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Brief on India-China Trade & Commercial Relations

INTRODUCTION

India and China officially resumed trade in 1978. In 1984, the two sides signed the Most Favoured Nation Agreement. Trade volume between the two countries in the beginning of the century, year 2000, stood at US$ 3 billion. In 2008, bilateral trade reached US$ 51.8 billion with China replacing the United States as India’s largest “Goods trading partner.” In 2011 bilateral trade reached an all-time high of US$ 73.9 billion.

CURRENT STATE OF PLAY

2. According to recently released data by Chinese Customs, India-China trade in 2016 decreased by 0.67% year-on-year to US$ 71.18 billion. India’s exports to China decreased by 12.29% year-on-year to US$ 11.748 billion while India’s imports from China saw a year-on-year growth of 2.01% to US$ 59.428 billion. The Indian trade deficit with China further increased by 6.28% year-on-year to US$ 47.68 billion. In 2016, India was the 7th largest export destination for Chinese products, and the 27th largest exporter to China.

India-China trade in the first four months of 2017 increased by 19.92% year-on-year to US$ 26.02 billion. India’s exports to China increased by 45.29% year-on-year to US$ 5.57 billion while India’s imports from China sawa year-on-year growth of 14.48 % to US$ 20.45 billion. The Indian trade deficit with China further increased by 6.07% year-on-year to US$ 14.883 billion.

COMPOSITION OF BILATERAL TRADE

3. In 2016,India’s top exports to China included diamonds, cotton yarn, iron ore, copper and organic chemicals. Indian exports of diamonds grew 28.48% and amounted to US$ 2.47 billion. India was the second largest exporter of diamonds (worked/not worked) to China (with a share of 31.81%). India’s cotton (including yarn and woven fabric) exports to China showed a decline of 44.1% to reach US$ 1.27 billion, although India was the second largest exporter of cotton to China with 16.43% market share. In 2016, Indian exports of iron ore registered an increase of over 700% to reach US$ 844 million.

4. In 2016,China exports of electrical machinery and equipment saw an increase of 26.83%to US$ 16.98 billion. India was the largest export destination of Fertilizers exports from China. China exported 23.48% of its total Fertilizers (worth US$ 1.54 billion) to India. India was the largest export destination for Chinese Antibiotics worth US$ 711 million in 2016, with a share of 23.55%. India was the second largest export destination for Chinese organic chemicals, worth US$5.68 billion in 2016.

Border trade

5. There are three border trade points between India and China viz. Nathu La Pass (Sikkim), Shipki La Pass (Himachal Pradesh) and Lipulekh Pass (Uttarakhand).

» Trade across Lipulekh (Qiang La) Pass is governed by the Protocol on entry and exit procedures for border trade, signed between the two countries on July 1, 1992 at New Delhi. The period of trade is June 1-Sep 30 and the designated market sites are Gunji (India) and Pulan (TAR) with 39 items allowed for export from India and 18 items for import from China.

» Trade across Shipki La Pass is governed by the Protocol for extension of border trade across Shipki La Pass, signed between the two countries in Beijing on Sep 7, 1993. Border trade markets are Namgya (Kinnaur District, Himachal Pradesh)and Jiuba in Zada County of TAR.

» Border trade between India and China across NathuLa resumed in July 2006. This border trade across Nathu La is governed by the MoU on expanding border trade, signed between the two countries in Beijing on June 23, 2003. The border trade markets for trade across Nathu La are Changgu(Sikkim) and Renqinggang (Tibet Autonomous Region- TAR). The period of the trade through Nathu La is from May 1-Nov 30. 15 items are allowed to be imported from China and 29 items allowed to be exported from India.

» Joint Statement during the visit of Hon’ble Prime Minister to China in May 2015 stated that two sides recognized that enhancing border areas cooperation through border trade,pilgrimage by people of the two countries and other exchanges can effectively promote mutual trust, and agreed to further broaden this cooperation so as to transform the border into a bridge of cooperation and exchanges. The two sides agreed to hold negotiation on augmenting the list of traded commodities, and expand border trade at Nathu La,Qiangla/Lipu-Lekh Pass and Shipki La.

