a comparative study of india and china: trends in

www.theinternationaljournal.org > RJEBS: Volume: 05, Number: 08, June 2016 Page 42

A Comparative Study of India and China: Trends in International Trade

1Prof. N.U.K Sherwani 2Hafiz Wasim Akram

Abstract Focussing on the comparative analysis of India and China, the paper attempts to analyse the key factors governing a huge gap between their international trade performances. A brief analysis shows there are differences in their production capacities, cost competitiveness, revealed comparative advantage and export potential, infrastructure, manpower, professionalism, logistic performance, business environment, business commitment etc. These differences are the root causes for the gulf between India’s and China’s International trade performance. Though both the countries have achieved remarkable growth in recent decades, sustained by rapid trade expansion. Good business ranking of China (as per business indices of World Economic Forum) as compared to India has helped China secure good global positioning and active participation of foreign investors. Apart from other factors, India also needs to lessen the gulf in her ranking vis-à-vis China’s ranking in order to stand near China on the global business landscape. Key Words: India, China, GDP, Trade openness, RCA, FDI JEL Classification: F14, F18, F23, F41, F64 Introduction India and China are the most populous countries of the world and jointly make up nearly two-fifth of the world population (chart 2).3 Both have registered wonderful GDP growth performance (as compared to world) in recent decades (chart 1).

Chart 1

Source: Prepared by authors based on World Bank Database Since 2006, both India and China have an inconsistent GDP growth rate. But China has seen more fluctuations than India. Today, China accounts for 12.53%4 of all global exports. In contrast, India’s export share is just 1.69%5 of world exports.

1 Professor & Head of the Department of Commerce & Business Studies, Jamia Millia Islamia, New Delhi-110025 2 Senior Research Fellow, Department of Commerce & Business Studies, Jamia Millia Islamia (A Central University), New Delhi. 3 (Population, total). World Bank. http://data.worldbank.org/indicator/SP.POP.TOTL

GDP growth (annual %)

9.3 9.8

3.9

8.510.3

6.65.1

6.9 7.4

12.714.2

9.6 9.210.6

9.57.8 7.7 7.4

0246810121416

2006 2007 2008 2009 2010 2011 2012 2013 2014Year

Per c

ent India

China


Chart 2

China has become the largest exporter in the world followed by EU, USA, Germany. But India’s exports ranking lies at 19th.6 However, India’s exports have marginally grown rapidly in 2014 against 2006 (chart 3). India in the last decade, India has seen flux of foreign entries whereas China has been attracting growing global attention since 1965 and now it has become largest recipient of foreign direct investment7. It is dead cert that continued growth in the two nations, India & China, is much anticipated to preserve world economic development as the economic prospect in the industrial world is darkening.

Chart 3 India and China: Export Growth (Value Index)8

Source: Prepared by author based on data from ITC, Geneva Note: In 2014, India’s export

4 As per the ITC, Geneva (http://www.trademap.org), in 2014, China’s total export stood at 2,342,343,011 (US Dollar thousand) against world’s total export of 18,685,583,537 (US Dollar thousand). India’s total export in 2014 was 317,544,642 (US Dollar thousand) 5 Computed from ITC,Geneva 6Central Intelligence Agency, https://www.cia.gov/library/publications/the-world-factbook/rankorder/2078rank.html 7 China tops U.S. as investment target in 1st half 2012: U.N. agency http://www.reuters.com/article/2012/10/24/us-china-us-investment-idUSBRE89N0EZ20121024#34mu6ZKXBPVB9tIU.97

8

India &China Export Growth (Indexed(100) on 2006)

34

45

61

79

100

126

148

124

163

196

211

228

242

41

49

63

83

100

120

150

146

182

249

239

278

262

0 50 100 150 200 250 300

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

IndiaChina


However, the two countries share many common characteristics such as they have the largest populations in the world (China’s 1.3 billion and India’s 1.2 Billion), they got independence many years back, they have adopted the industry-oriented development strategy, they are the centrally planned economies and they followed trade liberalization in the 1980s etc. Here an important question arises as to why India and China have different export performances. This paper answers two questions. Q NO. 1. What are the main differences between India and China in terms of in trade performance? Q No 2. What economic factors are responsible for the differences between two countries’ trade performance? This paper answers the two questions based on comparative study and analytic framework. To analyze trade performance of the two countries, pattern of trade of both the countries have been examined by comparing export, import, ease of doing business indicators, trade openness, and revealed comparative advantage as used by Balassa. Trade pattern of India and China Trade openness or Trade GDP Ratio Trade openness ratio or trade GDP ration is defined as the sum of merchandise Imports and exports divided by GDP or it is the trade-to-GDP ratio. According to WITS Online Trade Outcomes Indicators -User’s Manual (World Bank) It is “calculated as

