The Global Institute Russia-India-China (RIC) Conference

Export Diversification in India and China : A Comparative Analysis*

By Rajesh ChadhaGeethanjali Nataraj Anjali Tandon

*Work in progress

India-China : A Brief Comparison

• Per Capita Incomes (PPP): India $2600, China $5340

• Economic Reforms: India (1991), China (1978)

• Reform thrust: India (started off with import substitution strategy and gradually opened up its export sector), China (Export led growth strategy)

China’s Export Story

• Attracted global attention

• Mainly due to the comparative advantage of due to labour surplus

• Recent literature/studies have highlighted the increasing technology content of Chinese exports:Xu (2006), Rumbagh (2004)

Objectives

• Direction of Trade

• Composition of Trade

• Diversification of Trade

Segregation of Chinese and Indian Exports

• ETA (Empirical Trade Analysis)• UNCTAD• NCAER

• Scheme of segregation based on five factors:– Skill– Scale– Resource endowment factors– Technology content– Stage of the final product

NCAER Classification* derived from ETA and UNCTAD

• Product group A: Primary products (91)

• Product group B: Natural-resource intensive products (21)

• Product group C: Unskilled-labour intensive products (27)

• Product group D1: Low and medium technology intensive products (35)

• Product group D2: High technology intensive products (40)

• Product group E1: Low and medium human-capital intensive products (33)

• Product group E2: High human-capital intensive products (10)

• Sectors not classified according to intensity F: (2)

• SITC Revision 3, 3 digit ( 259 products)

ETA

A: Primary

B: Natural resource intensive

C: Unskilled labour intensive

E: Human capital intensive

D: Technology intensive

Not classified

UNCTAD

A: Primary

B: Labour intensive & resource based

C: Low skill & technology

E: High skill & technology

D: Medium skill & technology

F: Unclassified

NCAER

A: Primary (91)

B: Natural resource intensive (21)

C: Unskilled labour intensive (27)

E1: Low & medium human capital intensive (33)

D1: Low & medium technology intensive (35)

F: Unclassified (2)

D2: High technology intensive (40)

E2: High human capital intensive (10)

-25.3

66.4

-20.7

58.7

113.2103.9

2.5 7.4

-44.2

-1.4-3.7 -1.9

-60-40-20

020406080

100120140

ASEAN-4 EU-25 Japan NIES-4 USA World

Billi

on $

China India

TE: Triennium Ending

Trade Balance Region wise, TE 2006

-103.2

5.6

177.6

-3.9

-38.4

35.9 30.3

103.9

-33.3

3.714.7

-8.0-17.1

7.50.2

-44.2

-150

-100

-50

0

50

100

150

200

A B C D1 D2 E1 E2 Total

Bil

lio

n $

China India

A: Primary B: Natural resource intensiveC: Unskilled labour intensive D1: Low & medium Technology intensiveD2: High technology intensive E1: Low & medium human capital intensiveE2: High capital intensive

TE: Triennium Ending

Trade Balance GroupWise, TE 2006

4.1 4.3

18.6 21.8

10.9

21.09.8

21.2

16.2

6.6

2.4

1.2

0102030405060708090

China India

Shar

es (%

)

ASEAN-4 EU-25 Japan NIES-4 USA Bilateral

TE: Triennium Ending

Export Composition Regionwise, TE 2006

8.4 5.4

11.7 16.6

15.5

15.5

5.0

7.6

6.27.6

2.6

1.4

0

10

20

30

40

50

60

70

China India

Shar

es (%

)

ASEAN-4 EU-25 Japan NIES-4 USA Bilateral

TE: Triennium Ending

Import Composition Regionwise, TE 2006

4.9 1.4

11.9 17.2

32.1 11.7

14.6 6.5

25.9 19.5

4.3 15.7

6.1 27.9

E2: High capital intensive

E1: Low & medium human capital intensive

D2: High technology intensive

D1: Low & medium Technology intensive

C: Unskilled labour intensive

B: Natural resource intensive

A: Primary

China India

TE: Triennium Ending

Export Composition Group wise, TE 2006

1.1 0.9

8.3 6.7

42.8 19.8

17.5 9.9

3.4 3.5

4.1 8.7

22.5 42.3

E2: High capital intensive

E1: Low & medium human capital intensive

D2: High technology intensive

D1: Low & medium Technology intensive

C: Unskilled labour intensive

B: Natural resource intensive

A: Primary

China India

TE: Triennium Ending

Import Composition Group wise, TE 2006

TE: Triennium Ending

3.0

34.1

18.5 22.7

44.7

1.2

177.6

9.6

29.0

2.9

-38.4

30.0

-25.5 -21.1

-50

0

50

100

150

200

ASEAN-4 EU-25 Japan NIES-4 USA India World

Billion $

C: Unskilled labour intensive D2: High technology intensive

China's region wise trade balance in select manufacturing sectors, TE 2006

TE: Triennium Ending

0.0

6.8

-0.1

0.2

4.5

-1.1

14.7

0.0

3.0

-0.7

7.5

0.70.2

-0.7-2

0

2

4

6

8

10

12

14

16

ASEAN-4 EU-25 Japan NIES-4 USA China World

Bil

lio

n $

C: Unskilled labour intensive E1: Low & medium human capital intensive

India's region wise trade balance in select manufacturing sectors, TE 2006

Figure 9: India's Bilateral Trade with China, TE 2006

67.3

6.1

1.82.6

13.6

7.7 0.8

12.9

5.5

11.2

15.3

43.8

9.02.3

A: Primary B: Natural resource intensiveC: Unskilled labour intensive D1: Low & medium Technology intensiveD2: High technology intensive E1: Low & medium human capital intensiveE2: High capital intensive

Exports

Imports

TE: Triennium Ending

Inferences: China

• China has relatively strong export penetration with most developed partners as comapred to India It has a trade surplus with all its major trading partners except Japan and ASEAN and with the world.

• China continues to export more labour intensive products (C, E1 & E2) with increasingly more technology intensive exports(D1 & D2 )

• However, even higher imports of technology intensive products, particularly from ASEAN and Japan, result in a net trade deficit of these items in China’s external trade balance.

Inferences: India

• Unlike China, India has a trade deficit with all its major trading partners including China except the USA

• Indian exports are relatively more diversified• India continues to be a major exporter of primary

commodities (A), though its exports of technology intensive items (D2) have enhanced.

• Dominance of labour intensive products as a group (C, E1&E2) continues.

• Trade with China is highly skewed. • Nearly 67 percent of total exports to China of primary

products (A)• Nearly 43 per cent of total imports of high technology

intensive products (D2)

Conclusions

• China exports technology intensive products on the strength of its relatively large share of their imports: Processing Trade.

• Indian manufacturing sector needs to gear up • Such expansion should come through intensive expansion

( of labour intensive products) as well as extensive diversification ( of technology intensive products) of India’s manufactured sector as well as exports.

• Intensive expansion would create numerous job opportunities for the unemployed sections of India’s rural and suburban workforce

• Learning from China, India must make the best us of production as well as assembling opportunities in technology-intensive goods. Finally, success in expanding India’s exports would be achieved mainly through overall opening up of the economy, further liberalisation and decentralisation.

Thank You