ANNEXURE I

Trade and Economic Relations

Bilateral Trade

The rapid expansion of India-China bilateral trade since the beginning of this century has propelled China to emerge as India’s largest goods trading partner by 2008, a position which China continues to hold today. Since beginning of the last decade, bilateral trade between the two countries recorded exponential growth. From 2015 to 2022, India-China bilateral trade grew by 90.14%, an average yearly growth of 12.87%. In 2022, the overall trade with China increased by 8.47% year on year to reach USD 136.26 billion, crossing the USD 100 billion mark for a second time in a row. The trade deficit came at USD 101.28 billion as India’s imports from China witnessed an increase by 118.77% to reach USD 118.77 billion, meanwhile India’s exports to China decreased by 37.59% year on year to reach USD 17.49 billion, down for last year’s net exports of USD 28.03 billion.

(Source: General Administration of Customs, China)

Trade Deficit

While flourishing trade has brought with it all the advantages such as availability of low priced items in India, it has also led to the biggest single trade deficit we are running with any country. Our trade deficit concerns are two pronged. One is the actual size of the deficit. Two is the fact that the imbalance has continuously been widening year after year to reach USD 58.04 in 2018 (as per GACC data). There was slight decline of the trade deficit in 2019 by 1.88% (declining for the first time since 2005) to reach USD 56.95 and a further decline of 19.39% in 2020 to reach USD 45.91 billion due to COVID-19 pandemic. However, the trade deficit has been rising steeply since, increasing by 51.51% to reach USD 69.56 billion in 2021. In 2022 the deficit has further widened by  45.60% year on year reaching USD 101.28 billion.

The growth of trade deficit with China could be attributed to two factors: narrow basket of commodities, mostly primary, that we export to China and second, market access impediments for most of our agricultural products and the sectors where we are competitive in, such as pharmaceuticals, IT/IteS, etc. Our predominant exports have consisted of iron ore, cotton, copper, aluminium and diamonds/ natural gems. Over time, these raw material-based commodities have been over-shadowed by Chinese exports of machinery, power-related equipment, telecom equipment, organic chemicals, and fertilizers. We continue to engage the Chinese side for addressing market access issues.

Bilateral Investment:

Growth in bilateral investment has not kept pace with the expansion in trading volumes between the two countries. While both countries have emerged as top investment destinations for the rest of the world, mutual investment flows are yet to catch up. According to the Ministry of Commerce of China, Chinese investments to India in the year of 2021 was USD 63.18 million down 68.3% year on year and the cumulative Chinese investment to India by the end of 2021 amounted to USD 5.403 billion. Indian investment into China for the year 2021 was USD 6.32 million declining by 47.4% year on year and the cumulative Indian investment to China by the end of 2021 reached USD 943.96 million.

Institutional Bilateral Economic and Commercial Dialogue Mechanisms

India-China Economic and Commercial Relations are shaped through various dialogue mechanism such as:

Joint Group on Economic Relations, Science and Technology (JEG), led by the Commerce Ministers of both sides. Joint Economic Group (JEG) was established in 1988 during the visit of Prime Minister Rajiv Gandhi to China, to discuss trade cooperation issues.  So far 11 JEGs were held with the last one in Delhi in March 2018.  During the 9th JEG, the two sides also set up three working groups on Economic and Trade Planning Cooperation (ETPC), Trade Statistical Analysis (TSA) and Service Trade Promotion (or Trade in Services – TIS)

Strategic Economic Dialogue (SED) was established during the visit of Chinese Premier Wen Jiabao to India in December 2010, to discuss macro-economic cooperation.  So far 5 SED meetings have taken place with the last one held in Beijing in April 2018.  There are 5 Working Groups under SED:  Infrastructure, Environment, Energy, High Technology and Policy Coordination.  The SED is co-chaired by Vice-Chairman NITI Aayog and Chairman, Chinese National Development and Reforms Commission (NDRC). During 5th SED both sides agreed to create one more working group on Pharmaceutical.

The NITI Aayog – Development Research Centre of China (DRC) Dialogue was established pursuant to the MoU signed during the visit of Prime Minister Narendra Modi to China in May 2015, to discuss global economic cooperation issues.  Vice-Chairman NITI Aayog leads the India delegation while President (Minister-level) of DRC of China leads the Chinese delegation.  The  fifth NITI-DRC dialogue was held in Wuhan on 28-29 November 2019.