” Chart 4 China’s trade/GDP ratio was 63% in 2005, when India’s was 41%. China’s openness to trade has slowly and gradually declined after it became the 143rd member of WTO in 2001. However, India’s openness to trade has by and large gone upward after intermittent hiccups. After the financial crisis, India has become more open to international trade whereas China’s openness to international trade has declined (chart 4).

China and India Openness to Trade

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

China India

www.theinternationaljournal.org > RJEBS: Volume: 05, Number: 08, June 2016 5

Table 1 Country Name 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 China 62.90 64.77 62.28 56.80 43.59 49.33 48.83 45.71 43.90 41.53 India 41.31 45.30 44.88 52.27 45.48 48.31 55.02 55.55 53.28 49.56 Source: Based on WITS Database The same level of trade to GDP ratio does not mean that India’s trade and total production capacity are the same. It has to borne in minds that according to WITS database “larger countries tend to have lower trade-to-GDP ratios because they may undertake a greater share of trade within their borders” and China is almost three times than that of India in terms of area. China is sprawling in 9.597 million km² whereas India sprawls in 3.288 million km². There is a concave relationship between trade openness and per capita income: as incomes rise, countries tend to trade more, but at a decreasing rate. Export Share9 Analysis As far as the share of India and China in total world export is concerned, the share has been increasing continuously but the change in the growth rate is more for China than India.

Table 2

Year Total World Export India’s Export to World % Share

China’s Export to World

% Share

2000 7057551347.69 42358096.16 0.60 249202551.02 3.53 2001 6833654479.02 43878488.72 0.64 266098208.59 3.89 2002 7214044391.86 50097958.25 0.69 325595969.77 4.51 2003 8415807546.83 59360659.09 0.71 438227767.36 5.21 2004 10209284013.11 75904200.37 0.74 593325581.43 5.81 2005 11495789884.72 100352636.50 0.87 761953409.53 6.63 2006 13356608886.47 121200606.22 0.91 968935601.01 7.25 2007 15279684086.20 145898053.46 0.95 1220059668.45 7.98 2008 17555317057.64 181860898.30 1.04 1430693066.08 8.15 2009 13775332919.31 176765036.34 1.28 1201646758.08 8.72 2010 16688499463.43 220408495.99 1.32 1577763750.89 9.45 2011 19933325921.59 301483250.17 1.51 1898388434.78 9.52 2012 19649110786.19 289564769.45 1.47 2048782233.08 10.43 2013 20291613666.54 336611388.77 1.66 2209007280.26 10.89 2014 15864249207.18 317544642.26 2.00 2342343011.34 14.76

Source: Computations based on UN Comtrade Database India’s export to world has increased by 650 per cent since 2000 whereas China’s export to world has jacked up by 840 per cent for the same period. India’s share of export to world has increased from just .60 per cent in 2000 to 2.0 per cent in 2014 whereas China’s share of export to world has jacked up from 3.53 per cent to 14.76 per cent for the same period (Table 2 and Chart 5).

9 Export share has been calculated as 100*

aß

, where β stands for India’s total export in a particular year to world and α

stands for world’s total export in the same year.


Chart 5

Import Share10 Analysis As far as the share of India and China in their total import from world is concerned, the share has been increasing continuously but the change in the growth rate is more for China than India.

