TRADE STRUCTURE OF INDIA AND CHINA

CHAPTER - IV TRADE STRUCTURE OF INDIA AND CHINA 4.1 Introduction : As noted in the discussion in chapter-3, highlights the fact that trade liberalization journey has been quite diverse in India and China. China has been more specific and aggressive while determining its trade policy objectives (specially export promotion) whereas India reformed its trade sector in a more casual manner. By and large the trade liberalization process has been a gradual one in both countries. It is thus natural that the effectiveness and relevance of trade policies of a country will be reflected in the structure of its foreign trade. Hence, present chapter is devoted to the analysis of the structure of foreign trade of China and India. Further, there is an analysis and comparison of balance of trade, foreign exchange reserves and foreign direct investment inflows as these variables play a very crucial role in determining stability of external sector of a country. Finally, an attempt would be laid to analyse the elasticity of exports and imports of India and China because elasticity of exports and imports also have many implications for structure of trade, balance of payment (Marshall-Lerner Condition ) and terms of Trade. For this analysis, data is extracted from World Trade Organization and United Nations Conference on Trade and Development. The present Chapter is divided into seven sections. Next section devoted to an analysis of India and China s share in world trade. In section 4.3, we analyse trade structure of India and China. Service s trade is analysed in section 4.4. Section 4.5 analyse trends and elasticities of exports and imports. Balance of payments, foreign exchange reserves and FDI inflows of both countries are compared in section 4.6. Section 4.7 is the concluding section. 4.2 India and China in World Trade: Table 4.1 shows the share of world s top ten exporters in merchandise trade and India over the period 1950-2013. India s share in world exports 95

was greater than China s in 1950 and equal to China in 1970 but picture has totally changed in last thirty years. In 2013 China is leading exporter in the world followed by U.S.A. Its share in world exports is 11.8%.Whereas India s share is only 1.7% with 19 th rank. Another interesting fact is that after 2000, share of all developed economies (mentioned in table 4.1) in world exports is declining whereas developing countries is increasing. Despite being a socialistic country, China has much more penetration in world trading system as compared to India and has been successful in building its strong presence in the world trading system. Table: 4.1 Leading Exporters in World Trade: 1950-2013. (US$bn) Sr. No Country 1950 1960 1970 1980 1990 2000 2013 Rank in 2013 1 China 3 1 (0.9) 2 USA 10 (16.1) 3 Germany 2 (3.2) 4 Japan 1 (1.3) 5 Netherlands 2 (2.6) 6 France 3 (5.0) 7 Korea 0 (0) 8 United Kingdom 6 (10.2) 9 Hong Kong 1 (1.0) 10 Russian Federation 0.0 (0.0) 11 India 1 (1.8) 3 (2.0) 20 (15.1) 11 (8.8) 4 (3.1) 5 (3.5) 7 (5.3) 0 (0.0) 11 (8.2) 1 (0.5) 0.0 (0.0) 1 (1.0) 2 (0.7) 43 (13.6) 34 (10.8) 19 (6.1) 13 (4.2 185.7 (5.7) 1 (0.3) 19 (6.1) 3 (0.8) 0 (0.0) 2 (0.6) 18 (0.9) 226 (11.1) 193 (9.5) 130 (6.4) 74 (3.6) 1165.7 (5.7) 18 (0.9) 110 (5.4) 20 (1.0) 0 (0.0) 9 (0.4) 62 (1.8) 394 (11.3) 421 (12.1) 288 (8.2) 132 (3.8) 2176.2 (6.2) 65 (1.9) 185 (5.3) 82 (2.4) 0 (0.0) 18 (0.5) 249 (3.9) 782 (12.1) 552 (8.5) 479 (7.4) 233 (3.8) 328 (5.1) 172 (2.7) 285 (4.4) 203 (3.1) 105 (1.6) 42 (0.7) 2210 (11.8) 1519 (8.4) 1453 (7.7) 715 (3.8) 664 (3.5 580 (3.1) 560 (3.0) 541 (2.9) 536 (2.9) 523 (2.8) 312 (1.7) Source: International Trade Statistics 2013 Note: Figures in brackets are share in world exports. 1 2 3 4 5 6 7 8 9 10 19 3 China emerged as leading global exporter from 2012 replacing USA. 96

Figure 4.1 shows the top five leading exporters in the world along with India. It is obvious from the figure that India is far behind China as far as the share in world trade is concerned. Figure: 4.1 Leading Exporters in World Trade, 2013 In recent past, production and trade of services has shown tremendous growth around the world. Table 4.2 shows the leading exporters in world s service trade for the period 1980-2013. It is observed from the table that US has been maintaining its lead in export of services since 1980. India and China are at 5 th and 6 th rank in 2013 and compared to USA (14.6 percent), both countries s share is quite low. 97

