China and International Trade: Implications for Indian Business

Ritesh Kumar Singh

Contents

India-China Bilateral Trade

China as an Opportunity

China as a Threat

Factors favoring Chinese exports

Case Studies

China & Imports

India: Determinants of Export Competiveness

Export Incentives & India

India’s Options

India-China Bilateral Trade

Value

Composition

China as an Opportunity

China as a cheap source for procuring importantinputs such as power equipments, auto-components,electronics & computer hardware, pharmaceuticalingredients and coking coal

China as an important market for India’s exports

China as a Threat

Indian businesses feel threatened because of cheap import ofmanufactured goods from China in domestic as well as India’s exportmarkets - traditional as well as non-traditional Latin America & Africa

Proposed policy changes/realities that will cause serious threats toIndian industry from China

– Sectoral negotiation under NAMA in WTO Doha Round which aims atdeeper tariff cuts in 14 sectors (including chemicals and allied sectors,electrical/electronics, industrial machineries, textiles & clothing)

– Inevitable market economy status to China by 2015 which will make itdifficult to use WTO trade remedial measures (e.g. anti-dumping) againstcheap Chinese imports

– Proposed free trade pact with China

Factors favoring Chinese Exports

Low real wages & near absence of industrial disputes and lockouts in China

Cross-subsidization of productive/corporate sector by Chinese households through Government controlled financial institutions

Deliberately undervalued exchange rate makes Chinese exports cheaper and imports costlier

Domestic availability of cheaper raw materials through use of export restricting measures like export quotas, export duties, export licensing & minimum export price requirements

Subsidy inherent in the availability of government-acquired land, cheap power and looser environmental standards

Case Studies

China’s export duty and its impact on Indian Fluorine Chemical Industry

Chinese export duties on coking coal and its impact on Iron & Steel Industry

China and Imports

China uses several non-tariff trade barriers to restrict access to its domestic market:

– Application of unique Chinese national standards despite the existence of well established international standards,

– Violation of national treatment principles on standards applied to imported & domestic products

– Use of taxation system to discriminate against imports

India: Determinants of Export Competitiveness

Enabling Policy Environment– Export import formalities

– Restrictive FDI regulations

Infrastructural Deficiencies– Overall poor infrastructural facilities: World

Competitiveness Report by World Bank

– Poor trade infrastructure in particular ports, inland connectivity, customs procedures

Export Incentives and India

To comply with India’s commitment at WTO, export incentives will have to be phased out once India achieves the GNP per capita of USD 1000 at 1990 prices, a likely scenario by 2012-13

India’s Options

Ways & means to tap – Fast-growing China, as an export market and/or – A supplier of cheap inputs to improve cost competitiveness of Indian industry

Resisting WTO incompatible Chinese trade measures through bilateral negotiation or WTO Dispute Settlement Mechanism

Diversification of Export markets into relatively unexplored territories of Latin America and Africa

Remodeling the role of Indian Government from that of an ‘Incentive-giver‘ to a ‘Trade-facilitator’

Effective cooperation between India’s trade negotiators and Indian businesses so that their trade objectives are taken into account for formulating/finalizing agenda for bilateral and multilateral trade negotiations

• Thank You!

• If you’ve any query on any economic or international trade policy related issues please feel free to contact me at rk1234.singh@gmail.com