Table 4

Year Total World Import India’s Import from World % Share

China’s Import from World

% Share

2000 6480845061.24 52940251.41 0.82 225093731.03 3.47 2001 6244310030.30 50671105.81 0.81 243552880.62 3.90 2002 6503500489.33 57453468.56 0.88 295170104.11 4.54 2003 7613520607.41 72430524.38 0.95 412759796.41 5.42 2004 9267103662.56 98981129.47 1.07 561228747.99 6.06 2005 10467361027.12 140861666.92 1.35 659952762.12 6.30 2006 12102066528.73 178212440.31 1.47 791460867.85 6.54 2007 13905291104.16 218645293.93 1.57 956115447.56 6.88 2008 16074392838.51 315712105.61 1.96 1132562161.44 7.05 2009 12350441271.39 266401552.91 2.16 1005555225.21 8.14 2010 14987015328.43 350029386.93 2.34 1396001565.26 9.31 2011 17905427577.04 462402790.77 2.58 1743394866.36 9.74 2012 17609555095.88 488976378.50 2.78 1818199227.57 10.33 2013 17919886870.49 466045567.33 2.60 1949992314.71 10.88 2014 16362784148.58 459369463.60 2.81 1958021301.38 11.97 Source: Based on UN Comtrade Database India’s import from world has increased by 770 per cent since 2000 whereas China’s import from world has also jacked up by 769 per cent for the same period. However, India’s share of India’s share in total world import has increased from just .82 per cent in 2000 to 2.81 per cent in 2014 whereas China’s share of import from world has jacked up from 3.47 per cent to 11.97 per cent for the same period (Table 4 and Chart 6). India does not stand with China in both the export and import shares.

10 Import share has been calculated as Export share has been computed above.

Export Share

0.002.004.006.008.0010.0012.0014.0016.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Year

Per c

ent

India China


Chart 6

The trade analysis of India and China shows that both the countries witnessed a wide fluctuation in terms of growth in export and import (Chart 7A and 7B). Chart 7 A & B

During the 1950s, the average annual growth of exports for India was at 0.41 per cent whereas the same for China was 18.79. Gradually India has become more open to trade than China. During 2000s India’s average growth rate has been almost similar to that of China. Indian average growth rate of export for that decade was 20.0 per cent when China’s growth rate was more than 22.0 per cent. But there is a wide fluctuation in growth of export for both the countries. The decade of 2000s registered maximum growth rate in import for India (chart 7B)while the maximum import growth for China was in the decade of 1970s. The charts show the average growths in export and import of important countries during the period 2010-2014 on the X axis and annual growths in export and import during 2013-14. The sizes of the bubbles are according to the export and import values of the respective countries. The Indian bubbles are very small against those of China.

There are four aspects of China’s trade expansion (1) overall trade has grown rapidly and considerably both in volume and as a ratio to the economy (Table) (2) China has sustained large trade surpluses11

11

Import Share

0.00

2.004.00

6.008.00

10.0012.00

14.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Year

Per c

ent

India China

Growth in Export: China and India

0.00 5.00 10.00 15.00 20.00 25.00

1950 - 1960

1960 - 1970

1970 - 1980

1980 - 1990

1990 - 2000

2000 - 2010

2010-14

Per centChina India

Growth in Import: China and India

0.00 5.00 10.00 15.00 20.00 25.00 30.00

1950 - 1960

1960 - 1970

1970 - 1980

1980 - 1990

1990 - 2000

2000 - 2010

2010 - 2014

Per cent

China India


without fail for many years back (chart 8 ), whereas India has seen the opposite of China because of low export potentiality and high import requirement. India has a high export disadvantage in capital goods whereas China has acquired high comparative advantage over the years (3) goods export and import continue to account for a majority, but the bubble size show that China’s export and import account for much more than that of India and (4) there has been a continuous and considerable structural changes in all sectors with the expansion of industry.

Table 5 Year World India's Total

Export China's Total Export

India's Export Per cent

China's Export Per cent

2002 6,403,698,429 50,097,958 325,595,970 0.78 5.08 2004 9,101,298,802 75,904,200 593,325,581 0.83 6.52 2006 11,986,437,555 121,200,606 968,935,601 1.01 8.08 2008 15,977,916,880 181,860,898 1,430,693,100 1.14 8.95 2010 15,052,525,130 220,408,496 1,577,763,800 1.46 10.48 2012 18,091,943,586 289,564,769 2,048,782,200 1.60 11.32 2014 18,685,583,537 317,544,642 2,342,343,011 1.70 12.54 Source: Based on UN Comtrade and ITC databases

Chart 8

India & China Trade Balance with the World

-300,000,000

-200,000,000

-100,000,000

0

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

China India


Chart 9A

Chart 9B

As far as direction12 of India’s export is concerned, in 2014, export from India has been to the tune of 13.44 per cent to USA, 10.37 per cent to China UAE followed by China (4.23 per cent), Hong Kong, China (4.22 per cent), KSA (4.11 per cent) (Chart 10A).

