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Trade Dynamics of China and Trade Dynamics of China and India:India:

Challenges and OpportunitiesChallenges and OpportunitiesMahvash Saeed Qureshi

Trinity College University of Cambridge

and

Guanghua WanUnited Nations University

World Institute of Development Economics Research

The Eighth Global Development Network ConferenceBeijing, January 14-16, 2007

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I. IntroductionII. China and India: the New Asian TigersIII. Trade Structure of China and IndiaIV. Potential Trade Competition &

Complementariy V. Dynamics of Trade CompetitionVI. Conclusions and Policy Implications

Presentation Presentation OutlineOutline

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• China and India: emerging global economic players

• High economic growth rates• Rapidly rising share in world exports• Large inflows of foreign investment• Engines of demand growth in commodities• Positive demographics

I. IntroductionI. Introduction

• The new Asian drivers: threat or opportunity?

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Introduction (cont.)Introduction (cont.)

• Potential Trade Impacts• ‘Complementary Effect’• ‘Competitive Effect’ in third markets• ‘Competitive Effect’ in domestic markets

• Key Factors• Similarity of export structures• Complementarity of export-import structures• Flexibility and speed of adjustment

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• Earlier research…• Focus on China • Impact on specific geographical regions

• Goals of the paper• Comparative analysis of trade of China & India

(Chindia)• Assess trade competition & complementarity

between Chindia• Assess trade competition & complementarity with

other regions• Examine dynamics of trade relationships• Important lessons to be learnt

Introduction Introduction (cont.)(cont.)

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II. The New Asian II. The New Asian Tigers Tigers

China

Japan

UK

Sub-Saharan AfricaWorld

Latin America & Caribbean

India

EMU

0

2

4

6

8

10

12

14

16

18

20

0 2 4 6 8 10 12 14 16 18 20

Average annual export growth (%)

Aver

age

annu

al im

port

grow

th (%

)

Figure 1: Average annual export, import and GDP growth (1990-2004)

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The New Asian Tigers The New Asian Tigers (cont.)(cont.)

Table 1: Share of imports from the Asian tigers in total imports (%)

Source: Authors’ calculations based on IMF (2006a).

China India Japan

US Europe Japan US Europe Japan US Europe

1980-84 0.819 0.969 3.843 0.644 1.496 0.807 15.382 3.311

1985-89 1.756 2.119 4.998 0.674 1.714 0.973 20.558 3.520

1990-94 4.731 1.949 7.405 0.737 1.227 0.918 18.147 3.029

1995-99 7.294 1.537 12.330 0.856 0.539 0.793 14.154 2.073

2000-04 11.051 3.349 17.975 0.986 0.510 0.618 10.292 2.292

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Table 2: Leading sectors in merchandise exports of China (%)SITC code Product group

1995

2000

2001

2002

2003

2004

752 Computer Equipment 1.55 4.41 4.92 6.18 9.3610.1

0

764Telecom. Equipment nes 2.72 4.96 5.79 6.17 6.34 7.44

759 Office Equipment 1.11 2.45 3.29 4.28 4.37 4.19845 Articles Of Apparel nes 4.02 4.40 4.20 3.78 3.42 3.07

894Baby Carriers/Toys/Games 3.99 4.09 3.74 3.88 3.30 2.76

776 Valves/Transistors/etc 0.87 2.15 1.85 2.23 2.37 2.73

763Sound/TV Recorders etc 0.67 1.15 1.55 1.99 2.40 2.67

751 Footwear 4.48 3.95 3.79 3.41 2.96 2.56

778Electrical Equipment nes 1.61 2.42 2.47 2.41 2.31 2.29

842Women/Girl Clothing Woven 4.02 2.92 2.85 2.78 2.53 2.16

Total25.0

432.90

34.45

37.11

39.36

39.97

Source: www.intracen.org

III. Trade Structure of ChindiaIII. Trade Structure of Chindia

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Table 3: Leading sectors in merchandise exports of India (%)SITC code Product group

