Export Marketing

Dhiraj Arora T.Y.B.COM DIV-A Roll No.-104 Academic Year- 2011-12 Topic- Comparative Export Analysis- INDIA vs. CHINA Submitted To- Prof. Abhilasha Gupta M.K. SANGHVI COLLEGE OF COMMERCE & ECONOMICS

Introduction
Reduction of trade barriers creates competitive pressures and the potential for technology transfer so as to lead to productivity gains and restructuring

of an economy towards its comparative advantage. India has undertaken a series of economic reforms towards opening up of the economy in the decade of the nineties. Notable among these has been the extensive effort to liberalize its international trade. It is therefore expected that trade liberalization in India would have led to changes in the composition of exports so as to reflect Indias comparative advantage in the global economy. Further, a countrys comparative advantage in international trade may be influenced by differential rates of change in accumulation of production factors or due to the increased trade integration of other countries. Chinas recent move towards export oriented development strategy may have altered the picture of comparative advantage for labor intensive manufactures in the world market. Across developing countries there is an ongoing debate and emerging concern about the threat and opportunity in relation to the rise of China and the consequent intensification of competition in labour intensive manufactures. The debate is even more pertinent in case of India, as China and India are not just similar in size but also with respect to factor endowments. It is important therefore, to explore the structure of comparative advantage of India and China and the extent to which the two economies compete with each other in the global market for manufacturing sector commodities.

Main Trade Developments

General Trade Trends - Chinas economic transformation and integration with
world markets is one of the most remarkable economic developments of recent

decades: Chinas share in world goods trade has increased from less than 1% in 1970 to close to 8% in 2006.The expansion of international trade has been the key feature of the countrys rising prominence in the world economy with average annual growth rates of trade at three times the world rates. Already in 2005 China became the third largest trading nation after the United States and Germany and its contribution to the growth of world merchandise trade over the period 1996-2006 amounted to 20%. Looking forward, it is estimated that China will become the worlds top exporter by the beginning of the next decade owing to attractiveness to FDI, a high domestic saving rate, improvements in productivity spurred by reduced internal and external barriers to trade, and a significant surplus of labour. The considerable expansion of Chinas trade in recent years concerns both goods and services. However, as compared with its goods trade, services exports remain at lower levels and are growing more slowly. Indeed, while goods trade surplus reached USD 134 billion in 2005, services saw a gradually deepening deficit that appeared at the beginning of the 1990s and reached USD 9 billion in 2005. Overall, Chinese goods exports account for approximately 90% of its total exports, which is substantially higher than the world average at a little over 80%. This clearly visible in the breakdown of Chinas current account in period 2000-2006 which is characterised by a relatively stable negative balance on services (app.

0.5% of GDP), gradually improving income and current transfers balance (counted together, form -0.7% of GDP in 2000 to 1.4% in 2007) and a rocketing surplus on trade in goods (from 2.9% to 7.7% of GDP). Trade in Goods and Services, World and China

Percentage Goods World Exports 1994 2001 2004 Imports 1994 2001 2004 79 80 80 85 85 88 21 20 20 15 15 12 80 80 80 86 89 90 20 20 20 14 11 10 China Services World China

Importance of Trade in China and Indias Growth- The remarkable parallel

growth and trade performance in both China and India prompts the classic chicken and egg question, namely, whether the opening up to trade drove the

growth of GDP or whether trade increased simply as a consequence of GDP growth and expansion of their shares in the world GDP. To gauge the influence of trade on GDP several analysts consider the evolution of exports to GDP or exports and imports to GDP ratios. Yet, the use of such ratios can be criticised as meaningless or even misleading since exports or imports are turnover measures whilst GDP is a valued added concept. Still, as long as we remember this important distinction these measures can give us a feeling of the extent of exporting activity as compared to economys income. In China, clearly, the observed trade expansion reflects at least in part greater specialisation in production in the Asia region where China engages in the final processing and assembly of large volume of exports originating from its Asian neighbours that are destined for markets in Europe and North America. As mentioned above, according to certain rough approximations almost half of Chinas exports are the subject of such triangular trade though this share is higher in certain high technology products trade. Certainly, existence of such a processing activity would be reflected in relatively high exports to GDP ratios.