12


Chart 10A

As far as origin of India’s import is concerned, In 2014, import to India has been to the tune of 12.68 per cent from China, 7.12 per cent from Saudi Arabia, 5.94 per cent from UAE followed by Switzerland (4.60 per cent), USA (4.45 per cent), Qatar (3.61 per cent) (Chart 10B).

Chart 10B

In 2014, export from China has been to the tune of 16.95 per cent to USA, 15.50 per cent to Hong Kong China, 6.38 per cent to Japan followed by Republic of Korea (4.28 per cent), Germany (3.10 per cent) (Chart 11A).


Chart 11A

As far as origin of China’s import is concerned, In 2014, import to China has been to the tune of 9.38 per cent from Republic of Korea, 8.32 per cent from Japan, 8.09 per cent from China 13(Chart 11B).

Chart 11B

As far as the number of products and markets14 are concerned, India served 70 markets whereas China served 71 markets in 2014 (chart 12). The number of products exported by India at 6-digit level was as high as 3456 whereas in case of China it was 4412.

13 Trade Map, ITC, Geneva (http://www.trademap.org/stFAQ.aspx#li_Answer2_8) says “Trade between China and China can be explained by the re-import activity. The most important part is related to processing trade. More than 90% of China's imports from China are produced in China, exported to Hong Kong and then re-imported in China. 73% of products re-imported are used as inward processing materials and 70% are imported by the province of Guangdong. The main reasons that explain this trade are the geographic and logistic convenience of Guangdong with Hong Kong. Goods entering for processing trade are exempted from import duties. The business management of multinational enterprises and their distribution centres are often based in Hong Kong)”.


Chart 12

Export Comparative Advantage Analysis The revealed comparative advantage (RCA) index as developed by Balassa (1965) is widely used to measure a country’s relative export advantage or disadvantage in export products. An index of >1 (greater than one) 1indicates that the country has export advantage in a particular export product. The index <1 (less than one) indicates that the country has export disadvantage in a particular product. RCA ratio is calculated as:

RCAi = (Xi,j ⁄ ∑Xj) ⁄ (Xi,world ⁄ ∑Xworld) Where RCAi= Revelaed comparative advantage for good i Xi,j= Export of good I by country j ∑Xj= total export by country j Xi,world= world export of good i ∑Xworld= total world export The column 1 of table 6 shows the sectoral composition of Indian and Chinese exports to world. The column 4 &7 of the show revealed comparative advantage (RCA) index of the broad sector of the products exported by the countries respectively. In 2014, India had a strong comparative advantage (RCA ratio) in the following Sectors: vegetable (2.14), hides and skin (1.82), textile and clothing (2.86), stone glass(2.85). China also had a strong comparative advantage in hide and skin (2.21),

14


textile and clothing (2.89), footwear (3.59), metals (1.13), machine and electronic (1.67). Table 6

Broad Product Categories (HS 96)

India China Export Value Export

Per cent RCA

Export Value Export Per cent

RCA

1 2 3 4 5 6 7 01-05_Animal 11,045,724.48 3.48 1.71 18,720,636.39 0.8 0.39 06-15_Vegetable 21,387,411.46 6.74 2.14 21,634,158.36 0.92 0.29 16-24_FoodProd 6,527,828.05 2.06 0.65 29,008,136.45 1.24 0.39 25-26_Minerals 3,346,762.50 1.05 0.74 4,222,462.11 0.18 0.13 27-27_Fuels 62,348,538.85 19.63 1.53 34,451,460.18 1.47 0.11 28-38_Chemicals 33,622,321.36 10.59 1.21 109,400,319.11 4.67 0.53 39-40_PlastiRub 8,266,323.34 2.6 0.6 90,697,588.09 3.87 0.9 41-43_HidesSkin 3,914,328.56 1.23 1.82 35,084,976.01 1.5 2.21 44-49_Wood 1,808,043.31 0.57 0.24 39,455,403.72 1.68 0.72 50-63_TextCloth 38,597,567.72 12.16 2.86 287,589,137.01 12.28 2.89 64-67_Footwear 3,315,600.04 1.04 1.25 70,544,732.74 3.01 3.59 68-71_StoneGlas 43,580,729.90 13.72 2.85 112,314,372.25 4.79 1 72-83_Metals 25,585,087.93 8.06 1.16 184,263,692.98 7.87 1.13 84-85_MachElec 22,594,468.70 7.12 0.29 970,603,150.94 41.44 1.67 86-89_Transport 25,899,945.22 8.16 0.82 104,782,905.71 4.47 0.45 90-99_Miscellan 5,703,960.85 1.8 0.19 229,569,879.31 9.8 1.01 Source: Computation based on WITS Database It has been found that the most fundamental reason for the difference in trade performance of India and China is that they adopt different development strategies. China adopted an export-led development strategy because of comparative advantage whereas India does not have comparative advantage as compared to China. Its trade has expanded very much as compared to that of India. One of the important reasons for differences in trade performance of India and China is their positioning in terms of GDP. The production capacity of China is much stronger than that of India. China’s share in the global GDP as in 2014 was as high as 8.5 per cent whereas India’s share stood at just 2.5 per cent which is just one fourth of China’s share in global GDP. The production advantage of China can be attributed to larger size of the country, more manpower, high literacy, technological savviness, more FDI, management style, cost advantage, and many more.


