The Hindu Business Line : China and ASEAN: India's emerging markets

THERE HAS been a remarkable shift from west to east. Till last year the US was the sole power driving India's global trade. But no more, with the emergence of China and the Association of South-East Asian Nations emerging on the scene. The "Look-East" dream of the former Prime Minister, P. V. Narashima Rao, could soon turn out a reality.

Till 2001-02, the US accounted for more than a fourth of India's global trade. But as trade with China and ASEAN expanded, the US' share in India's world trade declined from 27.9 per cent in 2002-03 to 23.4 per cent in 2004-05 (April-November) while that of China and ASEAN increased from 8.3 per cent and 15.7 per cent to 11.3 per cent and 16.9 per cent respectively during the same period.

China emerged the second major export destination for India during 2004-05 (April-November), moving from the fifth position in 2003-04. It is now also the second biggest source of imports for India. Exports to China surged by 73.5 per cent in 2004-05 (April-November) over and above a 49.8 per cent growth in 2003-04 while imports from China jumped by 72.5 per cent in 2004-05 (April-November) on top of a 45 per cent growth in 2003-04.

A similar trend was noticeable vis-à-vis the ASEAN-5 (Singapore, Thailand, Malaysia, Indonesia and the Philippines) too. Exports to ASEAN-5 surged 46.7 per cent during 2004-05 (April-November), over a 33.3 per cent growth in 2003-04 and imports rose by 21.2 per cent in 2004-05 (April-November) over and above 44.3 per cent growth in 2003-04. The combined shares of China and ASEAN-5 in India's exports rose to 14 per cent in 2004-05 (April-November) not far away from the US' 17.7 per cent.

One explanation is that while the markets of the US and the EU are saturated, that of economies such as China and ASEAN, still with considerable growth expectations, will offer considerable trade opportunities. Indeed the trade pattern between China and ASEAN-5 has also changed. Here also, notwithstanding the US' dominant position in exports and imports of these countries, China outpaced the US in yielding higher potential for growth in trade. For instance, Thailand's exports to China spurted by 60.1 per cent in 2003, over a 23.7 per cent growth in 2002. But exports to the US inched up less than 2 per cent.

There has also been a change in the trade patterns. While industrial raw materials, intermediates and electronic components and parts dominated despatches to China and ASEAN-5, gems and jewellery and textiles formed the bulk of exports to the US.

A strong demand for steel in China for all the construction ahead of the Beijing Olympics and the industrial boom saw India diverting iron ore from Japan to China and this alone accounted for the soaring growth in exports to China. On the import front, China emerged the top supplier of electronic goods to India, displacing the US. Imports of electronic goods also soared from Singapore and Malaysia. The burgeoning growth in IT and the coming of the computer age in India led it to make massive imports of electronic goods from these Asian countries which were cheaper sources.

Though a tripolar relationship has developed within Asia, can China replace the US as the future destination of exports and will China and ASEAN offer a sustained market for India?

Going by the current pattern of exports to China, India, it is suggested, should really depend for export growth on China, which requires raw material and intermediates from India. But, then, will China see India as only a raw materials provider, as Japan did till the 1990s? Structurally, apart from crude oil, China's imports consist mainly of electronic goods and industrial raw materials and intermediates such as iron ore, plastic, steel and chemicals which are required to sustain the fast manufacturing growth. Of these, a large chunk of the imports are electronic goods.

Contrarily, India's export potential lies in textiles, and gems and jewellery. India cannot afford to export electronic goods at competitive price to China. Further, India's wish-list for exports is manufactured goods with value additions. China is itself the biggest exporter of textiles. And China is not that rich yet to embellish its people with jewellery.

Therefore, if India wants to sustain a high growth in exports on the back of the China and ASEAN platforms, New Delhi has to reinvent its bilateral economic cooperation. With the entry into the WTO, China will see a buoyant rise in FDI in areas hitherto closed to foreign investment.

The FDI deluge in China, particularly in hi-tech products (as evident from the surge in electronic imports), would mean the opening of a big market for industrial materials and IT to improve its industrial efficiency. India is yet to establish in China a beachhead for IT, where it has a distinct edge. China can be tempted to invest in India in those areas where the government and private sectors are backtracking.

Steel and plastic materials are areas where Chinese FDI can be attracted. China is a bulk drug supplier and India has the edge on formulations. India can garner a sizeable chunk of the Chinese pharmaceutical market.

The automobile sector is a major contributor to China's economic growth. The demand for automobiles is expected to leap five times in 2020. Imports of auto parts into China doubled in 2003 and will continue to gallop with the rise in automobile demand. India's automobiles export recorded a robust growth in recent years, and could be another promising area of trade expansion between the two countries.

China is on Free Trade Area binge. Its FTA with ASEAN, when implemented, will be the biggest in the world.

ASEAN's imports are also soaring with the growth revival in GDP. The total import market of ASEAN-5 swelled by over 10 per cent in 2003, amounting to $356 billion.

Though India's exports to ASEAN-5 surged by 47 per cent in 2004-05 (April-November), over and above the 33 per cent in 2003-04, India is far behind in even making a dent into this market. India accounts for a mere 1.5 per cent of ASEAN-5's total import market. Given such barrier as the AFTA (ASEAN Free Trade Association), which provides tariff concessions among ASEAN members, it is imperative for India to hammer out an FTA with ASEAN, if it wants to penetrate this bloc.

Apart this, India's increasing joint ventures with a number of NRIs in these countries will reap the benefits of the expanding ASEAN import market.

(The author is a Senior Researcher with a Japanese MNC in New Delhi.)

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