A Look at Sino-Indian Trade Relations

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Oct. 1 – Bilateral trade between China and India reached US$32 billion in the first half of this year and is expected to total over US$60 billion by the end of 2010, exceeding the bilateral trade goals set out by the two trade giants in 2008.

Sino-Indian trade has grown exponentially since the turn of the century, when bilateral trade totaled just US$3 billion, and China has recently surpassed the United States to become India’s largest trading partner. China now provides the bulk of India’s construction machinery and equipment imports – goods needed for the South Asian country’s continued buildup in infrastructure. Other chief Chinese exports to India include organic chemicals, nuclear reactors, silk and other commodities.

China’s superior infrastructure and supply of resources make it a champion of low value-added goods while India’s exports to China come largely in the form of IT goods and services, pharmaceuticals, and other capital-intensive products. India is also a top exporter of iron ore to China, but has found itself competing more and more with other suppliers, Australia and Brazil. China is the chief importer of iron ore worldwide, and imports the raw material to fuel its steelmaking industry.

As bilateral trade expands, though, China’s exports to India continue to outpace India’s exports to China, leading to a steadily growing trade imbalance. By the end of 2009, India’s trade deficit with China had reached US$15.8 billion and China’s ability to harness its comparative advantage and boost its labor-intensive manufacturing with manpower have all but assured that the trade gap will widen well before it narrows.

Although Indian exports to China surged in the beginning of the year, growing about 75 percent in the first quarter, the bilateral trade deficit has been a growing area of concern for the government as it tries to find a solution to the problem. To compensate, New Delhi announced in August that it would be implementing a stimulus package for industries producing labor-intensive goods in an effort to boost exports and to offset the effects of a lagging global economy. Whether such methods will be effective remains to be seen.