Lessons from China in Global Trade

China is Bharat’s biggest trading partner after the USA. China accounted for over 5% of Bharat’s total exports in financial year 2019-20 and more than 14% of imports. Bharat has a significant trade deficit with China which was $ 53.6 bn in 2018-19 that came down to $ 48. 70 bn in 2019-20 mainly due to 7% fall in the imports.

Bharat is the seventh largest export destination for Chinese products. Over 14% of Bharat’s imports in FY19-20 were from China.

Bharat’s Imports

China 14.09%
US   7.58%
UAE   6.39%
Saudi Arabia   5.65%
Iraq   4.95%

(Followed by Switzerland, Hong Kong and other countries)

Bharat’s Exports

US 16.93%
UAE   9.32%
China   5.33%
Hong Kong   3.40%

(Source: DGFT)

FICCI reports that the Chinese major investments are in the following economic sectors of Bharat:-

  1. Automobile Industry (40%)
  2. Metallurgical Industry (17%)
  3. Power (7%)
  4. Construction (5%)
  5. Services (4%).

Between 2015-2019 around $1.8 bn FDI investment from China has taken place in our country.

According to an estimate from CII, Bharat depends on China on various items as under-

  • Electronics- 45%
  • Machinery- 32%
  • Organic Chemicals- 38%
  • Furniture- 57%
  • Fertilizers- 28%
  • Automobile Parts-  25%
  • Pharma API- 68%

Bharat’s pharmaceutical industry is the third largest in the world in by volume and ranks 14 by value. The country exported medicines worth over $14 billion to the USA in 2018-19. However, Bharat imports two-thirds of its active pharmaceutical ingredients, or key ingredients of drugs, from China.

How to reduce Bharat’s dependence on China in global trade?

There is a need to broad base our global trade in order to expand our market share in global trade and also to simultaneously reduce our excessive dependence on China.

CII has identified 37 products with high potential in export market like- jewelry, women’s apparel, drugs, cyclic hydrocarbons, and furniture- among others to boost Bharat’s share in global trade, particularly in exports.

In addition to the above mentioned potential in exports Bharat has to simultaneously concentrate on reducing the imports, particularly from China and this requires implementation of a strategy in a phased manner as under:

  1. Reducing the imports from China by importing the same from other countries where ever possible.
  2. Developing capabilities to produce the same within the country where ever possible and gradually reduce the imports. (import substitution).

We cannot abruptly stop the Imports of certain products from China that are crucial for us and where there is no alternative viable option to buy the same from other countries.

Import of bulk drug intermediates (API) is one such example. “ The percentage of API imports from China has spiked from around 1 per cent in 1991 to around 70 per cent in 2019, primarily backed by large-scale manufacturing incentives and state-driven subsidies offered in China to promote exports,” March-April, 2020 PWC Report says.

The report also rightly points out that Indian API manufacturers lost their competitive edge “in the manufacture of APIs at the lower end of the spectrum and fermentation technologies to countries like China, largely on account of factors like stricter implementation of pollution control norms, leading to higher costs of manufacturing APIs in India, issues in interpretation of the Drug Price Control Order (DPCO), 2013, no financial incentives like lower tax, cheaper utilities and land subsidy to lower capex requirement, lack of large-scale mega parks to manufacture bulk drugs, collapse of the fermentation industry in India.”

Let us hope that the government’s currently proposed initiative to encourage domestic manufacturing of certain specific APIs (53 items) which is a step in the right direction, will enable Bharat to regain its lost market share in API segment.

Similarly there are certain items like furniture whose import from china can be substantially reduced by stepping up the domestic production. There is huge potential to increase manufacturing of bamboo furniture which provides jobs to several lakhs of artisans and workers in the rural areas that will go a long way in reducing the furniture imports from China.

According to 2017 data, Bharat exports Bamboo products to more than 144 countries worth $. 42.92 million with a 1.3% share in the global exports. Bharat is the world’s second largest grower of bamboo with 136 species, 23 genera spreading over 13.96 million hectares, and therefore, has much larger potential for production and exports of bamboo products. About 8.6 million people depend on bamboo for their livelihood and Bamboo can generate 516.33 million man days of work in Bharat every year.

Bharat should also adopt a strategy of de-risking by not excessively depending on few countries for both exports and imports and instead expand the list of countries in order to avoid the china type of experience.

References:

  1. https://www.phdcci.in/wp-content/uploads/2018/11/India-China-Trade-Relationship_The-Trade-Giants-of-Past-Present-and-Future.pdf
  2. http://ficci.in/international/75154/Project_docs/China.pdf
  3. https://www.cii.in/PressreleasesDetail.aspx?enc=RZVuXhxn/IGB3aMqXYUXDJfTtYNleJbQg663xzVIud0Vi8e3IhUo6V3O5PwSZGf6APN7jEWfAsLOmU755bKUAQ==

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About the Author

Dr. B.N.V. Parthasarathi
Ex- Senior Banker, Financial and Management Consultant and Visiting faculty at premier B Schools and Universities. Areas of Specialization & Teaching interests - Banking, Finance, Entrepreneurship, Economics, Global Business & Behavioural Sciences. Qualification- M.Com., M.B.A., A.I.I.B.F., PhD. Experience- 25 years of banking and 14 years of teaching, research and consulting. 100 plus national and international publications on various topics like- banking, global trade, economy, public finance, public policy and spirituality. One book in English “In Search of Eternal Truth”, two books in Telugu and 20 short stories and 27 articles published in Telugu. Email id: [email protected]