India’s trade with China falls in 2020, deficit at five-year low

The trade deficit, a source of friction between India and China, declined to a five year-low of $45.8 billion, the lowest since 2015.

January 15, 2021 07:28 pm | Updated January 16, 2021 01:31 pm IST

File photo shows containers at the Yangshan Deep Water Port in Shanghai.

File photo shows containers at the Yangshan Deep Water Port in Shanghai.

India’s trade with China last year fell to the lowest since 2017, with the trade imbalance declining to a five-year low on the back of a slump in India’s imports from China.

Two-way trade in 2020 reached $87.6 billion, down by 5.6%, according to new figures from China’s General Administration of Customs (GAC). India’s imports from China accounted for $66.7 billion, declining by 10.8% year-on-year and the lowest figure since 2016.

India’s exports to China, however, rose to the highest figure on record, for the first time crossing the $20 billion-mark and growing 16% last year to $20.86 billion.

The trade deficit, a source of friction between India and China, declined to a five year-low of $45.8 billion, the lowest since 2015.

 

While there was no immediate break-up of the data in 2020, India’s biggest import in 2019 was electrical machinery and equipment, worth $20.17 billion. Other major imports in 2019 were organic chemicals ($8.39 billion) and fertilisers ($1.67 billion), while India’s top exports were iron ore, organic chemicals, cotton and unfinished diamonds. The past 12 months saw a surge in demand for iron ore in China with a slew of new infrastructure projects aimed at reviving growth after the COVID-19 slump. China’s total iron ore imports were up 9.5 per cent in 2020.

Whether 2020 is an exception or marks a turn away from the recent pattern of India’s trade with China remains to be seen. While India’s imports from China declined, so did India’s imports overall with a slump in domestic demand last year. There is, as yet, no evidence to suggest India has replaced its import dependence on China by either sourcing those goods elsewhere or manufacturing them at home, and the trade pattern of the coming 12 months, as India’s economy begins to rebound, will reveal whether the past year was an exception or a turning point.

The decline in exports to India bucked the trend of a strong year for Chinese exports, which surged 10.9% in December and grew 4% in 2020, aided by the economic recovery in China while many countries remained in various states of lockdown.

This marked a sharp turnaround for the world’s second-largest economy, which saw its GDP contract 6.8% during the height of the COVID-19 outbreak in the first quarter of the year and a 4.9% fall in foreign trade from January until May. With a stringent lockdown bringing the outbreak in China under control by the summer, the economy rebounded to grow 3.2% in the second quarter and 4.9% in the third, with China’s industries humming back to life with much of the rest of the world in lockdown.

China was “the world's only major economy to have registered positive growth in foreign trade in goods,” Li Kuiwen, spokesperson of the GAC, said, with China’s foreign trade and exports in the first 10 months of the year accounting for a record 12.8% and 14.2% of the global total.

That was reflected in the annual export figures, recording a sharp rise with most of China’s major trading partners. Exports to ASEAN countries, China’s largest trading partner last year with $684 billion in annual trade, were up 6.7%, while exports to the EU, China’s second-largest trading partner, were also up 6.7%, with trade reaching $649 billion.

Despite the trade war with the U.S. and the pandemic, two-way trade was up 8.3% to $586 billion, with Chinese exports up 7.9% to reach a record $451 billion. The trade surplus with the U.S. was $317 billion in 2020, higher than the $288 billion figure at the end of President Donald Trump’s first year in office in 2017, underlining the limited impact of his tariff and trade war as he ends his presidency.

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