INSTITUTIONAL FRAMEWORK OF BILATERAL COOPERATION

India-China Strategic Economic Dialogue (SED)

6. During Chinese Prime Minister Wen Jiabao’s visit to India in December 2010, India and China agreed to set up the Strategic Economic Dialogue (SED) mechanism. The initiative for setting up the SED came from India. The SED mechanism looks beyond the immediate bilateral issues faced by the two countries and is a forum for both sides to discuss strategic macro-economic issues impacting both nations as a result of the changing international economic and financial landscape, to share their individual best practices and in handling challenging domestic economic issues and to identify specific fields for enhancing cooperation, learning and experience sharing. The first India-China SED took place in Beijing from September 26-27, 2011. The fourth meeting of the India-China SED took place in New Delhi on 7th October , 2016.

Joint Economic Group Meeting

7. India-China Joint Economic Group on Economic Relations and Trade, Science and Technology (JEG) is a ministerial-level dialogue mechanism established in 1988 during the visit of former Prime Minister Rajiv Gandhi to China. JEG has so far met ten times. The scheduling of the previous JEG’s is as under:

First Session New Delhi Sep 18-20, 1989
Second Session Beijing Feb 06, 1991
Third Session New Delhi Dec 09, 1991
Fourth Session Beijing Jan 04, 1993
Fifth Session New Delhi Jun 13, 1994
Sixth Session Beijing Feb 19-20, 2000
Seventh Session New Delhi Mar 16, 2006
Eighth Session Beijing Jan 19, 2010
Ninth Session New Delhi Aug 27, 2012
Tenth Session Beijing Sep 2, 2014

8. During the 9th JEG, the two sides also set up three working groups on Economic and Trade Planning Cooperation, Trade Statistical Analysis and Service Trade Promotion. The Work Programme of the three working groups was signed by CITM and Chinese Commerce Minister during the visit of Premier Li Keqiang to India from May 19-22, 2013.

NITIAayog-DRC Dialogue

9. A Memorandum of Understanding between NITI Aayog of the Government of India and the Development Research Centre (DRC), State Council of the People’s Republic of China was signed during the visit of Hon’ble Prime Minister of India to China in May 2015. The First NITI Aayog-DRC Dialogue was held in Beijing on 24th November 2015, co-chaired by Mr Arvind Panagariya, Vice Chairman NITI Aayog and Mr Li Wei, President(Minister), DRC. The second NITI Aayog-DRC Dialogue was held in New Delhi 16-17 November , 2017 and was once again co-chaired by Mr Arvind Panagariya, Vice Chairman NITI Aayog and Mr Li Wei, President (Minister), DRC.

Other Dialogue Mechanisms

10. Some of the other institutionalized dialogue mechanisms between the two countries include the Joint Working Group (JWG) on Trade, Joint Study Group and Joint Task Force on Regional Trading Agreement(RTA),India-China Joint Working Group on Agriculture, India-China Joint Working Group on Cooperation in Energy and the Joint Study Group on BCIM Economic Corridor.

INVESTMENTS

11. Industrial Parks: An MoU between the Ministry of Commerce of PRC and Ministry of Commerce and Industry of India on ‘Cooperation on Industrial Parks in India’ was signed on June 30, 2014 in Beijing during the visit of Vice President of India to China so as to provide a platform for cluster type development of the enterprises of both countries. In pursuance to the MoU, DIPP constituted a Joint Working Group (JWG) of the Indian side on 16th July 2014 under the Chairmanship of Joint Secretary, Department of Industrial Policy and Promotion,Ministry of Commerce and Industry, who will be the nodal officer from the Indian side, to identify and agree upon the detailed modalities for implementing cooperation under the said agreement, and to periodically review progress. The First Meeting of the JWG on Industrial Parks was held in Beijing from 3-4 August 2015. The 3rd meeting of the Joint Working Group on Industrial Parks was held in Beijing from 2-3 November, 2016.

12. Chinese Investment in India: According to data released by China’s Ministry of Commerce,the Chinese investment in India in Jan-Mar 2017 were to the tune of US$ 73 million.Cumulative Investment in India till March 2017 stood at US$ 4.91 billion.

13. Indian Investment in China: According to data released by China’s Ministry of Commerce, the cumulative Indian investment in China till March 2017 reached US$705 million.

