The Global Institute Russia-India-China (RIC) Conference Export Diversification in India and China : A Comparative Analysis* By Rajesh Chadha Geethanjali 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)

TE: Triennium Ending Trade Balance Region wise, TE 2006

TE: Triennium Ending Trade Balance GroupWise, TE 2006

TE: Triennium Ending Export Composition Regionwise, TE 2006

TE: Triennium Ending Import Composition Regionwise, TE 2006

TE: Triennium Ending Export Composition Group wise, TE 2006

TE: Triennium Ending Import Composition Group wise, TE 2006

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

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

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.

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