As the world’s second-largest economy, China offers significant opportunities for Indian companies due to its vast market size, rapid urbanization, and manufacturing capabilities. Political and economic reforms, including tax and regulatory improvements, further contribute to its status as a prime destination for outbound investments by Indian companies.

India and China share a long-standing and evolving economic relationship that has grown significantly since India became the first non-socialist bloc country to establish diplomatic relations with the People’s Republic of China in 1950. Over the decades, both countries have strengthened their trade and economic ties, contributing to significant bilateral trade flows. In 1994, a Double Taxation Agreement was signed, and both nations have expressed commitment to participating in a multilateral trade system under the World Trade Organization (WTO).

India-China Trade Overview

The bilateral trade between India and China in FY23 amounted to US$ 113.83 billion, slightly lower than the US$ 115.83 billion recorded in FY22. China is India’s third-largest trading partner as of FY23, while India has climbed to the position of the 16th largest trade partner for China in 2020. In FY23, China accounted for 13.8% of India’s total imports, with India importing US$ 98.5 billion worth of goods from China.

China holds the 21st position in terms of Foreign Direct Investment (FDI) inflows into India, with a cumulative FDI of US$ 2.50 billion from April 2000 to September 2023.

Exports and Imports Between India and China

India exported 4,455 commodities to China in FY23, with total exports standing at US$ 15.33 billion. This figure is a decline from US$ 21.26 billion in FY22. Major export items from India to China include iron ore (US$ 1.9 billion), engineering goods (US$ 1.64 billion), marine products (US$ 1.03 billion), and petroleum products (US$ 796 million). From April to November 2023, India exported goods worth US$ 10.29 billion to China.

On the other hand, India imported 7,481 commodities from China in FY23, with total imports amounting to US$ 98.50 billion, up from US$ 94.57 billion in FY22. Major imports from China include electrical machinery and equipment (US$ 19.9 billion), nuclear reactors and parts (US$ 14.9 billion), organic chemicals (US$ 8.19 billion), plastics (US$ 3.8 billion), and fertilizers (US$ 1.9 billion). Between April and November 2023, imports from China stood at US$ 68.01 billion.

Recent Trends and Developments

In recent years, India and China have continued to foster their economic relationship. In 2020, both countries celebrated 70 years of diplomatic relations. Additionally, India was invited to join the Asian Infrastructure Investment Bank (AIIB) in 2014, and by 2022, the AIIB had approved financing for 33 projects amounting to US$ 8.75 billion. India also plays a significant role in the New Development Bank (NDB), which opened its India Regional Office in Gujarat in 2022. India is the NDB’s largest borrower, with 19 approved projects worth US$ 6.92 billion.

On July 18, 2023, India and China held a bilateral meeting during the G20 Finance Ministers and Central Bank Governors (FMCBG) meeting, where they discussed economic issues such as inflation and trade.

Investments and Economic Relations

Bilateral trade between India and China has grown fourfold in the last decade, crossing the US$ 100 billion mark for the third consecutive year in FY23. Indian companies have increasingly set up operations in China to serve their clients, while over 100 Chinese companies, particularly in the fields of machinery and infrastructure, have established operations in India.

India and China’s economic relationship is one of the most significant bilateral ties in today’s global economy. Despite challenges, including trade imbalances, both nations continue to engage in dialogue to enhance their cooperation. The sustained growth in trade and investment highlights the dynamism of the India-China partnership, which is expected to remain pivotal in shaping global economic trends.

ASC’s China Business Desk specializes in helping Indian businesses navigate the complexities of the Chinese market. With over 30 years of experience in financial, management, and legal consulting, we have developed a strong network of business solutions to assist companies in establishing and expanding their presence in China.

For more information, please reach out to us at chinadesk@ascgroup.in

*Source: India Brand Equity Foundation, August 2024