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Knappily Daily
Session 3
India China trade| India-China relations | How to take a pic of a black hole?
Reducing deficits
Trade deficit comes down
• India has managed to bring down its trade deficit with China by $10 billion to $53 billion in 2018-19 year on
year, presumably due to the efforts by New Delhi to get greater market access to the latter's markets and
take benefit out of the current Washington-Beijing trade war.
• India's exports to China rose to $17 billion during the year from $13 billion during 2017-18, while imports
declined to $70 billion from $76 billion. Although the India-China trade deficit registered a marginal decline
a couple of times over the past 10 years, the fall has never been as much as seen in 2018-19. The deficit
has ballooned from $1 billion in 2003-04 to $53 billion in 2018-19.
• The US-China trade war has definitely helped, with Indian exports to China on categories such as
pharmaceuticals, auto components, plastic products and organic and special chemicals, besides
agricultural products like soybean, rapeseed and sugar, picking up. While exports to China have only
doubled in the last 10 years, imports from China have more than tripled in the same period.
• India’s imports from China rose from $2.7 billion in 2002-03 to $76 billion in 2017-18. China’s share in total
Indian imports has also risen: From 4.5 per cent in 2002-03 to 10.7 per cent in 2007-08 and 16 per cent in
2017-18.
Trade deficit comes down: but how?
• India’s imports from Hong Kong have risen significantly for the same products that India imports from
China. During 2018, for example, India’s trade deficit with China narrowed to $57.4 billion from $59.3
billion, while India’s trade surplus with Hong Kong valued at $3.9 billion in 2017 turned deficit at $2.7
billion in 2018. India’s trade deficit with China and Hong Kong combined widened to $60.1 billion in 2018
from $55.4 billion in 2017.
• India’s exports to China rose 30.4% in 2018 (calendar year) to $16.5 billion. However, India’s exports to
Hong Kong dropped from $15 billion to $13.3 billion, a net loss in exports of $900 million when taken
together with China.
• Since Hong Kong is an independent member of the WTO, its trade transactions are recorded separately
from China’s. But Hong Kong is a special administrative region (SAR) that exists as part of the People’s
Republic of China under the “One Country, Two Systems” doctrine, negotiated in the Sino-British Joint
Declaration, negotiated and signed in 1984, but taking effect in 1997.
Can’t Indians simply boycott Chinese goods?
Yes, they can. But it will harm India more than China
• The anti-dumping duties on chemicals and machinery items imported from China have already been in place
for some time. Other Chinese products on which India has imposed anti-dumping duties include steel and other
metals, fibers and yarn, rubber or plastic, electronics, and consumer goods.
• The logic behind imposing anti-dumping duties is mainly to protect domestic industries, as they are not able to
match the price of cheap Chinese products. Anti-dumping duties aim to create a level playing field for Indian
manufacturers. Yet any step to impose unreasonable restrictions of imports from China would amount to a
contravention of the World Trade Organization’s laws.
• As such, it would fall largely to civil society to organize these ‘boycotts’, which given its fragmented nature,
would involve sizable opportunity and transaction costs. Even so, a boycott of Chinese imports would not be
justifiable even if logistical issues could be resolved.
• As local manufacturing companies in India are not geared up to supply goods to the rising power and telecom
sectors, India may be forced to import such good from the United States and Europe at a prohibitive cost,
which may put an additional financial burden on these two sectors.
• Exports to India constituted only 3 percent of the Chinese total in 2017. China’s economy is also roughly five
times as large as India’s, meaning that Chinese exports to India are an even smaller proportion of the country’s
total economic activity than the share in total exports can convey.
Some theory
There are various arguments for restricting trade: protecting jobs, defending
national security, helping infant industries, preventing unfair competition,
and responding to foreign trade restrictions (retaliation). However, most
economists believe that free international trade is generally the better policy.
Specialization and Comparative Advantage
• An economy can focus on producing all of the goods and services it needs to function, but this may lead to an
inefficient allocation of resources and hinder future growth. By using specialization, a country can concentrate on the
production of one thing that it can do best, rather than dividing up its resources.
Once upon a time…
The fall
The two are the oldest still extant civilisations
• Between the mid-18th century and early 19th centuries, both these
countries became, in the European eyes, bywords for stagnant, archaic,
weak nations
• But they were and remain the two most populous countries. In 1820,
they had a combined population in excess of half a billion and by 1900,
700 million.
• Basket cases: In the 1960’s, the fortunes of these two countries seemed
to have reached their lowest points. India was dependent on the US
for food, while communist China was busy hiding its famines.
