China Becomes India’s Largest Trading Partner

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MUMBAI – Bilateral trade between India and China has climbed to almost US$50 billion during the first nine months of the current fiscal year, higher than trade with any of India’s other trading partners, according to a study by the PHD Chamber of Commerce in India.

“India’s direction of foreign trade has exhibited a structural shift during the last decade. Trade volume and trade share of emerging and developing economies has increased while the share of conventional trading partners has showed a declining trend,” PHD chamber president Sharad Jaipuria noted.

China’s total of US$49.5 billion in trade over the first nine months of the current fiscal year (April – December 2013), exceeded Indian trade with any other country.  The U.S., which is now India’s second largest trading partner, saw US$46 billion worth of trade over the same period — over US$3 billion less than China.  As its economy recovers, however, the U.S., has re-emerged as India’s top exports destination, with exports from India to the U.S. reaching US$29.3 billion in the first nine months of the current fiscal year.

The United Arab Emirates (UAE), which was India’s biggest trading partner in the previous fiscal year 2012-2013, has been relegated to third place with US$45.4 billion in the current fiscal year.  The UAE remains a prime export destination for India, as it welcomed US$22.3 billion of Indian exports in the current fiscal year to December 2013.

Unlike with India’s other main trading partners, however, India’s exports to China amount to only US$10.8 billion.  Despite this, Sino-Indian trade has seen impressive growth in recent years, driven primarily by an increase in exports from China.  In 2004, exports from China to India amounted to US$4 billion, while exports and imports between the two nations totaled $7 billion.  By 2008, Chinese exports into India had reached US$27 billion, while total trade hit US$38 billion.

Most recently in 2013, China exported an incredible US$52 billion in goods to India, bringing total trade up to US$65 billion.  In 2012, the two neighboring countries set a target of US$100 billion in bilateral trade by 2015.

The political relationship between India and China has not always been the smoothest, however.

Himalayan border disputes and concerns over Chinese investment in India’s railways have led India to eye its eastern neighbor with some suspicion.  Yet both countries are cognizant that there are benefits to be gained from forming a closer economic relationship, and have been taking steps to help achieve that end.

Economic advantages will likely be the catalyst for a stronger and more co-operative relationship between the two most populous nations in the world.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam in addition to alliances in Indonesia, Malaysia, Philippines and Thailand as well as as well as liaison offices in Italy and the United States.

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