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TRADE IS AN ENGINE OF GROWTH COMPARATIVE ANALYSIS BETWEEN INDIA & CHINA Prof. K. L. Chawla International Business Management WMP17 | Group 2 | Section A Abhishek Goel WMP10001 Aritra Ganguly WMP10010 Faraaz Khan WMP10014 Manish Malik WMP10019 Sonal Rawat WMP10038 Soumik Biswas WMP10040

India vs China: Trade is an Engine of Growth

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Page 1: India vs China: Trade is an Engine of Growth

TRADE IS AN ENGINE OF GROWTH

COMPARATIVE ANALYSIS BETWEEN INDIA & CHINA

Prof. K. L. ChawlaInternational Business Management

WMP17 | Group 2 | Section A

Abhishek Goel WMP10001Aritra Ganguly WMP10010Faraaz Khan WMP10014Manish Malik WMP10019Sonal Rawat WMP10038Soumik Biswas WMP10040

Page 2: India vs China: Trade is an Engine of Growth

INTERNATIONAL TRADE Across national borders Economic, Political and Social importance BENEFITS OF INTERNATIONAL TRADE

Developing Countries offer cheaper labor: Produce the products at cheaper costs. Customers benefits low prices. Employment opportunities

Potential of utilizing resources to the maximum Area of expertise, reduces the cost of production. Increased FDI in countries: greater FX and technical and managerial

expertise from all around the world to enter the country. Enhances the Domestic competitiveness Advantage of international trade technology Extend sales potential of the existing products Maintain cost competitiveness in your domestic market Gains a global market share Reduce dependence on existing markets Stabilize seasonal market fluctuations

Page 3: India vs China: Trade is an Engine of Growth

CHINESE TRADE AN OVERVIEW

Page 4: India vs China: Trade is an Engine of Growth

CHINA IMPORTS AND EXPORTS TRENDS FROM YEAR

1980 – 2012

Page 5: India vs China: Trade is an Engine of Growth

CHINA TRADE BALANCE AND ITS TRENDS FROM

YEAR 1986 - 2012

Page 6: India vs China: Trade is an Engine of Growth

HISTORICAL PERSPECTIVE Prior to reform ,from 1950 TO 1978 CHINA was a Centrally

planned economy. During the 1950s, all of China’s individual household farms

were collectivized into large communes. To support rapid industrialization, the central government

undertook large-scale investments in physical and human capital during the 1960s and 1970s.

As a result, by 1978 nearly three-fourths of industrial production was produced by centrally controlled, state-owned enterprises .

Private enterprises and foreign-invested firms were generally barred. A central goal of the Chinese government was to make China’s economy relatively self-sufficient.

Foreign trade was generally limited to obtaining those goods that could not be made or obtained in China.

Page 7: India vs China: Trade is an Engine of Growth

HISTORICAL PERSPECTIVE According to Chinese government statistics, China’s real GDP

grew at an average annual rate of 6.7% from 1953 to 1978. Growth of Chinese per capita GDP 1950-78

Page 8: India vs China: Trade is an Engine of Growth

Comparison of Chinese GDP growth with Japan1950-78

HISTORICAL PERSPECTIVE

Page 9: India vs China: Trade is an Engine of Growth

REFORMS

ENABLERS OF GROWTH

AND TRADE

There were no market mechanisms to efficiently allocate resources, and thus there were few incentives for firms, workers, and farmers to become more productive or be concerned with the quality of what they produced .

Beginning in 1979, China launched several economic reforms. The central government initiated price and ownership incentives for farmers, which enabled them to sell a portion of their crops on the free market.

In addition, the government established four special economic zones along the coast for the purpose of attracting foreign investment, boosting exports, and importing high technology products into China.

Economic control of various enterprises was given to provincial and local governments, which were generally allowed to operate and compete on free market principles, rather than under the direction and guidance of state planning.

Citizens were encouraged to start their own businesses. Additional coastal regions and cities were designated as open cities and development zones, which allowed them to experiment with free market reforms and to offer tax and trade incentives to attract foreign investment.

State price controls on a wide range of products were gradually eliminated. Trade liberalization was also a major key to China’s economic success.

Page 10: India vs China: Trade is an Engine of Growth

ENABLERS OF CHINESE

GROWTH

The Role of Ports and Hong Kong Trade liberalization came swiftly in the

form of British gunboats. After defeat in the Opium War (1840-42), China was forced to open its economy to foreign trade at a large number of so called treaty ports.

Developing the Hinterland of Ports: Activating Entrepreneurial Spirit

Coastal provinces dominated China’s export production during the 1990s and continue to contribute almost 70% of the country’s total exports

Institutional Innovation: Systemic Transformation

Policy Innovation: Invite in Strategy and Trade ownership strategy of the 1990

Products could be imported duty-free if these were used as inputs into export products.

Innovation Import via IFDI, SEZ, and International Competitiveness

Page 11: India vs China: Trade is an Engine of Growth

• China and India differ significantly in trade structure and it’s transformation over time. China’s trade and trade expansion have been dominated by export and import of commodities .

