Chinese Imports Into India: Analysing Strategic Measures To Enhance Self-Reliance

India’s trade dynamics with China have been a focal point of economic discussions, especially given the significant trade imbalance.

In the fiscal year 2023-24, India imported approximately $101.7 billion worth of goods from China while exporting only $16.7 billion.

This disparity highlights the depth of India’s reliance on Chinese imports, raising important questions about the nature of these imports, the areas of critical dependence, and the extent of this reliance.

Contrary to popular belief, India’s dependency is not predominantly on consumer goods from China, but on intermediate and capital goods, which are vital for its manufacturing and industrial sectors.

This article delves into the composition of these imports during financial year 2023-24, examining the critical areas of dependence and exploring strategic measures to enhance self-reliance.

The questions that come to mind are:

1. Why do we import so much from China?

2. What do we import from China? Can we avoid these imports? Are there items in our imports for which we are critically dependent on China?

3. What can we do to decrease imports from China in the medium to long run? What measures are others taking? Would such measures impact us and how?

To understand the economic impact of imports from China, particularly based on their end use, the Broad Economic Categories (BEC) classification is employed.

Unlike the harmonised system (HS), which categorises products numerically at different levels — 6-digit level has been harmonised world over — BEC categorises goods based on their main economic function/end-use such as intermediate, capital, and consumer goods.

This approach provides deeper insights into how imports contribute to various sectors for our purpose.

Correspondence tables mapping HS codes to BEC categories based on end-use are used to facilitate this analysis, for a better evaluation of import data in terms of economic relevance and dependency.

Hybrid categories, representing goods with mixed uses as per BEC, are also considered to offer a comprehensive view.

With this, the broad categories of merchandise that came into India last year from China are as follows:

A better way to present the same data would be to club the hybrid categories into the main one (eg, consumer goods would also cover consumer/capital and consumer/intermediate) and see the trend over the last four years as shown below:

We can draw some quick observations from the above plot:

1. Total imports from China constitute 15 per cent of India’s total imports during FY23-24. The total imports of India stood at $675.44 billion.

2. Intermediate and capital goods form the major share of imports from China into India.

3. Consumer goods imports are falling, both in absolute terms and as a proportion of total imports.

4. Capital goods imports are falling as a share of the total but are rising slightly in absolute terms.

5. Imports of intermediate goods are on the rise, both in absolute terms and as a proportion of the total imports.

We are now reasonably placed to answer the first question: why do we import so much from China?

We are not alone who is importing from China. Most other leading economies are critically dependent on China for a lot of imports.

Over the recent years, the exports from China to many countries have generally increased as shown below:

The above figures show that China is a major trade partner for most of the leading nations in the world.

The table below shows the trade balance that China maintains over some of the leading countries in the world. The positive balance indicates that China exports more to the partner than it imports from them.

Therefore, it is no surprise that India trades significantly with China, on similar pattern as most other countries — with a large trade deficit. China maintains a trade surplus with over 75 per cent of its trading partners excepting mostly those with whom it trades in minerals, raw material, and petroleum.

However, if we notice the ratio of our exports to China to our imports from China, we have the worst ratio when compared against most other significant trade partners of China, except the Dutch. 

Moving on to the second question: What do we import from China? Can we avoid these imports? Are there items in our imports for which we are critically dependent on China?

Let’s start with the intermediate goods. 

The top intermediate goods, by value, that were imported into India during FY23-24 are: 

Intermediate goods shown above are inputs for final goods and may therefore be critical for the manufacturing and exporting industries.

For example, the top imports we see under HS 851779 code are actually parts of mobile/smartphones that are used in making assembled mobile phones in India.

While India climbs up the ladder of mobile phone manufacturing through the PLI (production linked incentive) scheme and other policy measures, these imports are critical for the industry for now.

To give another example, HS 294110 (Penicillin) and 294190 (Rifampicin etc) are API/bulk drugs (antibiotics) which are further used by the industry to create dosages in the form of injections, capsules and so on which are also exported from India.

These too are critical inputs. India is working on creating a stronger API/bulk drug manufacturing ecosystem through the PLI scheme and both the mentioned HS codes are covered under Serial number 1 and 10 of the approved list of bulk drugs under the scheme. 

Concern worthy in the list are photovoltaic solar cells under two different HS codes that constitute over $3.9 billion of imports. The imports of these were less than $1.5 billion during last financial year. This is a surge that needs to be analysed. We shall discuss about this item later in the article.

The intermediate goods shown in the stacked plot above included hybrid categories too. In the hybrid category of intermediate/consumer (goods that are usually intermediates, but may also be consumer goods at times), the following items are top imports during FY23-24: 

Under the hybrid category of intermediate/capital goods, we have the following:

All these intermediates are important for one industry or another and cannot be wished off till we develop domestic capabilities in these. There are not many alternatives to China in many of these items and this answers the second part of our question about avoiding these imports from China in the short run.

There may also be items on this list where China has total domination making it the critical supplier for India.

These should be of our interest — and a starting point of analysis and remedial measures if we must create an alternative to China. Among the main intermediate goods, the items that has over 85 per cent imports from China are as follows: 

I have already covered the first two items you see in the critical imports list by value above, and explained how we are building resilience there.

A significant number of other items in the list are already being acted upon by the government under one or the other support schemes for manufacturing. If we continue on this path, India should be able to bridge the gap in next few years. 

Moving over to the capital goods, which are the second biggest category of imports, the top imports by value are as follows: 

Most of the above are machinery and parts, and electrical appliances used in factories to produce goods.

