The economic relationship between India and China is one of the main reasons why these two countries have been able to improve their overall relationship, despite other areas of conflict.
- India and China are both huge economies, and they are rapidly growing.
- Their economic ties allow them to leverage their comparative advantages and benefit from mutual trade.
- This has been especially important for countries like India, which still face tremendous challenges in terms of poverty, unemployment, and infrastructure development.
- As these two countries continue to grow together economically, it is likely that their relationship in other areas, such as politics and security, will also improve.
There are, of course, some areas where the economic relationship between India and China is not so strong.
For example, India has been critical of the large trade deficit it runs with China – that is, India imports much more from China than it exports to China.
Many Indian business leaders have also expressed concerns about the growing influence of Chinese companies in India, arguing that this may threaten India’s economic independence and result in a loss of wealth for ordinary Indian citizens.
Despite these challenges, it is clear that the economic ties between India and China are strengthening over time.
As these two countries continue to grow and develop, their relationship will increasingly be looked at as a model for other countries around the world.
Overall, the economic relationship between India and China is an important indicator of the future success of these two nations. It is something that policymakers on both sides should continue to prioritize in order to ensure long-term stability and prosperity.
India-China Economic Ties: Recent Development
Despite the protracted rivalry between their two armies in eastern Ladakh, culminating in the Galwan skirmish in 2020, India-China trade reached a record $125 billion in 2021, a 43.3 percent increase from 2020.
- Notably, the kind of spikes in trade that we’ve seen over the last five years hasn’t been seen since 2011, when their growth was never as great as exponential.
- The extent of such interdependence is underscored by China being India’s largest importer, which dates from 2009.
- In 2020, China was India’s top trading partner, accounting for 13.8% of all imports, ahead of the US (7.6%), United Arab Emirates (6.4%), Saudi Arabia (5.7%) and Iraq (5.0%).
- India also relied upon Chinese equipment and materials during the COVID-19 pandemic, with Beijing’s greater technological expertise beating New Delhi’s.
- While China places a large importance on Indian imports, the same cannot be said about India’s exports to China. This has resulted in a trade deficit of $69 billion in 2021 and an overall imbalanced economic relationship between the two countries.
- This imbalance in the competitive edge that Beijing has over New Delhi undercuts any argument for mutual development or a ‘win-win’ relationship, which currently benefits Beijing more.
- Not only does this power differential further distribute authority towards China, but it also may inadvertently foster Chinese regional dominance and hegemony at the cost of India’s gain.
Security concerns in India-China economic relations
- Recently, China’s investment in the infrastructure and telecom sectors have been blocked on the grounds of security concerns.
- In 2020, India banned TikTok, WeChat and dozens of other Chinese-made apps due to national security concerns.
- Similarly, the Indian government recently rejected Chinese telecom giant Huawei from participating in any 5G trials.
- These moves are reflective of a broader mistrust between India and China, where many in India are concerned that China is seeking to gain greater control over Indian territory by infiltrating critical infrastructure like telecoms.
- Notably, these security concerns are not limited to just India. The US, Australia, and others have also raised similar concerns about Chinese investment in their countries.
- India’s primary focus in its relations with China now seems to be national security, rather than economic development.
- This is particularly evident in the way that India has responded to China’s Belt and Road Initiative (BRI), which aims to promote economic development across Asia.
- While some countries, such as Pakistan and Malaysia, have welcomed the BRI with open arms, India has been highly skeptical of this initiative, viewing it as a potential threat to India’s territorial integrity.
- India has abstained from joining the RCEP due to anxiety that the project, if built through Pakistan-occupied Kashmir, would reduce India’s sovereignty claims to said region.
- Furthermore, it is believed that should Pakistan be involved in this project, they would have access to construct roads near the Indian border which could then potentially aid militants attempting to illegally enter Indian territory.
- India sees the construction of such infrastructure, with China’s presence in Pakistan’s Gwadar port being part of a “string of pearls” strategy that aims to systematically restrict India within South Asia.
Complete Economic Disengagement From China Is Unrealistic
China has many deep-rooted global supply chains, its economy is continuing to grow after the difficult times of COVID-19, it will play a big part in global economic recovery, and infrastructure, manufacturing, digital real estate sectors in India all have close links to China.
Despite concerns that China may use commercial relations as a way to achieve political aims (weaponisation), decoupling from China might not be possible.
Despite the signing of the Supply Chain Resilience Initiative (SCRI) with Japan and Australia, India is unlikely to discover many economic partners willing to walk out of Chinese supply chains.
Existing regulatory mechanisms make it hard for countries to break away from each other. For example, the Indian government has restrictions on Chinese companies, but multilateral agencies like the Asian Development Bank (ADB), the Asian Infrastructure and Investment Bank, and the World Bank are exempt from these restrictions. This means that Chinese companies still have access to infrastructure projects in India.
India is not in a position to single out Chinese businesses because it is part of multilateral financial institutions, which ban such discrimination. This includes restrictions on firms that have infrastructure-related contracts with the country.
Not only are many prominent Indian companies who have a presence in China going to be negatively affected by the restrictions, but they also find the Chinese market highly lucrative.
As such, India is likely to continue deepening its economic ties with China while managing the risks they bring. At the same time, India will also look for ways to hedge its economic and security interests, such as expanding cooperation with other partners like the US, Japan, ASEAN countries, and countries in South Asia.
Overall, it is clear that India’s economic relations with China are complex and multi-faceted, and are likely to remain so in the years ahead. While there may be some challenges, and concerns about China’s strategic ambitions, it is clear that India cannot afford to disengage entirely with the Chinese economy.