Since 1978, when China began to open up and reform its economy, GDP growth has averaged more than 9% per year, lifting nearly 800 million people out of poverty. During the same time period, access to health, education, and other services has improved dramatically.

With a population of 1.43 billion, China is the world’s second-largest economy and the largest when measured in purchasing power parity terms. China is now classified as an upper-middle income country. Although China eradicated extreme poverty in 2020, an estimated 17.2% of the population lived below the World Bank’s Upper-Middle-Income Country (UMIC) poverty line of US$ 6.85 per day (in 2017 PPP terms) in 2023.

China’s rapid growth has been driven by investment and export-oriented manufacturing, an approach that has largely run its course, resulting in economic, social, and environmental imbalances. Reducing these imbalances will necessitate a shift from manufacturing to high-value services, investment to consumption, and high to low carbon intensity.

In recent years, growth has slowed due to structural constraints such as declining labour force growth, lower investment returns, and slower productivity growth. The challenge ahead is to find new growth drivers while also addressing the social and environmental legacies of China’s previous development path. The state’s role must also evolve, with a focus on creating a clear, fair, and stable business environment, strengthening the regulatory system and the rule of law to support the market system, and ensuring equitable access to public services for all citizens.

Global environmental issues cannot be solved without China’s involvement. China’s size makes it central to many regional and global development issues. Although not the primary source of historical cumulative emissions, China now accounts for nearly a third of annual global carbon dioxide and 30% of global greenhouse gas emissions – with per capita emissions now exceeding those of the European Union and on par with the Organisation for Economic Cooperation and Development average – and its air and water pollution affects other nations. China’s growing economy contributes significantly to global demand. Its economic rebalancing will provide new opportunities for manufacturing exporters, but it may reduce commodity demand in the medium term.

China is exerting increasing influence over other developing economies through trade, investment, and ideas. Many of China’s complex development challenges are applicable to other countries, such as transitioning to a new growth model, rapid ageing, developing a cost-effective health-care system, and promoting a lower-carbon energy path.

Following a moderate post-pandemic growth rate of 5.2% in 2023, growth is expected to be 4.5% in 2024. Domestic demand in China has remained sluggish, contributing to low inflation, while policy options for stimulus are limited.

China’s 14th Five-Year Plan (2021-2025) continues to address these issues. It emphasises high-quality development, technological innovation, and environmental sustainability. The plan sets ambitious goals for reducing carbon emissions, enhancing energy efficiency, and promoting green development, aiming for a carbon peak before 2030 and carbon neutrality by 2060 . The annual GDP growth target has been moderated to around 5.5% to balance economic expansion with sustainable practices .

Over the medium term, China’s economy is expected to slow down structurally. Potential growth has been declining, reflecting poor demographics, slow productivity growth, and increasing constraints to a debt-fueled, investment-driven growth model. Structural reforms are required to jumpstart the transition to more balanced, high-quality growth.

Source: World Bank and Asian Development Bank

India and China are two of the world’s fastest-growing economies, with significant potential for trade and investment that will benefit both nations. China has been one of India’s leading trade partners in recent years, with the trade imbalance heavily favoring China. In 2023-24, the trade imbalance surpassed the US$ 118 billion mark for the first time, according to the Ministry of Commerce and Industry. This exponential rise in trade can be attributed to an increase in the import of goods such as electronic products, organic and inorganic chemicals, pharmaceuticals, and fertilizers from China. Additionally, investment flows from China to India have declined in the last two years due to India’s revised FDI policy in response to border skirmishes. This article examines the latest trade and investment trends between the two Asian neighbors.

China boasts the world’s largest outbound tourism industry, with more than 87 million tourists traveling abroad in 2023 and spending over US$ 168 billion. However, tourism to India is still below its potential. In 2023, India aimed to attract 14 million Chinese tourists. To enhance people-to-people cooperation, 2015 was designated as “Visit India Year in China,” and 2016 was celebrated as “Visit China Year in India.” The bilateral Memorandum of Understanding on Cooperation in the Tourism Sector was renewed in May 2015. In August 2018, Mr. KJ Alphons, the Minister of State for Tourism, visited China and held roadshows in Beijing, Wuhan, Guangzhou, and Shanghai, which were well-attended and generated considerable interest from Chinese tour operators.

During the period of 2015-2016, both parties agreed to undertake specific cooperation activities in the railway sector. These activities were to take place in the following areas: speed-raising of existing routes (Chennai-Bengaluru-Mysore), high-speed rail (Delhi-Nagpur sector or Delhi-Chennai route), railway station redevelopment, heavy-haul training, and establishment of a railway university.

The Double Taxation Avoidance Agreement (DTAA): This agreement between India and China was signed on July 18, 1994, and came into force on November 21, 1994. The two nations agreed to revise the DTAA in its entirety, and the revised agreement was signed in May 2018. The DTAA’s primary objective is to foster economic relationships between the two countries, and the tax benefits will enable businesses to invest more in foreign firms and achieve commercial growth.