Some of the leading imports under hybrid category of capital goods (capital/intermediate and capital/consumer) mostly pertain to IT hardware as shown below:

The biggest imports under capital goods are the portable digital data processing machines weighing less than 10 kgs (laptops/notebooks). These fall under capital/consumer hybrid category depending on the use. 

If the laptop is used in IT firm it is capital, but if used by a student it falls under consumer category. India has taken initiative to address this import item and to build domestic manufacturing capacity in this important area. 

Among the capital goods category, some important ones that have high import dependence on China (>80 per cent imports from China alone) are as follows: 

While China has significant share in these items, the value of imports for most of these items are manageable and shouldn't concern an economy of the size of India in the short run, unless one of these shoot up in terms of value. In that regard, the top few should be watched.

This brings us to the consumer goods, the smallest part that constitutes the imports from China into India.  The top import items in this category, by value, are as follows: 

The top two items are smartphones and headphones/speakers. These are pure consumer electronics. Some others such as insecticides are important from public health point of view such as in pest control.

Most items (sunglasses, washing machine parts, vacuum flasks, gym equipment) are of values that again may not concern a country of the size of India in the short run. The sum of all such items add up to a small number, totalling under 5 per cent of the imports from China into India.

However, there are certain items that are disproportionately imported from China which we will see later below. 

Moving over to hybrids in this category (consumer/intermediate and consumer/capital goods), we can see the leading items of imports below: 

Under the consumer good hybrids, it may be noticed that most of the items in the table appear to have intermediate or capital good type use. For example, the computer monitors under the consumer/capital good category are used by individuals at home as well as by the IT firms in their offices. 

Among these consumer goods, items of concern are those where China has a stranglehold in terms of volume (>80 per cent share) and which are pure consumer goods. A list is given below: 

The above list is an indication about how far China has moved ahead in terms of becoming a manufacturing powerhouse at scale for consumer goods — most of these items reach a dump yard within few years of import — and there's no alternate source that can supply us these goods at similar scale and low cost.  

This is a point to think — a generational effort was spent by Chinese to reach here and they used all the tricks, fair and foul. 

Let's now attempt the first part of the third question - What can we do to decrease imports from China in the medium to long run? 

Let's have a quick look at those imports where we see a surge when compared against last financial year.

Most of the surge is noticed in items that are intermediates or capital goods. This may be due to supply chains moving into India — and may be good for the economy.

For example, liquid crystals, memories, amplifiers etc, are parts that go into electronic goods manufacturing, which are typically manufactured in a global value chain.

Other items among the above, while not value chain products, may be important for certain other industries to scale up through capital investments, or as intermediate inputs for making further export products.

Seen in this sense, there's not much of a case to meddle into the surge, unless an industry complains about injury due to the surge or dumping by the Chinese at below marked price. 

However, among the list, the solar cell and modules are of concern. This item appeared in top list of intermediate products too and is surging.

However, this item didn’t appear in the list of critical items in which China’s share is over 80 per cent. Direct imports of these items from China stands around 60 per cent. This is because Chinese firms are also  routing these items into India from partner FTA countries such as Vietnam, Malaysia and Singapore.

The basic customs duties for imports through FTA partner country is zero against 40 per cent for direct imports from China. The fact that China manages to still send around 60 per cent of our total imports of these items directly, without FTA, is a testament to the pricing advantage they enjoy in the international market.

I have mentioned the domestic support steps being taken by the government about some of the imports among intermediate and capital goods, especially through various manufacturing support schemes. In many of the consumer and intermediate goods, government has introduced quality standards which should be met for imports to be allowed into the country.

Quality standards ensure that India doesn’t become a dump yard for cheap substandard goods. India has also not given a free run to e-commerce exporters from China (eg, Temu, Wish etc) to dump goods in India the way they do it in US/EU.

Many of these measures also go hand in hand with PIL scheme of the government to boost domestic manufacturing — eg, the special focus on toys manufacturing sector. While US has an entire list under Section 301 of their Tariff Act, dedicated to heckling Chinese imports coming into the US, India doesn't maintain such a blanket list approach against any country.

The anti-dumping duties imposed by India against certain goods/countries are after completion of the investigations as outlined by the WTO rules. This area needs more focus to ensure timely tackling of surging imports that are transient in nature.

This brings us to the second part of last question — What measures are others taking against China? Would such measures impact us?

Chinese exports are bothering many countries, including the US and EU who are taking measures in their own way in recent days. US President Joe Biden has imposed new tariffs under Section 301 goods and EU has initiated anti-dumping investigation against China for electric vehicles. It is rumoured that EU is fast tracking the investigations and might impose a duty of around 25 per cent as early as July this year.

China has decided to retaliate against both with its own investigations. This would be an interesting space to watch out. 

Chinese over-supply would be playing out throughout this year. The over-supply is a side effect of China trying to prop up the economy through manufacturing support while their real-estate sector struggles.

As the domestic economy has limits on how much of excess goods it can absorb, exports and dumping the goods aboard becomes imperative for Chinese manufacturers. This has worked well for Chinese in the past, but this time the world may not be ready to absorb the supply shock from China that hurts domestic manufacturing of partner countries.

However, in an interconnected world, taking unilateral tariff measures is like squeezing a balloon where a squeeze here appears as a bubble somewhere else. We need to analyse in this light if Biden's tariffs lead to oversupply into our country and take pre-emptive measures if required.

Chinese have suffered the highest number of legal trade remedy measures against them by the partner countries over the last decade. Rightly so, given their penchant to bend/buckle the rules of international trade. This has been dealt in detail elsewhere.

These remedial measures are available whenever there's a foul play detected. For now, the cause for concern is limited given that India has prepared well in recent years.