India-China trade relations

New Delhi: India and China share an intricate and multifaceted trade relationship. As two of the world's largest economies and the first and second most populous countries, maintaining strong trade relations has always been important despite historical animosities, geopolitical tensions, and military conflicts. Over the years, economic interdependence between the two nations has continued to grow. The bilateral trade between New Delhi and Beijing has grown remarkably with China emerging as India's largest trading partner in multiple years.

The trade relation between the countries dates back to ancient times, facilitated by the Silk Route. Even during the 2020 clash in Galwan valley and subsequent standoff between the armies of both the countries, trade didn't stop.

The only concern between the countries and especially in India is the trade deficit--heavily in favour of China. While imports from China to India stood at $101.74 billion in FY24 and $98.50 billion in FY23, exports were $16.65 billion in FY24 and $15.30 billion in FY23.

The relationship took a drastic turn after a brief war between the countries in 1962. The war led to a complete breakdown of diplomatic and economic ties for nearly a decade. It was only in the late 1970s that the two countries began normalising relations. It has more to do with China's economic reforms under Deng Xiaoping.

Diplomatic ties were formalised in 1978, initiating a renewed economic engagement between the neighbours. The trade pacts in the 1990s and early 2000s eventually led to China becoming India's largest trading partner.

Both India and China are economic powerhouses, and bilateral trade has played a major role in this. Over the past two decades, trade between the two nations has expanded manifold.

While in 2000, India-China trade stood at around $3 billion, it surged to over $118 billion by 2023. Beijing is a major exporter to India, supplying electrical machinery, pharmaceuticals, telecommunications equipment, and raw materials for various industries. India's exports include raw materials such as iron ore, cotton, and organic chemicals to China, but the volume is very low when compared with imports from its neighbour.

One of the most pressing issues in India-China trade relations is the massive trade deficit that India faces. India imports way more than it exports to China. In 2021, India's trade deficit with China stood at nearly $70 billion. It increased to over $84 billion in FY24. The imbalance is a growing concern for policymakers in New Delhi, as excessive reliance on China makes India vulnerable to economic pressures.

Despite the growing trade ties, challenges continue to plague the economic relationship between the two Asian giants with one of the major contention being the longstanding border dispute between them. The contention is especially strong in Ladakh and Arunachal Pradesh. While India considers Arunachal Pradesh and Aksai Chin (in Ladakh) as its territory, China disputes these claims. The Galwan Valley clash in June 2020 led to a steep deterioration in relations.

India imposed economic restrictions on Chinese companies, including banning over 200 Chinese apps, after the clash in the Himalayas.

India's heavy reliance on Chinese imports, especially in sectors like pharmaceuticals, electronics, and telecommunications, has raised concerns about New Delhi's economic dependency on Beijing.

The Indian pharmaceutical industry, one of the largest in the world, relies on China for nearly 70% of its Active Pharmaceutical Ingredients (APIs). The Indian smartphone market is dominated by Chinese brands. Even industries like solar power, automotive, and electronics are heavily dependent on China for key components.

India fears that any disruptions in the supply chain could negatively impact its industries. For this, the Union government has started promoting policies to reduce dependence. "Atmanirbhar Bharat" is one such initiative.

Indian businesses have long complained about restricted access to the Chinese market. While China exports a wide range of products to India, Indian companies face numerous non-tariff barriers when trying to enter the Chinese market.

Sectors like Information Technology (IT) and pharmaceuticals have struggled to gain a foothold in China due to restrictions. Even the agricultural products, including dairy and meat, face complex certification requirements.

Despite the challenges, there are several areas where India and China can and have been collaborating. Chinese companies have invested in Indian startups, especially in the technology sector. Companies like Alibaba and Tencent have invested in many firms. However, after the 2020 LAC incident, these investments face strict scrutiny.

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Another area of cooperation can be renewable energy where both India and China have ambitious plans. They are particularly interested in the solar and wind energy sectors. While China is a global leader in solar panel manufacturing, India has been a major importer of these panels. Collaboration in this field can help both nations achieve their climate goals.

India and China are not only neighbours but are also members of multiple international organisations such as BRICS, the Shanghai Cooperation Organisation (SCO), and the Regional Comprehensive Economic Partnership (RCEP). These platforms can be used to boost economic cooperation.