Chart 13

Production advantage of china can also be attributed to China’s faring much ahead of India on different indicators of competitiveness. The table () shows the strength of China vis-à-vis India. The table displays China much ahead of India.

Table 7

Rank of India and China on Indicators of Business (2015-16) Indicator China India

Ease of Doing Business Rank 84 130 Starting a Business 136 155 Dealing with Construction Permits 176 183 Getting Electricity 92 70 Registering Property 43 138 Getting Credit 79 42 Protecting Minority Investors 134 8 Paying Taxes 132 157 Trading Across Borders 96 133 Enforcing Contracts 7 178 Resolving Insolvency 55 136 Source:World Economic Forum The low production capacity is also attributed to a number of other secondary factors as highlighted by Bhattacharya (Chart 14). China is fairly better on a number of factors such as overall business environment, logistic performance index and corruption. The businessmen have to face a number of factors such as delays in seeking permits, connections, and clearance. Dispute resolution mechanism is also tardy.


Chart 14

Source: Bhattacharya et al (2014. Make in India: Turning vision into reality. CII, 13th Summit, 2014 India is also marred by other factor such as Naxalism which is a cancer against India. Such a factor is not disturbing China with Intensity as strong as that of India. The centre-state bad relation is also factor which is holding India back on to coming forward on the path of fast development. The latest disharmony propelled by some groups with nefarious designs is forcing India to march ahead on the path of Kakistocracy and not development. Similarly the low level of export as compared to China can be attributed to low comparative advantage of India. India does not stand against china in terms of export potentiality. For Instance, China’s export products include capital items whereas India’s products are concentrated on agriculture and apparel sector. Conclusion To sum up, there is a large difference between India’s and China’s international trade trends and trade performances due to economic and non-economic reasons. The economic reasons for the gulf between India’s and China’s international trade penetration encompass their large variance in production capacities, revealed comparative advantages and export potentialities, trade openness, cost advantages, factor endowment, availability of natural resources etc. The non economic factors include physical infrastructure, ease of doing business, business environment, corruption perception, administrative style, internal terrorism, communalism, illiteracy and technology acumen etc. India needs to work on the above mentioned factors in order to stand near China on a competitive global landscape. It has to change its poor infrastructure into business enabling infrastructure, manpower inability into proven ability to compete at global level, MNC’s bad faith into good faith, corruption into transparency, nepotism into mannerism, mediocre business environment into congenial business atmosphere, religious disunity into oneness of fraternity and many more. Then only, India can climb up and up the ladder of not only business development but all round development and can stand shoulder to shoulder with China.


References:

v Balassa, B. (1965). Trade liberalization and revealed comparative advantage. The Manchester School of Economic and Social Studies, 33, 99-123.

v Bhattacharya et al. (2014). Make in India: Turning vision into reality. CII, 13th Summit, 2014 v Central Intelligence Agency, https://www.cia.gov/library/publications/the-world-

factbook/rankorder/2078rank.html v http://commerce.nic.in/publications/anualreport_chapter6-2012-13.asp v International Monetary Fund, Direction of Trade Statistics (various Issues) v ITC, Geneva, Switzerland v Population, total). World Bank. http://data.worldbank.org/indicator/SP.POP.TOTL v United Nations, UN COMTRADE Database v Vollrath, T.L. (1991). A theoretical evaluation of alternative trade intensity measures of

revealed comparative advantage, Weltwirtschaftliches Archiv, 130, 263-279. v World Bank, World Development Indicators, Online Database v WITS Database

a comparative study of india and china: trends in

Documents