    Source: General Administration of Customs, China

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A version of this article appeared in the print edition of The Straits Times on June 17, 2021, with the headline India-China trade strong despite border tensions. Subscribe