Trade Relationship Between India and China

Source: The post Trade Relationship Between India and China has been created, based on the article “Use dialogue, deterrence and trade to deal with China” published in “Live mints” on 2nd July 2024

UPSC Syllabus Topic: GS Paper2- International relations

Context: The article discusses India’s increasing manufacturing capabilities in sectors like solar cells and electronics, heavily relying on imported Chinese components. It also covers the complex trade and political relationship between India and China, highlighting both economic dependence and strategic challenges.

For detailed information on India-China Relations read Article1, Article 2

What is the Current Status of India’s Manufacturing Sector?

1. Solar Cell Production: India’s solar-cell manufacturing capacity is set to increase from 6 gigawatts to 30 gigawatts within a year, positioning the country as a potential exporter of solar products.
2. Electronics Manufacturing: The capacity for manufacturing electronics, especially mobile phones, now meets 97% of domestic demand. India earned $15 billion from handset exports last year, with projections to reach $50 billion in electronic exports in the next two years.

What is the Trade Relationship Between India and China?

1. Volume of Trade: Over the past four years, trade between India and China has been recorded at $88 billion, $126 billion, $136 billion, and $119 billion, showing significant economic exchange.
2. Import Reliance: Imports from China have grown by 31% in the past year, with a noted increase in the share of electronic devices and components from China. India relies on Chinese imports for critical components like solar cells, glass, frames, and electronics parts such as printed circuit boards and semiconductors.
3. Trade Deficit: Despite strategic tensions, the trade deficit continues, largely due to the essential nature of Chinese imports that support India’s manufacturing and economic ambitions.
4. Strategic Compartmentalization: Despite tensions like the Galwan incident, economic engagements continue separately from border issues, highlighting a strategy to prioritize economic ties despite political or military disputes.

What Are the Key Certainties in India-China Relations?

1. No Gain from Military Conflict: China has nothing to benefit from a full-scale military confrontation with India, indicating a mutual understanding to avoid such escalations.
2. Persistent Gap: The significant economic and power disparity between India and China is expected to continue for at least another decade.
3. Balanced Border Deterrence: India’s strong border defenses match the scale of China’s military build-up, maintaining a status quo at the border.
4. Domestic Challenges in China: China faces internal macroeconomic and demographic issues, along with complex border disputes with other neighbors, which demand substantial attention from its policymakers.
5. Shared Global Interests: Representing 40% of the world’s population, India and China share more common global interests than often recognized, stemming from their statuses as ancient civilizations and neighbors.
6. Dialogue Importance: The need for distinctions in dialogue between states, governments, people, and societies is crucial. There is significant potential to enhance people-to-people connections, fostering better mutual understanding despite ongoing border hostilities.

What Should Be India’s Strategy?

1. Enhance Political Dialogue: Engage China through more robust political dialogue to better understand and manage bilateral issues, as suggested by experts like former foreign secretary Vijay Gokhale.
2. Explore Export Opportunities: Exploit the Chinese $6 trillion consumer market more effectively. Even a 1% market share offers a significant economic opportunity, given the size of China’s economy.
3. Strategic Use of Chinese Capital: Adopt a nuanced approach to Chinese capital inflows. Avoid general restrictions that might hamper economic opportunities, especially in sectors where such investments do not pose national security threats, like the automobile industry.
4. Increase People-to-People Links: Despite border hostilities, there is a need to enhance people-to-people relations, which can help improve mutual understanding and smooth over political tensions.

Question for practice:

Discuss the current status of India’s manufacturing sector and its economic dependence on Chinese imports.