Table 4.2 Leading Exporters in global service Trade 1980-2013 (US$bn) Sr. no Country 1980 1990 2000 2010 2013 Rank in 2013 1. USA 48 148 289 558 685 1 (12.0) (17.8) (19.0) (14.3) (14.6)) 2. United Kingdom 36 (9.2) 56 (6.8) 120 (7.9) 267 (6.9) 294 (6.2)) 2 3. Germany 33 62 83 248 292 3 (8.3) (7.5) (5.5) (6.4) (6.2) 4. France 44 68 81 196 234 4 (11.0) (8.2) (5.3) (5.0) (5.0) 5. China 0 6 30 162 208 5 (0) (0.7) (2.0) (4.2) (4.4) 6. India 3 5 17 117 153 6 (0.8) (0.6)) (1.1) (3.0) (3.3) 7. Japan 20 41 69 141 146 7 (5.1) (5.0) (4.6) (3.6) (3.1) 8. Spain 12 28 53 125 145 8 (2.9) (3.4) (3.5) (3.2) (3.1) 9. Netherlands 1 7 29 52 118 144 9 (4.3) (3.5) (3.4) (3.0) (3.1) 10. Hongkong 6.0 (1.5) 18 (2.2) 40 (2.7) 104 (2.7) 135 (2.9) 10 Source: International Trade Statistics 2013 Note: Figures in brackets are share in world exports 98

Figure: 4.2.Leading Exporters in Service trade in the world Figure 4.2 shows share of world s six leading exporters in service trade with their respective shares. 4.3 Structure of Trade in India and China: In the following tables, the structure of trade of India and China is visible. Table 4.3 shows the growth rate of trade in India is higher after 1995 than China but more contribution of import growth in total in case of India. In Indian case import grow faster rate than export growth which lead to BOP deficit in recent years. In China export growth is always higher than import growth which leads to surplus on its current account. Trade integration ratio which is trade/gdp ratio is much higher in China (74%) as compared to India (54%) in 2010.China is highest recipient of FDI since 1990s in developing countries, India also become able to attract a substantial FDI in last decade. 99

Table: 4.3 Trade Outcomes of India and China Indicator Real growth in trade of goods and services % Country 1995-99 2000-04 2005-08 Latest China 9.6 23.6 15.4 6.1 India 13.3 12.7 18.7 15.6 Export Growth rate China 10.2 25.0 18.8 7.8 India 13.4 15,9 13.5 12.8 Import Growth Rate China 9.1 22.6 10.8 3.6 India 13.3 10.6 23.9 17.8 Trade Integration(Trade as a percentage of GDP) China 38.0 51.5 72.4 72.9 India 24.9 30.1 47.1 54.6 FDI inflows (% of GDP) China 4.4 3.1 3.7 3.8 Source: World Trade Indicators India 0.6 0.9 2.2 3.4 (a) Composition of Trade of India and China: Here we are going to analyze the composition of exports and imports of India and China since 1980 to 2012 based on SITC classification revision 3. Table 4.5 shows the changes in composition of merchandise exports in China over time. We can see that in 1980 nearly 50% of China s exports comprised of primary products and manufacturing exports were only 48% but in 2012, 94% of total exports are manufacturing products and primary products are only 6% as shown in figure 4.7 and 4.8. The main exports in 1980s were agriculture products and fuel and mining products. But in 2012 the main exports of China are machinery and transport equipments, office and telecom equipments and telecommunication equipments all are different category of manufacturing exports. 100

4.5 Change in structure of Exports of China 1980-2012 (US$ Millions) SITC Code Products 1980 1990 2000 2012 0+1+2+4 Agriculture 4384 10059.8 16384 66175.4 less27+28 (24) (16.2) (6.5) (3.2) 0+1+4+22 Food 3128.9 7867.5 13559.3 56317.7 (17) (12.6) (5.4) (2.7) 3+27+28+68 Fuel and Mining 4956 6558.8 12434.9 56123.7 (27.4) (10.5) (4.9) (2.73) 5+6+7+8 Manufactures 8712 44312 219858 924927 less 68 (48.13) (71.3) (88.22) (93.9) 7 Machinery Transport Equipments 843 (4.6) 10832 (17.4) 82599 (33.1) 965288 (47.1) 75+76+776 Office & Telecom equipment N.A 3126 (5.03) 43498 (17.4) 539791 (26.3) 75 Electronic Data processing & office equipment N.A 375 (.60) 18637 (7.4) 227988 (11.1) 76 Telecommunication Equipment N.A 2623 (4.2) 19508 (7.8) 229467 (11.2) 781+782+783+ 784+7132+7783 Automotive products N.A 258 (.41) 1580 (.63) 43109 (2.1) 65 Textiles 4 2540 7219 16134 95450 (14.0) (11.6) (6.4) (4.6) Source: World Trade Organization Note: Figures in brackets are share in total exports. Table 4.5 shows volume of exports and their respective share in total merchandise exports for China. 4. China is number 1 exporter of textiles in the world in 2013 and India is second largest exporters of textiles but China s textile exports are seven times higher than India. 101

Figure 4.7 Composition of exports in 1990 Figure: 4.8 Composition of exports in 2012 102