In 1998…
The Economist was writing editorials to tell the world not to be afraid of
China’s economic power. American legislators were passing laws to
prevent their businesses outsourcing work to India’s software and
telecommunication services. China ranked as the second largest economy
in terms of GDP in PPP dollars and India was fourth. Together the two
countries account for 19.2 % of world GDP – China 11.5% and India 7.7%.
This was still below their share of world population 37.5% - with China
21% and India 16.5%.
What changed in the thirty years?
Also
• India and China both suffered a declining per capita income and a
rising population during the first half of the 20th century, but India
was better off than China by 20%.
• By 1998 this was reversed. Both countries were better off, but China
was much better off than India. China’s per capita income was $3,117
while India’s was $1,760. (Today the gap is even more. China’s is around
$9,500 but India is around $2,000)
• Thus, while India roughly trebled its income by the end of the last
century, China increased it sevenfold. In earlier periods China, while
more populous than India, was not noticeably richer.
Historical differences
• India had been an idea in world culture for millennia, but its borders
have been fixed only in the late 19th century sometime after the British
gave up on Afghanistan and drew the Durand line.
• Even the British could be said to have ruled over two thirds of India
between 1857 and 1947, with the remaining third with native princes
under their paramountcy but not direct rule.
• China, by contrast, never suffered foreign rule over the majority of its
territory. There were foreign concessions in ports and later in interior
towns extracted by several foreign powers in circumstances the
Chinese found humiliating.
• But until 1931 when the Japanese invaded Manchuria and later in
1937 when they occupied large chunks of Eastern and Central China,
China had not suffered classic imperial rule.
India, a soft state
India had a problem of articulating a single vision of Indian nationhood since it has been a
nation only since mid nineteenth century and even this was asserted against the foreign
rulers saying India was not a single nation but a motley collection of races and religions.
• India thus chose a federal polity with a strong center able to alter state boundaries, split
up states or create new ones. India even then is a soft state where the government has to
work consensually and exert control sparingly and only against serious threats to national
integrity.
• China has always had a vision of itself as a nation. Through much of its history, there has
been a strong central power, and China has been run as a unitary polity.
• China is thus a unitary hard state which can pursue a single goal with determination and
mobilize maximal resources in its achievement.
• A nationwide market, a single government ( which was active in maintaining food supply,
famine relief, and price control ), a standardized written language, a uniform calendar and
a system of weights and measures, a dominant Confucian code of conduct, a nationwide
transport network, and the mechanisms for social mobility and inter-regional migration
However, strong is also brittle
India has through its history been ruled by many authorities and
sometime none, but it has had a social stability which is remarkable.
• Its essence was a society in which the state was secondary and the
peasant society went on impervious to changing rulers.
• China on the other hand strong as it was became subject to spasmodic
breakdowns which lasted several years. Within the modern period, we
have had the Taiping rebellion [1851-1864], the Boxer uprising [1900]
which eventually led to end of empire [1911] and four decades of
warlordism, and more recently the Cultural Revolution [1966-1976].
Even the Tiananmen incidents of 1989 are more a sign of brittleness
than of strength.
Economic history
Both India and China were a highly urban civilization by the 18th century,
though of course the bulk of the population lived in rural areas.
• China was much advanced in science and technology, with gunpowder,
printing, paper and paper currency as its inventions.
• India was known for its mathematics and its philosophy. The Chinese gave
the world the wheelbarrow and bureaucracy; India gave the world the zero
and Buddhism.
• India industrialized earlier than China, and could have focused on agriculture
exports as its area of strength.
• But their history drove both China and India to define industrialisation
rather than economic development as their prime goal. Even within
industrialisation, the strategy was one of concentrating on basic goods such
as steel and machinery – ‘Department goods’ in Marxian terminology -
rather than consumer and low tech goods. Both countries were inspired by
the example of the USSR and its planning achievements. They both sought
independence of foreign capital and self sufficiency.
They took the same economic path in the
beginning
Both countries feared foreign domination and considered development
as synonymous with industrialisation. Both considered the State as the
engine and the driver of growth and suspected the private sector’s
initiatives.
• The ideology forged during the long march to independence –
Marxism- Leninism- Maoism in China and Gandhism, plus an
amalgam of Social and Liberal Democracy in India shaped the
response more than economic realities warranted.
• One Man ruled the roost though his closest associates did not share his
beliefs as much as they said while he was still around. Mao for China
and Nehru for India laid down the path from which each country had
to deviate.
And then the roads diverged
For China the first period lasted from 1949 to 1978; for India from 1947 to 1980.
China learned quickly thanks to Deng Xiao Ping. India did not have a Deng.
• India could be said to have wasted ten years since 1980 in a half hearted
liberalization which hit the buffers in 1991 when the country nearly went bankrupt.