India-China Financial Dialogue is held in accordance with the MoU signed during Chinese Premier Wen Jiabao’s visit to India in April 2005. The ninth India-China Financial Dialogue was held in New Delhi on 25 Sepember 2019 which was co-chaired by Secretary DEA.

Other Institutional Mechanisms

Some of the other institutionalized dialogue mechanisms between the two countries include the JWG on Collaboration in Skill Development and Vocational Education, Joint Working Group on Information and Communication Technology & High-Technology, Joint Working Group on Industrial Park Cooperation, Joint Study Group and Joint Task Force on Regional Trading Agreement (RTA), India-China Joint Working Group on Agriculture, India-China Joint Working Group on Cooperation in Energy and the Joint Study Group on BCIM Economic Corridor.

Banking Sector Cooperation

Many Indian banks had established their presence in mainland China through branches or representative offices in major cities in China. However most of them have closed their operations in recent years and presently only SBI and ICICI have branches in Shanghai. SBI is the only Indian bank to have authorization to conduct local currency (RMB) business at its branch in Shanghai.
In early 2011, Industrial and Commercial Bank of China (ICBC) secured a license to start banking operations in India. ICBC inaugurated their Mumbai branch on September 15, 2011. This marked the opening of the first branch of a mainland Chinese bank in India. ICBC had also applied for its second branch in New Delhi.

Bank of China (BoC) applied to the Reserve Bank of India for a license for its proposed branch in Mumbai. During the bilateral meeting on the sidelines of SCO Summit in Qingdao in June 2018, the Prime Minister of India assured China’s President to examine the proposal on priority. Accordingly the approval was granted by RBI during the first week of July 2018.

Multilateral Development Banks

Asian Infrastructure Investment Bank: (AIIB)

In May 2014 India was invited by China to join the Bank after committing to the ‘Key Elements of AIIB’, to join in the multilateral negotiations on the MoU for establishment of AIIB. India joined the 5th round of multilateral consultations and subsequently signed the MoU on 23rd October 2014. The Articles of Agreement of the Bank were finalized at the 5th Chief Negotiators Meeting in Singapore in May 2015 and India signed the AoA along with 57 other prospective founding member countries on 29 June 2015.

India is the second largest shareholder with approx 8% shareholding and has a single member constituency in the Board. The bank conducts its business through quarterly BoD meetings and annual AGMs. As of 15 September 2022, 33 projects (25 Sovereign, 11 Non-Sovereign) have been approved for financing of USD 8.75 billion. This forms around 25% of the banks loan commitments.

New Development Bank: (NDB)

NDB established its office in Shanghai and Mr K.V.Kamath took charge as the first President of the NDB. Mr. Kamath was succeeded by Marcos Troyjo of Brazil in May 2020. The initial authorized capital of the Bank was USD 100 billion of which USD 50 billion was subscribed initially by founding members (BRICS) who shall have equal shareholding initially.

Following the opening of an Africa Regional Centre in South Africa and America Regional Office in Brazil, the Bank opened its India Regional Office in Gujarat International Finance Tec-City in June 2022. India is the biggest borrower in NDB with 19 projects approved with commitment of USD 6.92 bn as on 31 August 2022.

Tourism and Films

China has the world’s largest outbound tourism industry. In 2019, more than 169 million outbound tourists traveled to different parts of the world and spent more than USD 127 Billion. Top 10 international outbound destinations for Chinese Tourists in 2019 were Asian countries. In the recent years Sri Lanka and Maldives have come up as popular tourist destinations for Chinese outbound travelers. Tourism to India, however is still below potential. In 2019, India received nearly 340,000 Chinese tourists. India’s Tourism Minister, Mr. KJ Alphonsvisited China in August 2018 and held roadshows in Beijing, Wuhan, Guangzhou and Shanghai. The roadshows were highly attended and generated a lot of interest from Chinese Tour operators. Post-COVID, Chinese tourists are limited to domestic destinations as the country continues to enforce strict travel restrictions to prevent COVID-19 outbreaks. There are currently no direct flights between India and China.

India-China MoU on Audio-visual coproduction was signed during Chinese President Xi Jinping’s visit to India in September 2014 and two Indian movies (PK and Dhoom3) were released in 2015. “Xuan Zang” was the first co-production film between India and China, featuring popular Chinese Huang Xiaoming. This film released in 2016 was submitted as a contender to represent mainland China for Best Foreign Language Film at the 89th Academy Awards in 2017. In 2017, “Kungfu Yoga”,  featuring Jackie Chan and “Buddies in India” was released. In recent years, Indian movies such as Dangal, Secret Superstar, Bahubali, Hindi Medium, Toilet, Andhadhun etc, registered great success at the Chinese box office.