Figure: 4.9.Composition of Exports of China in 1990 Figure: 4.10 Composition of China s Exports in 2012 In 1980, China s top five exports were agriculture products (24%), Fuel and Mining (27.4%), Textiles (14%) Clothing (9%), Machinery and equipments (5%). However, in 2012, China s Top five exports are all manufacturing products viz Machinery and Transport equipments (47%),Office and telecom equipments (26.3%), electronic Data processing and 103

office equipments (11.2%), Telecommuni-cation equipments (11.2%), Clothing (7.7%). So the nature of Chinese exports has changed from primary products to Manufacturing products. Table 4.6 shows the changes in composition of China s imports. Table: 4.6 Changes in the structure of Imports of China 1980-2012 in US$(millions) SITC Code Products 1980 1990 2000 2012 0+1+2+4 less27+28 Agriculture 6476 (32.4) 7854 (14.7) 19543 (8.6) 156822 (8.6) 0+1+4+22 Food 3206 (16) 4618 (8.6) 9042 (4.01) 90650 (4.9) 3+27+28+68 Fuel and Mining 1034 (5.1) 2822 (5.2) 33939 (15.0) 533783 (29.3) 3 Fuels N.A 1259 (2.3) 20636 (9.16) 313019 (17.2) 5+6+7+8 less 68 Manufactures 12204 (61.2) 42835 (79.4) 169883 (75.4) 1058812 (58.2) 5 Chemicals 2853 (14.3) 6682 (12.5) 30212 (13.4) 178567 (9.8) 7 Machinery&Transport Equipments 5246 (26.3) 21513 (40.3) 91931 (40.8) 653429 (35.9) 75+76+776 Office &telecom equipment 546 (2.7) 4058 (7.6) 44426 (19.7) 346761 (19.0) 776 Integrated Circuits & electronic equipment N.A 747 (1.4) 21155 (9.3) 219973 (12.0) 713+7783+78+79 Transport Equipment N.A 6195 (11.6) 7693 (3.41) 102753 (5.6) 65 Textiles 1100 (5.5) 5972 (9.9) 12832 (5.7) 19809 (1.08) Source: World Trade Organization Note: Figures in brackets are share in total exports It is observed that in 1980, 61 percent of China s imports consisted of Manufactures which increased to 79.4 percent in 1990. However the share of manufacture imports in total imports came down to 58 percent in 2012. Looking at a more disaggregate level, in 1980 China s top five imports were 104

agriculture products (32.4%), Iron and Steel (11.1%), Chemicals(14.3%), Machinery and transport equipments (26.3%), Textiles(5.5%). However in 2012,main imports are fuel and mining 5 (29.3%), Chemicals (9.8), Machinery and Transport equipments (35.9%), Office and Telecom equipments (19%), Integrated circuits and electronic equipments (12%) and Agriculture products(8.6%) as it is also shown in figure 4.11 and 4.12 for 1980 and 2012 respectively. Figure: 4.11 Composition of China s imports in 1980 Figure: 4.12 Composition of China s imports in 2012 5 5 China is second largest importer of fuel and mining products 105

Table 4.7 Changes in structure of Exports India US$ in millions (1980-2012) SITC Code Products 1980 1990 2000 2012 0+1+2+4 less 27+28 Agriculture 2840 (33.0) 3505 (19.5) 5951 (14.0) 42394 (14.2) 0+1+4+22 Food 2412 2782 5417 30534 (28.0) (15.4) (12.7) (10.2) 3+27+28+68 Fuel and Mining 680 1553 2641 64347 (7.9) (8.6) (6.23) (21.6) 3 Fuels N.A 522 (2.9) 1442 (3.4) 54377 (18.3) 5+6+7+8 less 68 Manufactures 5034 12523 32922 180146 (58.6) (69.6) (77.6) (60.6) 5 Chemicals 359 1330 4342 34502 (4.1) (7.4) (10.2) (11.6) 7 Machinery & Transport Equipments NA 1331 (7.4) 3096 (7.3) 39728 (13.3) 713+7783+78+79 Transport Equipment N.A 490 (2.7) 1151 (2.7) 19103 (6.43) 781+782+783+ Automotive products N.A 197 588 10038 784+7132+7783 (1.09) (1.38) (3.38) 65 Textiles 1306 2179 5593 15273 (15.2) (12.1) (13.1) (5.1) 84 Clothing 673 2529 5964 13832 (7.8) (14.0) (14.0) (4.6) Source: World Trade Organization Note: Figures in brackets are share in total exports 106

Table-4.7 shows commodity wise composition of exports of India during 1980 to 2012. India was exporting 41 percent primary products and 59 percent manufacturing goods of total exports in 1980. In 2012, India is exporting 38 percent primary goods and 62 percent manufacturing products. Thus in contrast to China India s export structure has not undergone any significant change over the 32 years. In 1990 India s main exports were agriculture products (19.5%), fuel and mining (8.6%), Chemicals (7.4%) Machinery and transport equipments (13.3%) and Textiles (12.1%).In 2012 the share of all these products changed as Agriculture products (14.2%), Fuel and mining (21.6%), Chemicals (11.6%), Machinery and Transport equipment (13.3%) and Textiles 6 (5.1%). The composition and nature of Chinese exports have totally changed from primary exports to manufacturing exports over 1980-2012 period which comprise 94 percent of total exports but for India, change is not of such an extent as India s trade basket still comprise of primary products which are nearly 40 percent of total exports. The share of manufacturing exports in total exports is by and large same if we compare 1980 to 2012. But during 1990s its share increased to more than 70 percent. So if India wants to get benefits of international trade it should accelerate production of its manufacturing products. Even in manufacturing exports China s exports are shifting from simple manufacture products towards more sophisticated products. 6 India is second largest exporter of textiles in the world after China. 107

Figure: 4.13 Composition of Exports of India in 1980 Figure: 4.14 Composition of Exports of India in 2012 108

Figure: 4.15 Composition of Exports of India in 1990 Figure: 4.16 Composition of exports of India in 2012 109