• In China the transformation is characterized by continuous increase in the export of manufactured goods from 74% in 1990 to 95% in 2007.

• In 1992 textile sector accounted for 29% 0f the total export of china .

• In 2007 machinery and mechanical appliances, electrical equipment etc. account for 43% of the total export.

• From 1992 to 2007, the export share of labour intensive goods like “textile and clothing, footwear and other miscellaneous manufactured articles” dropped from over 40% of total export to 22%.

CHINA

TRENDS

Page 12: India vs China: Trade is an Engine of Growth

INDIAN TRADE

AN OVERVIEW

Page 13: India vs China: Trade is an Engine of Growth

INDIAN TRADE : COMMODITY EXPORT

Page 14: India vs China: Trade is an Engine of Growth

Product Groups 2005-6

2007-8

2009-10

2011-12

20012-13

2013-14

Petroleum and Crude Products 29.5 31.7 30.2 31.7 33.4 36.7

Gold 7.3 6.6 10.0 11.5 11.0 6.4Machinery 14.4 18.0 12.6 10.5 10.6 10.0Electronic Goods 8.9 8.2 7.3 6.7 6.4 6.9Pearls Precious and Semi Precious stones

6.1 3.2 5.7 5.8 4.6 5.3

Organic and inorganic Chemicals 4.7 3.9 4.1 3.9 3.9 3.5

Coal Coke and briquettes 2.6 2.6 3.1 3.6 3.5 3.7Metaliferous ores and products 2.6 3.1 2.7 2.7 3.1 3.0

Edible oil 1.4 1.0 2.0 2.0 1.9 2.1Iron and Steel 3.1 3.5 2.9 2.4 2.2 1.6Fertiliser 1.4 2,2 2.4 2.3 1.9 1.4

INDIA’S IMPORT BASKET

Page 15: India vs China: Trade is an Engine of Growth

Years Services Trade Balance

Investment income

Private Transfer (net)

2005-06 23.2 -5.3 24.5

2006-07 29.5 -6.8 29.8

2007-08 38.9 -4.4 41.7

2008-09 53.9 -6.6 44.6

2009-10 36.0 -7.2 51.8

2010-11 44.1 -17.1 53.1

2011-12 64.1 -16.5 63.5

2012-13 64.9 -22.4 64.3

INDIA’S INVISIBLE ACCOUNT

($ BILLION)

Page 16: India vs China: Trade is an Engine of Growth

Year Travel Trans-portation

Insurance

Software products

Business Services

Financial Services

Communication Services

2005-06 13.6 11.0 1.8 40.9 16.1 2.1 2.7

2006-07 12.4 10.8 1.6 42.4 19.7 4.2 3.1

2007-08 12.6 11.1 1.8 44.6 18.6 3.6 2.7

2008-09 10.3 10.7 1.3 43.7 17.6 4.2 2.2

2009-10 12.3 11.6 1.7 51.8 11.8 3.8 1.3

20010-11 12.7 11.4 1.6 42.6 19.3 5.2 1.3

20011-12 13.0 12.8 1.8 43.7 18.2 4.2 1.1

20012-13 12.4 11.9 1.5 45.2 19.5 3.4 1.2

INDIA

SHARES OF MAJOR SERVICE SECTORS IN EXPORT OF SERVICES (%)

Page 17: India vs China: Trade is an Engine of Growth

TRADE AS AN ENGINE FOR ECONOMIC GROWTH

International trade

Poses new challenges

Development to meet

them

Innovation and

creativity increases

Specialization and

division of labout

Enhancement of

productivity

Income Increases

Economic growth

Page 18: India vs China: Trade is an Engine of Growth

THE BENEFITS OF TRADE

Increased Exports lead to greater GDP

With the increase in economic trade, the goods and services produced in your home country can now be exported for sale in foreign land.

Also the goods from foreign countries can be imported in the domestic market.

As exports increase, the utilization of existing facilities increases which leads to reduction in costs. This may lead to further increase in exports.

The employment opportunities increase in the country.

Makes latest technology and management practices available developing countries.

Page 19: India vs China: Trade is an Engine of Growth

INDIAN COMPANIES IN CHINA

Dr. Reddy’s Laboratories Aurobindo Pharma NIIT Bharat Forge Infosys TCS APTECH Wipro Mahindra & Mahindra TATA Sons Binani Cements State Bank of India (Shanghai) Bank of India (Shenzhen) Canara Bank (Shanghai) Bank of Baroda (Guangzhou) Axis Bank ICICI Bank

CHINESE COMPANIES IN INDIA Sinosteel Shougang International Baoshan Iron & Steel Ltd Sany Heavy Industry Ltd Chongqing Lifan Industry Ltd China Dongfang International Sino Hydro Corporation Huawei Technologies ZTE TCL Haier Shanghai Electric Harbin Electric Dongfang Electric Shenyang Electric Beijing Automotive

Industry Corporation (BAIC)