International Bamboo and Rattan Organization (INBAR)

INBAR is an Intergovernmental body for Bamboo and Rattan Research and Development founded in 1997. It currently has 49 member countries. India became a member in 1998. India is the largest country in terms of landmass under Bamboo and Rattan plantation. However, China is known to control more than 83% of the commercial market of Bamboo and Rattan Resources, employing more than 7.7 million people directly or indirectly. Ambassador Ali Mchumo from Tanzania is the DG of the Organization. He started his term in April 2019. The secretariat is located in Beijing.  Embassy acts as the focal point for interaction with INBAR secretariat. Nodal ministry for INBAR is Ministry of Environment and Forests. INBAR has its South Asia Centre located in Delhi.

Other Economic and Commercial Issues

Cooperation in the Petroleum Sector: India and China are working on the areas of cooperation in the petroleum sector to leverage upon the sheer size of the market of two countries. The Petroleum Secretary visited Beijing in October 2018 followed by visit of Vice Minister of NEA to New Delhi in February 2019 and September 2019. Constitution of a JWG and draft MOU on cooperation is under consideration. However, there has been no progress on this since onset of COVID-19.

Double Taxation Avoidance Agreement (DTAA): India and China signed the DTAA on 18 July 1994 and the Agreement came into force on 21 November 1994. Both the countries agreed to revise the DTAA in its entirety and the revised DTAA was signed in May 2018.

Social Security Agreement: With the steady increase in number of personnel/professionals that are being employed both in India and China. The Social Security Agreement assumes important role. India shared a draft SSA to Chinese side in October 2016. JS (ED) led a technical meeting during 28-29 May 2018. China’s MoHRSS led the delegation to India from Nov 13-15, 2019. There is a divergence as far as ‘Totalisation’ clause is concerned.

Bilateral Investment Treaty: India has sent notice to China to terminate the Bilateral Investment Promotion Agreement and proposed initiation of negotiations on Bilateral Investment Treaty. Subsequently India has taken a position that instead of signing a separate BIT with China, we may cover this under the chapter on Investment in RCEP. However, following India’s decision to not join the RCEP, the issue has not been taken up with the Chinese side.

Indian Companies in China

With the growth in bilateral trade between India and China in the last few years, many Indian companies have started setting up Chinese operations to service both their Indian and MNC clientele in China. Indian enterprises operating in China either as representative offices, Wholly Owned Foreign Enterprises (WOFE) or Joint Ventures with Chinese companies are into manufacturing (pharmaceuticals, refractories, laminated tubes, auto-components, wind energy etc.), IT and IT-enabled services (including IT education, software solutions, and specific software products), trading, banking and allied activities. While the Indian trading community is primarily confined to major port cities such as Guangzhou and Shenzhen, they are also present in large numbers in places where the Chinese have set up warehouses and wholesale markets such as Yiwu in Zhejiang. Most of the Indian companies have a presence in Shanghai, which is China’s financial center; while a few Indian companies have set up offices in the capital city of Beijing. Some of the prominent Indian companies in China include Dr. Reddy’s Laboratories, Aurobindo Pharma, Matrix Pharma, NIIT, Bharat Forge, Infosys, TCS, APTECH, Wipro, Mahindra Satyam, Dr. Reddy’s, Essel Packaging, Reliance Industries, SUNDARAM Fasteners, Mahindra & Mahindra, TATA Sons, Binani Cements, etc.

Chinese Companies in India

According to information available with the Embassy of India, more than 100 Chinese companies have established offices/operations in India. Many large Chinese state-owned companies in the field of machinery and infrastructure construction have won projects in India and have opened project offices in India. These include Sinosteel, Shougang International, Baoshan Iron & Steel Ltd, Sany Heavy Industry Ltd, Chongqing Lifan Industry Ltd, China Dongfang International, Sino Hydro Corporation, etc. Many Chinese electronic, IT and hardware manufacturing companies are also having operations in India. These include Huawei Technologies, ZTE, TCL, Haier etc. A large number of Chinese companies are involved in EPC projects in the Power Sector. These include Shanghai Electric, Harbin Electric, Dongfang Electric, Shenyang Electric etc. In recent years, Chinese mobile companies have achieved remarkable growth in India, with companies like Xiaomi, Huawei, Vivo and Oppo occupying over 80% of Indian mobile handset market.