Table: 4.8. Changes in structure of Imports of India in US$ in millions (1980-2012) SITC Code Products 1980 1990 2000 2012 0+1+2+4 less 27+28 Agriculture 1482 (9.9) 1720 (7.29) 3993 (7.7) 25667 (5.25) 0+1+4+22 Food 1241 771 2283 17672 (8.35) (3.2) (4.4) (10.2) 2+27+28+68 Fuel and Mining 6980 8432 21754 210284 (46.9) (35.7) (42.2) (43.0) 3 Fuels NA 6495 (27.5) 19340 (37.5) 185676 (38.0) 5+6+7+8 less 68 +891 Manufactures 5353 (36.0) 12169 (51.6) 22462 (43.5) 188336 (38.5) 5 Chemicals N.A 3076 (13.0) 4680 (9.08) 44501 (9.1) 7 Machinery &Transport Equipments NA 4189 (17.7) 7788 (15.1) 79004 (16.1) 76 Telecommunication Equipment N.A 173 (.73) 700 (1.3) 13540 (2.7) 78+79+713+7783 Transport Equipment N.A 1000 (4.24) 1347 (2.6) 16541 (3.3) 781+782+783+ Automotive products N.A 260 421 5870 784+7132+7783 (1.1) (0.81) (1.2) 65 Textiles 72 239 585 3317 (0.48) (1.0) (1.1) (0.67) 84 Clothing 0.17 1.5 21.6 403 (0.001) (.006) (0.042) (0.082) Source: World Trade Organization Note: Figures in brackets are share in total exports 110

Table 4.8 shows the commodity wise composition of Imports of India with their volume and respective shares. In 1980, total manufacture imports share is 38 percent in total imports which is 36 percent in 2012. In 2012, main imports of India are Fuel and Mining, Machinery and Transport Equipments, Chemicals, office and telecom equipments and agriculture products. Figure: 4.17 Composition of imports in India in 1990 Figure:4.18 Composition of imports in India in 2012 111

b) Direction of Imports and Exports of India and China: Here we have analyzed direction of external trade of India and China. The direction of India s foreign trade shows a structural shift during the last decades. Trade share of emerging and developing economies shows increasing trend while the share of conventional trading partners shows a declining trend. Table-4.9 shows the origin of India s imports for 1980 to 2012. Table-4.9. Major Origins of Imports to India (% share in total imports): 1980-2012 Sr.no Origin 1980-81 1990-91 2000-2001 2012-13 1 European Union 21.0 29.4 39.9 11.0 2 United Kingdom 5.8 6.7 6.3 1.3 3 Germany 5.5 8.0 3.5 2.8 4 France 2.2 3.0 1.3 0.8 5 Belgium 2.4 6.3 5.7 2.4 6 Netherlands 1.7 1.8 0.9 0.7 7 U.S.A 12.9 12.1 6.0 5.0 8 Canada 2.6 1.3 0.8 0.7 9 Australia 1.4 3.4 2.1 2.4 10 Japan 6.0 7.5 3.6 2.1 11 Russia 8.1 5.9 1.0 0.9 12 Iran 10.7 2.4 0.4 2.3 13 Kuwait 2.7 0.8 0.2 3.8 14 Saudi Arabia 4.3 6.7 1.2 6.5 15 China 0.00 0.1 0.10 11.3 16 U.A.E 2.8 4.4 8.8 6.5 Source: Economic Survey various issues 112

The major origins of India s imports were EU, USA, Iran, and Russia in 1980s. But share of all these has declined in 2012.The share of developing countries of Asia and Middle East is increasing like China emerged as one of the leading import sources for India with a share of 11.3 percent in 2012. One of the main striking feature is that Russia was one of the important source of Indian imports in 1980s but its share continuously declined after 1990 (due to disintegration of USSR) to less than 1 percent (2012). Following Figures: 4.19 and 4.20 show the top 5 import source of India for 1990 and 2012. Figure: 4.19 Five major origins of Imports to India: 1990 U.K, 6.7 Japan, 7.5 Germany, 8.9 EU, 29.4 USA, 12.1 Figure: 4.20 Five major origins of Imports to India: 2012 USA, 5 Saudi Arab, 6.5 EU, 11 UAE, 6.5 China, 11.3 113

Table 4.10 shows that the direction of India s exports was almost similar to that of its imports. India exports were highly concentrated in EU which fell sharply after 2001. Share of Russia was substantial in 1980s which declined sharply after disintegration of the USSR in 1991. Japan is one of the major trading partners experienced a fall in its share in total exports over the years. Many new economies emerged as major trade partners as China, UAE, Korea, Singapore and Hong Kong. India s export share is growing with Asia and declining with EU and USA, it may be the result of its Look East Policy. Table: 4.10 Major Destinations of Exports of India (% share in total exports): 1980-2012 Sr.no Destination 1980-81 1990-91 2000-2001 2012-13 1 European Union 21.6 27.5 22.7 16.5 2 United Kingdom 5.9 6.5 5.2 3.1 3 Germany 5.7 7.8 4.3 2.6 4 France 2.2 2.4 2.3 1.6 5 Belgium 2.2 3.9 3.3 2.0 6 Netherlands 2.3 2.0 2.0 2.6 7 U.S.A 11.1 14.7 20.9 12.5 8 Canada 0.9 0.9 1.5 0.7 9 Australia 1.4 1.0 0.9 2.3 10 Japan 8.9 9.3 4.0 2.1 11 Russia 18.3 16.1 2.0 0.9 12 Iran 1.8 0.4 0.5 1.6 13 China.00 0.1 5 13.1 14 U.A.E 2.3 2.4 3.2 9.8 15 Hong Kong 3.3 4.1 4.2 4.8 Source: Economic Survey various issues 114