Indian Companies in China

14. With the growth in bilateral trade between India and China in the last few years,many Indian companies have started setting up Chinese operations to service both their Indian and MNC clientele in China. Indian enterprises operating in China either as representative offices, Wholly Owned Foreign Enterprises (WOFE)or Joint Ventures with Chinese companies are into manufacturing (pharmaceuticals, refractories, laminated tubes, auto-components, wind energy etc.), IT and IT-enabled services (including IT education, software solutions,and specific software products), trading, banking and allied activities.While the Indian trading community is primarily confined to major port cities such as Guangzhou and Shenzhen, they are also present in large numbers in places where the Chinese have set up warehouses and wholesale markets such as Yiwu in Zhejiang. Most of the Indian companies have a presence in Shanghai,which is China’s financial center; while a few Indian companies have set up offices in the capital city of Beijing. Some of the prominent Indian companies in China include Dr. Reddy’s Laboratories, Aurobindo Pharma, Matrix Pharma, NIIT, Bharat Forge, Infosys, TCS, APTECH, Wipro, Mahindra Satyam, Dr. Reddy’s, Essel Packaging, Suzlon Energy, Reliance Industries, SUNDARAM Fasteners, Mahindra & Mahindra, TATA Sons, Binani Cements, etc.

Chinese Companies in India

15. According to information available with the Embassy of India, more than 100 Chinese companies have established offices/operations in India. Many large Chinese state-owned companies in the field of machinery and infrastructure construction have won projects in India and have opened project offices in India. These include Sinosteel, Shougang International, Baoshan Iron & Steel Ltd, Sany Heavy Industry Ltd, Chongqing Lifan Industry Ltd, China Dongfang International,Sino Hydro Corporation, etc. Many Chinese electronic, IT and hardware manufacturing companies are also having operations in India. These include Huawei Technologies, ZTE, TCL, Haier etc. A large number of Chinese companies are involved in EPC projects in the Power Sector. These include Shanghai Electric, Harbin Electric, Dongfang Electric, Shenyang Electric etc.

INDIA-CHINA ECONOMIC RELATIONS

India-China economic relations constitute an important element of the strategic and cooperative partnership between the two countries. Several institutional mechanisms have been established for enhancing and strengthening economic cooperation between the two countries. Besides the India-China Joint Economic Group on Economic Relations and Trade, Science and Technology (JEG) and the India-China Strategic and Economic Dialogue (SED), a Financial Dialogue has also been instituted since 2006.

India-China Financial Dialogue: In accordance with the MoU signed during Chinese Premier Wen Jiabao’s visit to India in April 2005, the two sides have since successfully held eight Financial Dialogues in April 2006, December 2007, January 2009, September 2010,November 2011, September 2013, December 2014 and August 2016 respectively. The Eight India-China Financial Dialogue was held on August 19th in Beijing.During this Dialogue, the two sides held in-depth discussions on new challenges facing the global economy, macro-economic situations and policies in India and China, progress on structural reforms in both countries, cooperation under multilateral frameworks as well as bilateral financial cooperation. A Joint Statement was signed at the end of the Dialogue. The Ninth India-China Financial Dialogue is scheduled to be held in India.

Banking Links: Many Indian banks have established their presence in mainland China in the last few years. State Bank of India (Shanghai and Tianjin), Canara Bank (Shanghai), Bank of Baroda(Guangzhou), Bank of India (Shenzhen), Axis Bank(Shanghai) and ICICI (Shanghai)have branch offices in China. At present, the State Bank of India is the only Indian bank to have authorization to conduct local currency (RMB) business at its branch in Shanghai. Besides, the following representative offices of Indian banks are also operating in mainland China: Punjab National Bank, (Shanghai),Union Bank of India (Shanghai and Beijing Bank of India(Beijing), Union Bank of India (Beijing) and Indian Overseas Bank (Guangzhou)

More Indian banks are planning to upgrade their Representative Offices in China to branch offices and existing branch offices are applying for RMB license.

In early 2011,Industrial and Commercial Bank of China (ICBC) secured a license to start banking operations in India. ICBC inaugurated their Mumbai branch on September 15, 2011. This marked the opening of the first branch of a mainland Chinese bank in India.

Various government institutions and agencies from the two countries have also been interacting with each other for furthering cooperation in the areas such as taxation,auditing, human resource development and employment, health, urban and rural development and tourism. There is a close exchange and interaction between the economic think tanks and scholars as well.