1995

2000

2001

2002

2003

2004

667 Pearls/Precious Stones 14.99

14.31

13.97

14.47

13.35

13.19

334 Heavy Petrol/Bitum Oils 1.43 4.20 4.76 4.77 5.46 8.35897 Jewellery 1.61 2.25 2.73 2.75 3.45 4.58281 Iron Ore/Concentrates 1.62 0.80 0.97 1.65 1.76 3.86

842Women/Girl Clothing Woven 4.87 4.49 3.91 3.60 3.00 2.53

651 Textile Yarn 4.26 4.42 3.62 3.47 3.08 2.37

542Medicaments Include Vet 1.84 1.94 2.21 2.46 2.35 2.29

658Made-Up Textile Articles 2.04 2.57 2.49 2.39 2.52 2.27

042 Rice 4.30 1.45 1.52 2.31 1.42 1.85

516Other Organic Compounds 0.51 1.17 1.22 1.33 1.73 1.68

Total37.47

37.60

37.40

39.20

38.12

42.97

Source: www.intracen.org

Trade Structure Trade Structure (cont.)(cont.)

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Trade Structure Trade Structure (cont.)(cont.)Table 4: Competitiveness in exports: world market share and rank (2003)

Product China IndiaShare (%)

World Rank

Share (%)

World Rank

Basic manufactures 6.98 5 1.2 26Chemicals 2.63 11 0.94 20Clothing 21.59 1 2.74 8Electronic components 6.47 5 0.21 37Fresh Food 4.24 6 1.98 15IT & Consumer electronics 15.14 1 0.09 39Leather products 21.97 1 2.04 10Minerals 1.76 20 1.81 18Miscellaneous manufacturing 9.22 3 0.71 26Non-electronic machinery 3.28 7 0.32 32Processed Food 2.95 11 0.68 28Textiles 14.92 1 3.79 10Transport equipment 1.71 12 0.21 34Wood Products 2.68 11 0.15 52

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1996 1997 1998 1999 2000 2001 2002 2003 20040.6

0.65

0.7

0.75

0.8

0.85

0.9

0.95

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China's correlation coeff icient China's similarity measureIndia's correlation coeff icient India's similarity measure

Figure 2: Chindia’s self-similarity dynamics

jjtktj

jjtktj

xx

xxS

)(

)(

1Similarity measure =

22)(

)(

)()(

))((

tjtktktj

tjtktktj

xxxx

xxxxrPearson correlation

coefficient =

• Dynamics of trade structure and specialisation

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Trade Structure Trade Structure (cont.)(cont.)Figure 3: RCA Indices of China (2-digit SITC)

)/()/(

wtwj

itijij Xx

XxRCA

0 1 2 3 4 5 6 7

Travel goodsFootwear

Art apparelExplosivesCoal/coke

Sanitary fixturesOffice machinery

Textile yarn/fabricTelecom machinery

Furniture 19952003

0 2 4 6 8

Non-metal mineralTextile yarn/fabric

LeatherCrude fertilizer/min.

ApparelFeeds

CerealsTravel goods

Metalliferous oresCoffee/tea/spices 1995

2003

Figure 4: RCA Indices of India (2-digit SITC)

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Figure 5: Intra-distributional dynamics: Kernel density estimates (3-digit SITC) (i) China (ii)

India

0 5 10 15 200

0.1

0.2

0.3

0.4

0.5

0.6

RCA

Den

sity

19952003

0 5 10 15 20 25 300

0.2

0.4

0.6

0.8

1

RCA

Den

sity

19952003

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Trade Structure (cont.)Trade Structure (cont.)Figure 6: Galtonian regression results (3-digit SITC)

0 2 4 6 8 100

1

2

3

4

5

6

7

8

RCA1995

RC

A20

03

RCA2003 = 0.24 + 0.66RCA1995t-value = (5.56) (24.65)R-squared = 0.82

0 2 4 6 8 100

1

2

3

4

5

6

7

8

RCA1995

RC

A20

03


0 5 10 15 200

5

10

15

20

RCA1995

RC

A20

03


0 5 10 15 200

5

10

15

20

RCA1995

RC

A20

03


Table 5: Overall specialisation in 2003 (3-digit SITC) China India

Median of sectoral RCA 0.63 0.51Standard deviation of sectoral RCA

1.50 2.46

Herfindahl Index of export shares

0.16 0.18

(i) China (ii) India

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• Data• UN’s COMTRADE database • Product categories at three-digit level of