Figure:4.21 and 4.22 shows top 5 destinations of India s exports in 1990 and 2012. China, United Arab Emirate and Hong Kong replaced Japan, Russia and Germany in 2012 as top destination for India s exports. USA and EU still in the top slot but there is a substantial decline in their shares. Figure : 4.21 Five major Destinations of India s Exports: 1990 (% share) Figure: 4.22 Five Major Destinations of India s Exports: 2012(% share) HongKong, 4.8 UAE, 9.8 EU, 16.5 China, 13.1 USA, 12.5 115

Following figures shows the region wise direction of exports and imports of India and China. Figure : 4.23 Region wise Imports to India:1990 (% share) Developing Nations, 18.6 EU, 29.4 Eastern Europe, 7.8 OPEC, 16.3 Figure: 4.24 Region wise Import to India: 2012 (% share) Developing Nations, 32.2 EU, 11.7 OPEC, 35.4 Eastern Europe, 1.7 Figure 4.23 and 4.24 show that there is a substantial increase in shares of developing countries and decline in shares of EU and Eastern Europe (Russia) in India s imports. Following Figure: 4.25 and 4.26 show the region wise share of India s Exports. 116

Figure 4.25 Region wise Exports of India: 1990 (% share) Developing Nations, 17.1 EU, 21.8 Eastern Europe, 17.9 OPEC, 5.6 Figure:4.26 Region wise Exports of India: 2012 (% share) EU, 17.2 Developing Nations, 40.7 OPEC, 19 Eastern Europe, 1.1 117

Figure: 4.26 show that share of developing nations (mainly Asian) has increased to 40%, share of Eastern Europe substantially declined to 1 %, share of European Union also declined during 1990-2012. Now we analyze the direction of trade of China. Table 4.11 shows that China s exports were highly concentrated in North America and Asia in 1990. US was one of the most important export destinations with a share of 32 percent in China s exports followed by Hong Kong and Japan. However, in 2012, there was a substantial decline in the share of USA and Europe, whereas share of Asia has increased over the period. Nearly 70 percent of China s exports are concentrated in Asia in 2012. This is due to its regional trade agreements and competitiveness of intra-industry trade and high extent of processing exports in total exports. In 2012, top five destinations of China s exports were USA, HongKong, Japan, Germany and Singapore. Table 4.11 Major Destinations of Exports from China (% share in total exports) Sr.no Destination 1990-91 2000-2001 2012-13 1 Hong Kong 12.75 21.5 17.4 2 United Kingdom 2.94 3.02 1.31 3 Germany 4.76 3.24 2.73 4 France 1.68 1.09 0.61 5 U.S.A 32.34 23.4 16.7 6 Canada 2.31 1.24 0.7 7 Australia 1.90 1.21 1.14 8 Japan 12.39 11.1 6.8 9 Saudi Arab 0.68 0.23 0.36 10 Singapore 3.28 3.7 4.4 11 Italy 1.46 0.99 0.89 12 Korea 1.80 2.6 3.8 13 India - - 2.2 14 Russia - - 2.2 Source: Authors own calculations based on data from China Statistical Yearbook 118

Figure 4.27. Region wise Exports of China: 2000 ( % share ) North America, 24.6 Africa, 0.87 Middle East, 1.67 Europe, 15.7 Asia, 52 Figure 4.28 Region wise Exports of China: 2012 (% share) Africa, 0.81 Middle East, 2.2 North America, 12.1 Europe, 10.6 Asia, 69.4 119

Figure 4.27 and 4.28 show the region wise exports of China, share of Asia increased to 69 percent in 2012. However, the share of Europe and North America declined in total exports of China. Table 4.12. Major origins of Imports to China (% share in total Imports) Sr.no Destination 1990-91 2000-2001 2012-13 1 Hong Kong 2.64 1.67 0.64 2 United Kingdom 2.10 1.38 0.66 3 Germany 4.95 3.96 3.29 4 France 2.06 1.3 0.89 5 U.S.A 23.02 17.9 10.1 6 Canada 1.53 1.5 0.61 7 Australia 3.03 2.4 3.55 8 Japan 29.25 27.4 20.6 9 Saudi Arab 2.82 1.9 4.7 10 Italy 1.49 0.99 0.77 11 Korea 2.45 6.4 6.39 12 Malaysia 1.83 3.8 3.06 Source: Authors own calculations based on data from China Statistical Yearbook However, in imports, major sources were USA, Japan, South Korea, Saudi Arab and Germany in 2012. North America s share is declined from 18.8 percent in 2000 to 10.7 percent in 2012. Share of Middle East, Oceania and Africa is increasing. However import share of Asia has been almost similar during the period. This reflects that China is net exporter in Asia and its imports mainly comprise fuel and natural reserves from Middle East and Africa. This is in conformity with the objective of China s trade policy regarding increasing the stock of natural reserves. 120