• It was China, after 1978 under the influence of Deng, that accelerated leaving India
far behind. In the next twenty five years China’s per capita income more than
trebled while that of India merely doubled.
• China did this paradoxically by adopting a much more ‘capitalist road’ than any
other communist regime. What is more, China adopted a road that India could
always have adopted; indeed right after independence except that no one, not
even the Indian capitalists, were advocating greater import of foreign capital,
opening up the economy to an export orientation, with Special Export Zones [in
China’s case not all that different from the foreign concessions in ports which were
so much resented before 1949].
While India went on restricting its large native capitalist class after independence,
China had to practically reinvent its own bourgeoisie after 1978.
1991
India really changed course only after the shock of 1991 when it was
nearly bankrupt and had reserves which would cover only two weeks’
imports. But in the change the same personalities were involved as in
the old regime.
• Manmohan Singh as Finance Minister was crucial to the reform, but he
was no Deng and neither was Narasimha Rao, who was Prime Minister
1991-1996. Indeed, India liberalized reluctantly. Ever since, India has
been reforming its economy, but in a much more embattled way than
China.
• The two countries have mobilized savings through their financial
structures, but the mobilization has left the financial sectors in fragile
states.
Can India catch up with China?
India has problems about delivering strong focused government pursuing a
single objective with total commitment. Its great achievement is to have
constructed world’s most populous democracy against all the odds –
illiteracy, multiple languages and religions, racial and social heterogeneity.
• There have been spurts of committed action – in the mid 1950s when the
Second Five Year Plan was formulated, in early 1970s when Indira Gandhi
pursued her anti poverty program, in the mid 1980s when Rajiv Gandhi
pushed the import liberalization policy harder, the early 1990s with Rao
and Singh liberalizing the economy.
• India has also achieved another miracle relative to many post colonial
societies. It has maintained its territorial integrity, unlike for example
Pakistan. It has not had a civil war.
• Through all the troubles related to religion, language, caste and the like, it
has survived as a democratic open society based on consensus and debate. A
nation is much more than its per capita income and growth rate.
Can India catch up with China?
India will remain a soft state, a consensual polity, and it will not be
capable of sustained growth at the sort of rates which China has
attained. To stay a stable peaceful society, India has to remain a mess.
• It is a miracle that proceeding in the way it has done, it has come as far
as it has done. But there will not be growth convergence between
China and India [except unless China has a long breakdown in its
transition to democracy].
• India and China will both remove poverty in their midst and cease to be
bywords for misery that they became for a hundred and fifty years
after 1820. China will again become a viable Great Power; India may
remain just a Great Democracy.
Bilateral Issues
Border
• The Border issue is rooted in the disputed status of the McMahon Line,
which defines the border between India and Tibet. India recognizes this
agreement as the basis for its territorial claim while China objected the
validity of McMahon Line which was drawn in 1914 Simla convention
because China believes that it was not a party to Simla Convention so it
is not bound to accept the boundary demarcated by Simla convention.
• India claims 43,180 squares Kilometers of Jammu and Kashmir
occupied by China including 5180 square kilometers ceded to China
by Pakistan under a 1963 China-Pakistan boundary Agreement. On
the other hand China claims 90,000 square kilometers of territory
held by India in Arunachal Pradesh.
Water
• As there are four rivers that flow from China to India, the two countries
must have a better understanding relating to water sharing and other
attending benefits out of these rivers. However, China’s strategic
advantage over these rivers makes it possible for her to counter-balance
India on many other issues.
• The more complicated problem is that there exist no agreements
between China/ Tibet pertaining to water resources. There is no reliable
information on the present or proposed water related developments
and projects in the upper regions of the rivers that flow into India from
Tibet have not been addressed.
• India being the lower riparian, will be vulnerable to any major storage
projects planned on the Yarlung Tsangpo (Brahmaputra). Due to the
political situation between the two countries, it is hard to imagine China
playing the role of a responsible upper riparian by releasing re-regulated
flows from power houses immediately book into river.
The Dalai Lama
• China views that India is treating Dalai Lama in India as a government in
exile in Dharmsala which is just 200 miles away from China’s border.
• Further, the presence of more than 1,00,000 Tibetans refugees in India
and India’s continued willingness to provide shelter to the Dalai Lama is a
continued source of irritation in China-India relations.
• Also China alleges that the Dalai Lama and his associates are engaging in
anti-China activities.
Belt & Road & CPEC
The Event Horizon Telescope (EHT) has imaged a black hole in the galaxy M87. While
astronomers already knew that black holes were real objects in the Universe, the picture
provides direct ocular proof of their existence. But what exactly are we looking at?
Thank you!
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