Standard International Trade Classification (SITC)

• Sample• 52 countries from Africa, Asia, Europe, Latin

America, North America• 262 product groups• Time period: 1995-2003

IV. Trade Competition & IV. Trade Competition & ComplementarityComplementarity

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Competition & Competition & Complementarity (contd.)Complementarity (contd.)

• Coefficient of specialisation (CS)

n

njt

nit xxCS

211

nitxnjtx

= share of nth good in the exports of country i in time period t= share of nth good in the exports of country j in time period t

• Trade Complementarity Index (TCI)

n

njt

nit

ij

xmTC

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= share of nth good in the imports of country i in time period tnitm

(0 ≤ CS ≤ 1)

(0 ≤ TCI ≤ 1)

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• China and IndiaFigure 7: Export competition between

Chindia (1995-2003)


0.20

0.25

0.30

0.35

0.40

0.45

0.50

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Coefficient of specialisationChina's complementarity w ith IndiaIndia's complementarity w ith China

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• Export competition with other countriesFigure 8: Export Competition between China and other countries

Source: Authors’ calculations


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Figure 9: Export Competition between India and other countries



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Country Average TCI Country

Average TCI Country

Average TCI Country

Average TCI

Argentina 0.32 Egypt 0.22 Malaysia 0.53 Singapore 0.51 Australia 0.34 El Salvador 0.22 Mexico 0.44 South Africa 0.35

Austria 0.45 Finland 0.41 Morocco 0.21 Spain 0.4

Bangladesh 0.08 France 0.48 Netherlands 0.48 Sri Lanka 0.14

Belgium 0.44 Germany 0.52 New Zealand 0.24 Sudan 0.14

Brazil 0.39 Ghana 0.09 Niger 0.06 Sweden 0.45

Cambodia 0.04 Greece 0.33 Nigeria 0.05 Switzerland 0.4

Cameroon 0.12 Hong Kong 0.29 Norway 0.26 Thailand 0.51 Canada 0.42 Indonesia 0.41 Pakistan 0.14 UK 0.53 Chile 0.18 Iran 0.13 Peru 0.17 USA 0.57 Colombia 0.26 Italy 0.45 Philippines 0.36 Venezuela 0.17

Costa Rica 0.24 Japan 0.57 Portugal 0.37 Vietnam 0.23

Denmark 0.42 Korea 0.58

Table 6: Trade complementarity index between China and other countries



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Country Average TCI Country

Average TCI Country

Average TCI Country

Average TCI

Argentina 0.32 Egypt 0.24 Malaysia 0.34 Singapore 0.33

Australia 0.37 El Salvador 0.16 Mexico 0.36 South Africa 0.37

Austria 0.31 Finland 0.3 Morocco 0.17 Spain 0.34

Bangladesh 0.05 France 0.36 Netherlands 0.38 Sri Lanka 0.16

Belgium 0.4 Germany 0.36 New Zealand 0.22 Sudan 0.13

Brazil 0.32 Ghana 0.16 Niger 0.05 Sweden 0.32

Cambodia 0.03 Greece 0.28 Nigeria 0.27 Switzerland 0.28

Cameroon 0.33 Hong Kong 0.22 Norway 0.47 Thailand 0.3

Canada 0.37 Indonesia 0.39 Pakistan 0.1 UK 0.43 Chile 0.17 Iran 0.34 Peru 0.23 USA 0.39 Colombia 0.43 Italy 0.33 Philippines 0.19 Venezuela 0.36

Costa Rica 0.17 Japan 0.34 Portugal 0.27 Vietnam 0.37

Table 7: Trade complementarity index between India and other countries



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Dynamics of Trade CompetitionDynamics of Trade CompetitionTable 8: Empirical results for trade indices of China

Notes: *, **, *** indicate significance at 10%, 5% and 1% levels, respectively; constant included in all specifications.