Figure 4.29 Region wise imports to China: 2000 Oceania, 2.8 Africa, 2.3 Middle East, 4.7 North America, 18.8 Europe, 13.5 Asia, 56 Figure 4.30 Region wise imports to China: 2012 Oceania, 3.9 Africa, 2.8 North America, 10.7 Middle East, 12.4 Asia, 56.8 Europe, 10.3 121

So it is clear from above analysis that share of developing and emerging economies has increased in total trade of both countries. China has become India s leading trading partner in recent years. The importance of regional trade is also increasing in both of the countries. 4.4 Service Trade of India and China: The future of world trade lies in services trade. In recent times services trade has tremendously increased in volume in the world. It will be useful to compare service trade performance of India and China. China is fifth largest exporter and India is sixth largest exporter of service trade. In the following Table-4.13, the share of service exports & imports in total exports & imports of India and China is visible. Table: 4.13 Exports and Imports of Services by India and China:1980-2013 (US$ millions) Year China s service exports India s service exports China s imports service India s service imports 1980 2512 (10.4) 2971.2 (26.3) 2024 (10.2) 2981 (17.6) 1985 3055 (10.8) 3384.1 (26.3) 2524 (6.1) 3902 (20.5) 1990 5855 (10.2) 4624.8 (20.1) 4352 (9.3) 6089 (20.6) 1995 19130 (12.9) 6774.7 (17.8) 25222 (18.6) 10267 (21.2) 2000 30430 (10.8) 16685 (27.8) 36030 (14.3) 19188 (26.2) 2005 74404 ( 8.8) 52527 (33.9) 83966 (11.7) 47286.5 (25.9) 2010 162165 (9.3) 1169395 (33.5) 193321 (12.6) 114455 (26.0) 2013 208227 (8.5) 153076 (33.0) 330284 (15.0) 127816 (22.8) Source: UNCTAD Note: Figures in brackets are share in total exports 122

Table: 4.13 shows share of service exports & imports in total exports and imports of India and China. China s service exports are nearly 10 percent of total exports of China whereas India s service exports are more than 30 percent of its exports. Similarly service imports are 15 percent of total imports in China whereas 23 percent for India. So it is clear that China is specializing more in manufacturing trade whereas India is specializing both in service and merchandise trade. Table: 4.14 Growth of Merchandise and Service Trade of India and China: 1980-2013 (in Percentage) Country CAGR CAGR CAGR 1980-1990 1991-2000 2001-2013 China Merch.Exports 12.7 14.1 20.3 Merch.Imports 13.4 11.9 19.7 India Merch.Exports 7.2 9.7 20.3 Merch.Imports 4.2 11.2 24.3 China Serv.Exports 11.8 16.7 16.9 Serv.Imports. 9.6 22.5 19.3 India Serv.Exports 4.2 15.6 21.2 Serv.Imports 7.29 14.5 18.8 CAGR: Compound Annual Growth Rate Table 4.14 shows the compound annual growth rates of merchandise and service exports and imports, both of India and China for three time periods, 1980-1990, 1991-2000 and 2001-2013. Merchandise exports of both India and China have been growing at an increasing rate during the three time periods. Both countries show the same growth rate 20.3 percent during 2001-13 period but as it obvious from the table increase in India s imports growth rate is much higher in comparison of China. In case of exports of services, 123

though India had a much lower growth rate 4.2 percent during 1980-90, it recorded a growth rate 21.2 percent in 2001-13 which is higher than that of China. Table 4.15 shows the commodity group wise growth of exports and imports for the three time periods. It is observed from the table that barring five cases, both exports and imports have grown at a higher rate during 2001-13 vis-à-vis 1991-2000 for China as well as India. However, for India the highest growth rate observed in case of Fuel and Mining exports (32.8 percent) followed by Office and Telecom Equipments (26.8 percent) during 2001-2013. For China the highest export growth is recorded in Chemical (23.0 percent) and Machinery and Transport equipment (23.0 percent). It is interesting to note that both India and China record the highest import growth in case of Fuel and Mining. Table: 4.15 Growth rates of commodity wise Exports and Imports of India and China Country Product Category CAGR CAGR CAGR 1980-1990 1991-2000 2001-2013 China Agriculture. Exports 10.7 3.8 13.5 Agriculture Imports 2.6 10.7 20.6 India Agriculture Exports 7.5 7.43 18.7 Agriculture Imports 1.9 15.9 17.2 China Fuel & Mining Exports 9.1 8.4 13.8 Fuel & Mining Imports. 9.3 19.2 30.9 India Fuel & Mining Exports 4.58 4.24 32.8 Fuel & Mining Imports 9.8 11.1 25.9 China Manufactures Exports 17.8 16.7 20.9 Manufactures Imports 18.2 11.1 16.1 124