Indian companies in China

Indian businesses have been expanding their operations in China due to the growth in bilateral trade between the two countries. These businesses engage in various activities such as 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 related activities. Indian companies operating in China may do so as representative offices, wholly owned foreign enterprises (WOFE), or joint ventures with Chinese businesses.

The Indian business community primarily congregates in significant port cities such as Guangzhou and Shenzhen, but it is also broadly distributed across locations where the Chinese have established warehouses, wholesale markets, like Yiwu in Zhejiang. A considerable number of Indian businesses are based in Shanghai, which serves as China’s financial hub, while a small proportion have set up operations in Beijing, the country’s capital.

Notable 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, and more.

Chinese companies in India

On the other hand, more than 100 Chinese companies have established offices or operations in India, as per information available with the Embassy of India. Many large Chinese state-owned companies in the machinery and infrastructure construction sectors have secured projects in India and have opened project offices in the country. These include Sinosteel, Shougang International, Baoshan Iron & Steel Ltd, Sany Heavy Industry Ltd, Chongqing Lifan Industry Ltd, China Dongfang International, Sino Hydro Corporation, and others.

In addition, numerous Chinese electronic, IT, and hardware manufacturing companies have operations in India, such as Huawei Technologies, ZTE, TCL, Haier, and more. A substantial number of Chinese companies are involved in EPC projects in the power sector, including Shanghai Electric, Harbin Electric, Dongfang Electric, and Shenyang Electric. In recent years, Chinese mobile companies have experienced impressive growth in India, with companies like Xiaomi, Huawei, Vivo, and Oppo capturing over 80% of the Indian mobile handset market.

Bilateral trade

Trade between India and China has been growing since the early 2000s, with China becoming India’s top trading partner in 2008. Since then, China has joined the US to become one of India’s leading trade partners. Once again surpassing US to become India’s top trading partner in FY24. Bilateral trade between India and China amounted to US$ 118.4 billion in FY24. Imports from China increased by 3.24% to US$ 101.7 billion, while exports to China surged by 8.7% to US$ 16.67 billion. India imported US$ 4.2 billion worth of telecom and smartphone parts from China, accounting for 44% of total imports in this category.

Trade Deficit:

However, the exponential increase in overall trade, particularly over the past two years, has been due to a surge in imports from China. The major goods imported from China include electronic goods, organic and inorganic chemicals, plastic, medicinal and pharmaceutical products, fertilizers, crude and manufactured and dyeing/ tanning/ coloring materials. As a result, the trade imbalance has reached an all-time high of US$ 85 billion in FY 2024. The growth of this trade deficit with China could be attributed to following factors:

The Indian export basket has traditionally been dominated by a small group of raw material-based commodities, including iron ore, cotton, copper, aluminum, and diamonds/natural gems. However, over time, China has increasingly been exporting machinery, power-related equipment, telecom equipment, organic chemicals, and fertilizers, causing these Indian commodities to be replaced.

There are substantial market access barriers for most Indian agricultural products and industries that hold a competitive advantage, such as pharmaceuticals, IT, and ITeS. India has been working hard to reduce its dependence on China, its largest supplier of imports, in recent years. In 2020, India imposed restrictions on trade and business activities amid ongoing border disputes. India has implemented production-linked incentive schemes (PLI), anti-dumping duties, and quality control orders. Nevertheless, despite these restrictions, imports from China have consistently surpassed exports.

Bilateral Investment

In terms of foreign direct investment (FDI), China invested US$ 279.46 million in India in 2021 and US$ 205.19 million in 2020, respectively, which is a considerable decline from US$ 534.60 million in 2019. The FDI from China to India reached a high of US$ 705.25 million in 2015. This drastic decline in FDI inflow can be attributed to India’s amended FDI policy for countries with whom it shares a border following the Sino-Indian border skirmishes in 2020. However, in mid-2022, New Delhi began approving individual proposals on a case-by-case basis. As of June 29, 2022, a total of 80 China-linked FDI proposals out of 382 had been approved by India.

Chinese investment in India for 2021 was US$ 6.32 million, representing a 47.4% year-over-year decrease, while cumulative Chinese investment in India by the end of 2021 stood at US$ 943.96 million, according to figures from the Chinese Ministry of Commerce.

Source: Ministry of Commerce and industry, Figures in US$ million

Fastest growing items of import to India (2-digit hs code):

Source: Ministry of Commerce and industry, Figures in US$ million

Pradeep Kumar Rawat (Ambassador)
Embassy of India, Beijing,
No. 5, Liang Ma Qiao Bei Jie, Chaoyang
District, Beijing 100600 China

Tel: +86-10-8531 2500/2501/2502/2503
Fax: +86-10-8531 2515
Website – www.eoibeijing.gov.in

Counsellor (Economic & Commerce)
ceco.beijing@mea.gov.in; 85312537

First Secretary (Economic & Commerce)
com.beijing@mea.gov.in; 85312522