CS TCI (i) (ii) (iii) (iv) (Real GDP)j 0.0114** 0.0129** 0.0228*** 0.0217*** (Real GDP per capita)j 0.0027*** 0.0044*** -0.0030** -0.0067*** (Economic freedom index)j 0.013 0.0112 0.0260*** 0.0283*** (Telephone mainlines)j 0.0001** 0.0001** 0.0002*** 0.0001*** (RCA raw material)j -0.0041* -0.0038 0.0027** 0.0019** (RCA tropical agriculture)j -0.0053*** -0.0056*** -0.0019 -0.0017 (RCA animal products)j 0.0056*** 0.0058*** -0.0026 -0.0037* (RCA cereals)j -0.0082*** -0.0079*** -0.0044** -0.0036 (RCA labour intensive)j -0.0084 -0.0078 -0.0149*** -0.0193*** (RCA machinery)j 0.0335* 0.0363* 0.0431*** 0.0316* (RCA capital intensive)j 0.0285*** 0.0276*** 0.0078 0.0089 (RCA chemicals)j -0.0046 -0.0045 0.0148 0.0119 Year dummies No Yes No Yes Partner country dummies Yes Yes Yes Yes Observations F-statistic for all regressors Adj R-squared F-statistic for fixed effects Hausman chi-square

421 8.63*** 0.97 103.55*** 39.51***

421 6.95*** 0.98 104.56*** 56.62***

421 8.65*** 0.98 53.77*** 78.81***

421 6.90*** 0.98 57.97*** 95.39***

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Dynamics of Trade CompetitionDynamics of Trade CompetitionTable 9: Empirical results for trade indices of India

Notes: *, **, *** indicate significance at 10%, 5% and 1% levels, respectively; constant included in all specifications.

CS TCI (i) (ii) (iii) (iv) (Real GDP)j 0.0034 0.0018 -0.0041 -0.0091 (Real GDP per capita)j 0.0112*** 0.0091*** -0.0050*** -0.0014*** (Economic freedom index)j -0.0011 -0.0059 -0.0060 -0.0062 (Telephone mainlines)j 0.0001*** 0.0001*** -0.0001 -0.0001 (RCA raw material)j 0.0000 0.0012 -0.0066 -0.0013 (RCA tropical agriculture)j -0.0038*** -0.0024 -0.0081** -0.0065** (RCA animal products)j -0.0053*** -0.0067*** 0.0005 -0.0020 (RCA cereals)j 0.0031*** 0.0038*** -0.0042* -0.0039 (RCA labour intensive)j 0.0099** 0.0085* -0.0090 -0.0181** (RCA machinery)j -0.0266* -0.0299** 0.0402* 0.0603* (RCA capital intensive)j 0.0171** 0.0182** 0.0269*** 0.0301*** (RCA chemicals)j 0.0303*** 0.0245*** -0.0233* -0.0280* Year dummies No Yes No Yes Partner country dummies Yes Yes Yes Yes Observations F-statistic for all regressors Adj R-squared F-statistic for fixed effects Hausman chi-square

421 23.22*** 0.97 110.29*** 64.71***

421 23.34*** 0.97 138.74*** 43.14***

421 3.15*** 0.91 33.40*** 59.29***

421 3.97*** 0.92 36.54*** 48.56***

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• Chindia experiencing change in export composition & RCA

• China tough competitor for• India, East Asia, Mexico, Western Europe, USA

• India tough competitor for• Neighbouring South Asian countries

• Potential for expanding trade… • China and India• East Asia, Europe and USA in manufactures• Latin America and Africa in resource based commodities

VI. VI. ConclusionConclusion

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• Lessons for the developing countries• Human capital• Productivity and efficiency• Increasing saving and investment• Improving infrastructure• Improving business climate

Conclusion Conclusion (cont.)(cont.)

• Work in progress• Econometric analysis of trade impacts• Including the services sector

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Thank You!

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