India Manufactures Exports 10.5 10.1 17.4 Manufacture Imports 9.9 8.8 22.8 China Chemicals Exports N.A 13.8 23.0 Chemical Imports N.A 14.4 16.8 India Chemicals Exports N.A 13.4 9.8 Chemical Imports N.A 6.7 24.3 China Machi.&trans.equi.Exports N.A 22.7 23.0 Machi.&trans.equi.Imports N.A 13.0 16.9 India Machi.&trans.equi.Exports N.A 9.3 26.8 Machi.&trans.equi.Imports N.A 9.9 24.7 China Office & Tel. equi.exports N.A 30.3 22.1 Office & tel. equi.imports 14.6 24.8 17.5 India Office & tel. equi.exports 32.7 10.1 26.9 Office & tel. equi.imports 19.6 20.9 21.8 China Textiles Exports 12.2 7.2 16.8 Textiles Imports 19.2 8.2 3.5 India Textiles Exports 6.1 9.0 9.7 Textiles Imports 12.6 16.1 15.2 N.A.: Not available for 1980-90 4.5 Trends and Elasticity of Exports and Imports of India and China: a) Trends in Exports and Imports: Here trend in imports and exports of India and China is analysed through graphical methods. Sequencing of trade reforms decide the trend in exports and imports and have implications for balance of payments. 125

Figure 4.31 Trends of Imports and Exports of China 1980-1990(Yuan) Figure 4.32 Trends of Imports and Exports of China 1991-2000(Yuan) 126

Figure 4.33 Trends of Imports and Exports of China 2001-2012(yuan) Figure 4.34 Trends of Imports and Exports of India 1980-1990(Rupees) 127

Figure 4.35 Trends of Imports and Exports of India 1991-2000 Figure 4.36 Trends of Imports and Exports of India 2001-2012 Figure 4.31 to 4.36 shows the trend of exports and imports of India and China during 1970-2012. China s exports are more or less equal to its imports in 1980s and after 1995 to 2012, consistently rising and more than imports of China. That is the result of China s deliberate policy of export promotion and import restrictions simultaneously. During the whole period imports of India is higher than exports. That s why India is facing continuous balance of trade deficit. Here the sequencing of trade policies play a very important role, the 128

order of export liberalization and import liberalization program decide that outcome. b) Elasticity of Exports and Imports: We have calculated the price elasticity of exports and imports for India and China as follows. Table: 4.16 Elasticity of Exports of India and China 1980-2012 Elasticity of Exports of China Elasticity of Exports of India B 1 SE T R 2 B 1 SE T R 2 1980-90.693*.124 5.5.776.938*.049 19.0.976 1991-2000 1.18* (.040) 29.092.991 1.055*.069 15.272.967 2001-2012 1.06*.028 37.205.993 1.03*.021 48.433.996 * indicates results are significant at 1% level of significance The results for the three time periods are reported in table 4.16 and 4.17. Table 4.16 shows that elasticities of exports of both India and China is higher in the later two decades in comparison to 1980-90, this is expected in line with changing export structure of both countries from primary goods to manufactured goods. However there is no significant change in 2001-12 in comparison to 1991-2000. All of the elasticities are significant at 1 percent level. Table: 4.17 Elasticity of Imports of India and China 1980-2012 Elasticity of Imports of China Elasticity of Imports of India B 1 SE T R 2 B 1 SE T R 2 1980-90.626*.099 6.34.817 1.075*.075 14.338.958 1991-2000 1.241* 0.74 16.758.972 1.058*.027 38.937.995 2001-2012 1.00*.008 124.4.999.958*.015 64.726.998 * indicates results are significant at 1% level of significance 129

Table 4.13 shows that Import elasticities increased in case of China in 1991-2000 in comparison to earlier period but decline in later decade. In India import elasticities are consistently decreased in later two periods. However, there is not wide difference between export and import elasticities of both of the countries. This implies that India can enhance its exports by making export industry more cost competitive. China is already taking advantage of high export elasticities by exporting cheaper goods in international market. Secondly import elasticity is decreased in India continuously means Indian imports composition is shifting towards those commodities in which domestic substitutes are not available which is also in line with its import composition discussed earlier. China s import elasticity is higher than India in 1991-2000 and 2001-2012 period which shows that China can reduce or even less imports because domestic substitutes are available. Most importantly China and India both can adjust their balance of payment through exchange rate changes because Marshall-Lerner condition is satisfied in case of both countries. 4.6. Balance of Trade, FDI inflows and Foreign Exchange Reserves in India and China: It will be useful to compare the Balance of trade condition, Foreign Direct investment inflows and International reserves of the two countries as all these variables are closely interrelated and very important for the external trade of any country. Table 4.18.Balance of Trade of India and China (US$ in millions): 1980-2012 Year China India 1980 - -5653.6 1985-12592.0-6134.0 1990 10668.0-6615.6 1995 11957.5-10211.9 2000 28873.6-13143.5 2005 124626.7-27275.2 2010 218844.0-89264.0 2012 230226.6-134106.0 Source: UNCTAD 130

Figure: 4.37. Balance of Trade of India and China (US$ millions): 1980-2012 Table 4.18 and figure 4.37 show the balance of trade of India and China for the period 1980-2012. China had trade deficit only in 1985, afterwards there is a continuous trade surplus in China which has consistently and significantly increased from $ 10668 million in 1990 to $ 230226.6 million in 2012. The picture is totally reverse in case of India where the BOT has not only been in deficit but consistently increased from $5653.6 in 1980 to 134106.0 in 2012. Table: 4.19.FDI inflows in India and China (US$ Millions):1980-2012 Year China CAGR India CAGR 1980 57-79 - 1985 1956 95 106-15.2 1990 3487 13.4 237 16.9 1995 37521 71.9 2115 123 2000 40715-1.6 3588 1.9 2005 72406 10.6 7622 7.1 2012 121080 8.8 25543 2.5 Source: UNCTAD 131

