Shambhavi Sharma
Introduction
India and China are sister civilizations who have evolved over thousands of years to become the Asian giants as they are known today- bustling with trade, commerce and culture. According to OECD’s Yearly data for FY 2024-2025- China commands a sizeable portion in global trade at 12.4%, while India has struggled to maintain its position at 2.8%. In recent years, China has come to dominate the global export sector single-handedly, and remained India’s largest goods trading partner in FY 2023-24.
As geopolitical tensions rise, claims over strategic territories emerge and global markets brace for the uncertain future created by world powers- it has become increasingly urgent to understand the complex trade relationship that India and China share in order to strategize and better prepare ourselves for possible trade shocks, supply chain obstructions and finding feasible alternatives to China as a hegemon in the manufacturing sector. Recent tariff war between USA and China proves how solid of a foundation China has built in global trade by monopolizing the manufacturing sector of essential items such as electrical, nuclear reactors, organic chemicals and fertilizers as well as highlighting the power imbalance it has created in global politics.
21st century has witnessed both of these powers lock horns over territorial claims on parts of Arunachal and Ladakh, public diplomatic spats and India’s national ban on Chinese mobile apps and games. All of these issues influence consumer behavior and alter perceptions- even if just for a short period of time. My research essay explores this nuanced relationship between India-China bilateral trade and simultaneous regional geopolitical crisis in detail.
Territorial disputes between Indian and China sway public opinion and therefore- Trade Demand
There is a clear shift from “Hindi Cheeni Bhai Bhai” during the Nehruvian era to “Make in India” and “Vocal for Local” observed in the last ten years- indicating an underlying public sentiment against China in India (pioneered and supported by the Indian Government)- but bilateral trade with China has only shown an upward trend overall due to China’s highly competitive markets and manufacturing prowess. There have been instances where a drop has been recorded following geopolitical clashes as listed below: –
- Depsang Valley, April 2013– Chinese forces encroached 19 km into India’s territory at the highly contested Aksai Chin region and withdrew after three weeks of conciliatory talks on 5th May, 2013 when India accepted a ‘No Bunker/Shed’ zone policy in the Chumar area of POK that had irked Chinese military. As bunkers and sheds are built to ensure national security and conduct surveillance, it created a political uproar and was covered by media houses as a national news. The Indian consumer acted accordingly- as Chinese imports fell from USD 168,071.58 in Jan-Apr’13 to USD 154,643.93 in May-Aug’13. The immediate effect was a drop of USD 13,427.65, demonstrating the shaky ground Chinese goods stood on in Indian markets when public opinion disfavoured them.
- Demchok & Chumar, September 2014– Chinese forces encroached into the Aksai Chin once again in retaliation to India redeveloping an existing observation hut at Demchok for surveillance purposes. Xi Jinping visited India in September, 2014 and the issue was settled with both countries agreeing to ‘No infrastructure development’ in Aksai Chin policy. Due to a Chinese Premier’s historic visit after six decades and speculations over trade agreements- Chinese imports grew even after the news of this clash broke out. The confidence of businesses, investors and entrepreneurs soared leading to an interesting observation of growing trade and increased imports from USD 154,952.03 in May-Aug’14 to USD 160,866.27 in Sep-Dec’14. Even though USD 5,914.24 seems like a marginal increase on paper, it is noteworthy as Chinese imports overrode an unfavourable buyer sentiment and tensions over national security.
- Depsang Valley, September 2015– Indian military toppled a surveillance hut built by China at POK leading to growing tensions and ultimately a military standoff. It was resolved at Depsang itself by deployed military commanders without political intervention by either country, showing enhancement in bilateral relations. China has been continuously trying to manipulate the power dynamics in Burtse area so that India can no longer access or overlook the Karakoram Highway, which links POK with China, and to monitor India’s activities at DBO airbase. When this conflict made it to the national news, Chinese imports dropped from USD 136,727.79 in May-Aug’15 to USD 127,177.67 in Sep-Dec’15. This drop of USD 9550.12 follows the above-mentioned trend and was expected.
- Doklam, June 2017– Both powers were engaged in a stand-off at Doklam, at the crucial China–Bhutan-India tri-junction where Indian forces obstructed Chinese attempts at construction of a road in the disputed area between Bhutan and China due to security concerns over the “Chicken’s neck. The conflict dragged on for 73 days and was perceived as the beginning of a war-like situation. Pangong Tso Lake became a centre of a brawl causing injuries on both sides- an incident that was widely telecasted and viewed around the world. As expected, bilateral trade suffered as Anti-China sentiment grew. Chinese imports fell from USD 151,308.5 in Feb-May’17 to USD 145,303.35 in June-Sep’17; decline of USD 6005.15.
- Galwan Valley, May 2020– China transgressed from the border agreements it had previously signed with India as its troops breached set boundaries at various points along the LAC, occupying multiple contested areas- including Northern bank of Pangong Tso Lake and Galwan Valley. China obstructed Indian forces from entering key patrolling points on the Indian side of LAC. Standoffs, physical unarmed conflicts and clashes followed. On 15th and 16th June, 2020- forces from both sides confronted each other in the Galwan Valley- causing casualties on both sides. India and China blamed the other side for the tussle. As if the pandemic wasn’t enough, India-China trade hit record lows in the FY 2020-21. Chinese imports dropped from USD 127,610.67 in Jan-Apr’20 to USD 104,333.49 in May-Aug’20, decline of USD 23,277.18. This was a result of previously mentioned geopolitical strife, ongoing pandemic and the call to support local businesses and production which was supported by the Indian government.
Conclusion
Geopolitics and tense border crises trigger an immediate economic response due to intense globalisation and the swift movement of information. Businesses, traders, investors and consumers behave according to their interests and sentiments- both of which keep changing with politics, diplomacy and national security concerns. Under normal circumstances, Chinese imports and bilateral trade with China suffer when there is a border skirmish or public violations of agreements. Indian industry and manufacturers stand to gain if they strategize and use such time periods effectively!
References
- Ministry of Commerce & Industry, Dept. of Commerce- Trade Statistics
- OECD Trade Statistics & Data
- India Review/2 December 2024/Vol 23/Issue 5: Why China intruded along the disputed border in 2020- Raj Verma
About the author: Shambhavi is a DFPGYF Feb-May 2025 Research Fellow who has worked as a UNV with UNDP and UVS. She is currently associated with MYCP- UN MGCY as a Member of Working Group GCM & GCR and DTH Lab as a Youth Network member for public advocacy. She interned with the Statistics Bureau, Ministry of Women & Child Development in her final year of Masters where she familiarised herself with research, data management and policy review.
Acknowledgements: The author extends sincere gratitude to Impact and Policy Research Institute India team for reviewing the article and for providing the opportunity to write the article.
Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.
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