Page 20: India vs China: Trade is an Engine of Growth

INDIA – CHINA TRADE FIGURES

Year Exports to China

Imports from China

Trade Deficit

2009 10.13 28.78 - 18.652010 14.58 42.26 - 26.672011 16.54 52.83 - 36.282012 14.87 51.88 - 37.012013 14.50 51.38 - 36.882014 11.98 58.27 -46.29

Page 21: India vs China: Trade is an Engine of Growth

CHINESE INVESTMENT IN INDIA 2007- US$ 16 million 2008- US$ 49.1 million 2010- US$ 33 million (China’s

non-financial investment in India)

2011- US$ 95.90 million (China’s non-financial investment in India)

2012- US$ 154 million (China’s non-financial investment in India)

Till Dec 2013-US$ 2.763 billion (cumulative, China’s non-financial investment in India))

2014- US$ 243 million (China’s non-financial investment in India)

INDIAN INVESTMENT IN CHINA 2006 – US$ 52 million 2007- US$ 34 million in 78

Projects 2008- US$ 257 million in 92

projects 2010- India's FDI in China- 77

Projects; investment of US$ 55 million.

2011- India's FDI in China- 130 Projects; investment of US$ 42.17 million 

2012- India's FDI in China- US$ 44 million

2014_India’s FDI in China – US$ 50.75 million

Till 2014- Indian Investment in China (cumulative): US$ 0.564 billion

Page 22: India vs China: Trade is an Engine of Growth

INDIA VS. CHINA GROWTH

2014 2013 2012 2011 2010 2009 2008 20070

3

6

9

12

15

18

21

24

27

5.63 5.02 4.746.64

10.268.48

3.89

9.8

7.38 7.7 7.65

9.3

10.41

9.21

9.64

14.2

India vs. China GDP Growth

Gro

wth

(%)

Page 23: India vs China: Trade is an Engine of Growth

CHINA TODAY 1. Good for smart cities: Copper is trading at a 6-year-low. 

China is the world’s top copper consumer, using almost 40% of global consumption

2.  Good for deficit and inflation management: Oil prices were already on the fall with global slowdown and a possible US-Iran deal. For India, low oil prices helps in controlling its deficit and keeps inflation under check.

3. Bad for automobile producers: Automobile exporters and manufacturers, especially Tata Motors will feel the pinch as China was its fastest growing market

4. Gold might glitter: Chinese had overtaken India as the largest consumer of gold. Prices of gold had slipped to a four-month low in expectation that the present meltdown will spill over to the gold market.

5. Mobiles and other Chinese goods can be cheaper: World markets will be flooded with Chinese goods at low prices affecting exports of other countries including India.

Page 24: India vs China: Trade is an Engine of Growth

INDIA AND CHINA TRADEWHAT LIES AHEAD Tariff Barriers in Foreign

Trade China and other big players

like WTO and EU have imposed various tariff and non-tariff barriers on India’s export to the international market which have slowed down the presence of Indian products globally especially in China, the largest trade partner.

One of the items on Prime Minister Narendra Modi’s agenda, as part of recent visit to China, is the easing of non-tariff barriers for Indian exports, especially in pharmaceuticals and textiles.

Page 25: India vs China: Trade is an Engine of Growth

INDIA AND CHINA TRADEWHAT LIES AHEAD

Primary Goods vs. Finished Goods India has been largely sending primary goods to China. In comparison, the goods that China sends to India are

dominated by intermediate and finished goods. Since these are on the lower rungs of the production chain,

their realizable value is lower than, say, the finished goods made from them, and also leaves India open to the risk of Chinese economic cycles.

China’s MES status While government subsidies do remain an issue in some

industries in China, there is no evidence that this problem is endemic throughout large sectors of the Chinese economy.

China will automatically get the Market Economy Status around 2019-20. Thus, for China, the symbolic value of getting MES goes down with each passing year.

Page 26: India vs China: Trade is an Engine of Growth
Page 27: India vs China: Trade is an Engine of Growth

Foul Cry of China’s “Dumping” Habits

A Reserve Bank of India study, published a year ago, broke sharply with the conventional wisdom that the Chinese have made major inroads into the Indian market because their products are cheaper.

The study says India has actually “been importing a large amount of uncompetitive products that can easily be supplied by other competitors of China at cheaper prices to India

Page 28: India vs China: Trade is an Engine of Growth
Page 29: India vs China: Trade is an Engine of Growth

• Cheaper labor and factories in ASEAN countries are causing migration of labor intensive manufacturing jobs

• Chinese businesses are using the lower cost manufacturing bases of ASEAN countries to their advantage more often than India.

• Similarly, Indian software & BPO industries are facing tough competition from Asian and east European countries.

• Export in Creative sector may hold a key for India’s growth.• The next driver of trade and growth for

India?

• China’s recent economic crisis: its image of “economic invincibility” is fading . • Further devaluation and manipulation of

Yuan and its impact on the global economy

• India, however, is still not ready to wrestle the mantle from China• Greater transparency in India’s foreign

exchange policy• Need to develop a pool of skilled labor to

sustain this growth• Proper policy framework and strategic

intent

CONCLUSION