Figure: 4.38.FDI inflows in India and China (US$ million):1980-2012 Table 4.19 and figure 4.38 shows the Foreign Direct Investment inflows in India and China since 1980.China has attracted much more foreign investment as compared to India since 1980. In 2012, China s FDI inflows were five times higher than India s FDI inflows. Table 4.20 and Figure 4.39 show the international reserves including gold of both countries and we can clearly see that China has much higher international reserves as compared to India. In 2012 China s international reserves are 12 times higher than India s total international reserves. Table: 4.20.International Reserves including gold US$ in millions (1970-2012) Year China CAGR India CAGR 1970 502.7-1006.6-1975 1122.7 19.9 1374.0 5.2 1980 3117.1 12.7 7327.4 23.9 1985 13216 53.1 6781.6-6.3 1990 30218 12.0 2053.3-10.6 1995 76037 5.0 18586.7 73.6 2000 168857 19.7 38426.7 15.6 2005 822479 37.9 132499 37.1 2012 3332949 26.1 271550 11.7 Source: UNCTAD 132

Figure: 4.39 International Reserves in India and China US$ in millions (1970-2012) 4.7 Conclusion : The important conclusions emerging from preceding analysis are as follows: In 2013, China was the largest exporter of merchandise trade in the world with share of 11.8 percent in comparison to India s share of 1.7 percent with 19 th rank in world merchandise exports. In 2013, China was the fifth largest exporter of service trade in the world with a share of 4.4 percent closely followed by India with 3.3 percent share in world s service trade and sixth rank. In 2013, China was the second largest importer and had 10 percent share in world s total imports whereas India s share was 2.7 percent in world imports with 10 th rank. Ninety four percent of China s exports were manufactures and only six percent were primary products in 2013. In India sixty two percent exports were of primary products and thirty eight percent exports were of manufactures in 2013. China s major exports were machinery and transport equipments, office and telecom equipments, electronic and office equipments and 133

telecommunication equipments in 2012. India s major exports were fuel and mining, agriculture exports, chemicals, machinery & transport equipments and textiles in 2012. Fuel and mining which includes ores and other minerals and non ferrous metal had highest share in India s exports(21.6%) whereas China is second largest importer of these products which shows the consciousness of Chinese leadership about importance of natural reserves of this category. China is also a leading exporter of textiles while India reached the second position in 2013, however China s trade volume of these products is seven times higher than India s volume. In 2012 China s main imports were fuel and mining, Chemicals, office and telecom equipments, Machinery and transport equipments and agriculture products. Fuels was main imports of India, comprise of 38 percent of total imports in 2012. In 2012 India s main imports were fuel and mining, Chemicals, Machinery and transport equipments, agriculture products, office and telecom equipments. Direction of trade has changed substantially in both India and China for the period under study. Share of EU, USA and other developed nations has declined in total trade whereas trade with developing countries has increased in both nations. However, China has emerged as one of the most important trading partners of India in recent years. China is exporting nearly 70 percent of its exports to Asia. Share of developing economies is increasing in India exports. China s service exports were US$ 208222 million with 8.5 percent share in total exports in 2013. Service imports of China were US$ 330284 million with 15 percent share in total imports. In 2013 India s total service exports were US$ 153076 million with a share of 33 percent in total exports and service imports were US$ 134

127816 million with a share of 22.8 percent in total imports China is having a continuous trade surplus on its balance of trade whereas India is facing trade deficit on its balance of trade account. One of the major reason is that in China the growth rate of exports is always greater than the growth rate of imports but in India exactly opposite happens as growth rate of imports has been always greater than exports growth rate. China s international reserves were US$ 3332949 million in 2012 and India s international reserves were US$ 271550 million. China s reserves were 12 times higher than India s international reserves. Foreign Direct investment is increasing in both India and China but China is able to attract foreign investment five times higher than India. China s FDI inflows in 2012 are US$ 121080 million in comparison India s FDI inflows are US$ 25543 million. Price elasticity of exports of both countries sufficient to enhance their exports by making export industry more competitive. Elasticity of Imports is declined of both economies in recent decade. It is obvious from the forgoing analysis that since adopting economic reforms and export promotion policy in 1978, China s external trade sector has tremendously expanded. Before 1970s China was nowhere in the world trade but in the past thirty years, China has become the leading exporter & importer in the world. This is definitely a result of China s deliberate export promotion policies. The second important thing is that China has been able to spectacularly expand its manufacturing exports and presently 94 percent of its exports are manufacture goods. India s trade performance has also improved after the trade reforms of 1991 and maximum growth has taken place in the recent decade of 2001-2013. However, even today, its exports share is less than 3 percent of world exports and 40 percent of its exports are primary products which comprise ores and other minerals. China s export basket became more diversified and sophisticated over time. China has surplus on its trade balance account while India is facing deficit on this account due to higher growth of imports vis-à-vis its exports for the period under study. So 135

both in absolute terms and relative senses, China s external sector is much developed as compared to India. The ray of hope for India is the service sector where India is close to China and has been building its strength slowly and steadily. Both India and China started from almost same level of per capita income and development but China is today much ahead of India and external sector of China has been a very significant contributor to its growth process. It will be relevant to examine how trade liberalization has led to trade and GDP growth in China to a much greater degree in comparison to India. This takes us to the next chapter which attempts to identify these linkages in the two countries. 136