Share of World Exports- India vs. China

India: Top Ten Sectors based on the RCAI

Rank HS code Sector

1 2 3 4 5 6 7 8 9 10 50 13 71 57 52 63 09 97 26 53 Silk Lac, gums, resins, vegetable saps and extracts nes Pearls, precious stones, metals, coins, etc Carpets and other textile floor coverings Cotton Other made textile articles, sets, worn clothing etc Coffee, tea, mate and spices Works of art, collectors pieces and antiques Ores, slag and ash Vegetable textile fibers nets, paper yarn, woven fabric

China: Top Ten Sectors based on the RCAI

Rank
1 2 3 4 5 6 7 8 9 10

HS Code Sector
46 67 66 42 50 95 65 64 63 86 Manufactures of plaiting material, basketwork, etc. Bird skin, feathers, artificial flowers, human hair Umbrellas, walking-sticks, seat-sticks, whips, etc Articles of leather, animal gut, harness, travel goods Silk Toys, games, sports requisites Headgear and parts thereof Footwear, gaiters and the like, parts thereof Other made textile articles, sets, worn clothing etc Railway, tramway locomotives, rolling stock, equipment

INDIA & CHINA

BIBLIOGRAPHY
WWW.GOOGLE.COM WWW.WIKIPEDIA.COM EXPORT MARKETING TEXT BOOKMICHAEL VAZ

WWW.OECD.ORG- PRZEMYSLAW KOWALSKI

WWW.ICRIER.ORG- AMRITA BATRA & ZEBA KHAN.

INDEX
INTRODUCTION MAIN TRADE DEVELOPMENTS SHARE OF WORLD EXPORTS-INDIA VS. CHINA INDIA TOP 10 SECTORS CHINA TOP 10 SECTORS INDIA-CHINA COMPARITIVE ANALYSYS CONCLUSION BIBLIOGRAPHY

ACKNOWLEDGEMENT

I owe a great many thanks to a great many people who helped and supported me during the making of this project. My deepest thanks to Lecturer, Prof. Abhiasha Gupta, the Guide of the project for guiding and correcting various documents of mine with attention and care. I would also thank my Institution and my faculty members without whom this project would have been a distant reality. I also extend my heartfelt thanks to my family and well wishers.

CONCLUSION
The analysis in the preceding sections demonstrates that international trade will remain probably the single most important factor that can allow China and India to continue, or perhaps even speed up, the growth enjoyed in the last decade. Indeed, the projected expansion of the world economy implies close to 500% cumulated growth in volume of exports of both these countries. The comparison of the key features of trade integration processes and the economic outcomes of China and India reveals that while much has already been achieved in both these economies in terms of opening up, the Chinese reforms, especially with respect to manufacturing trade, have gone further and that this is likely one of the key determinants of better economic performance of China. Of the two countries, China is probably the example to be followed as far as trade policy is concerned but Chinas integration process so far remains characterized by a certain duality. On the one hand the opening up of trade and FDI in manufactured goods has spurred the emergence of a largely private and dynamically growing sector. On the other hand the high level of public ownership and important regulatory barriers continue to dominate the services sectors. The full implementation of Chinas

GATS commitments would imply significant reforms and liberalisation measures with important gains for China and many of its trading partners. India has gone a long way in reducing its tariffs on non-agricultural products as well as certain nontariff barriers but moderate protection still persists which likely adds to the costs of intermediate inputs and, thus, to the hurdles faced by the Indian manufacturing sector. India has revealed a comparative advantage in certain segments of the services sector but its services trade policy is still very restrictive, even as compared to China. The extent of liberalisation achieved so far and the outcomes it brought about suggest that the remaining goods and services trade barriers are just one item on the list of reforms that India needs to tackle in order to promote trade-led expansion of labour-intensive activities. Other important priorities include: reforming small scale industry policies that prevent realisation of economies of scale and productivity increases in the sector; relaxing of labour market rigidities that hinder the inter-industry and interstate labour mobility and underpin misallocation of resources across industries and states; tackling infrastructure bottlenecks reducing regulatory differences across states.

India-China: Comparative Analysis

The resource and labour intensive manufactured commodities hold the dominant share in India and Chinas comparative advantage in the manufacturing sector. Chinas share of labor and resource intensive commodities of the total manufacturing sector increases marginally from 39 per cent in 2000 to 43 per cent in 2003. In contrast, Indias share of the resource and labor intensive of the total manufacturing sector decreases from 39 per cent in 2000 to 37 per cent in 2003. For both India and China science- based industries contribute less than 10 per cent of the comparative advantage in the manufacturing sector. While for India only about 5 per cent of the total manufactured products with comparative advantage can be characterized as science based in both 2000 and 2003, this percentage is greater in China. Science based manufactures constitute 7 per cent of Chinas comparative advantage in the manufacturing sector in 2000 as well as 2003. In absolute terms, Chinas science based industries is double the number in India. For 2000, there are 121 science based Industries in China in comparison with only 57 in India. In

2003, this number increases to 67 for India and 125 for China. Within the science based manufactures India and China are advantageously placed in same commodity sectors. In terms of the number of manufactures in these sectors, China outscores India in all the sectors, except for medicinal and pharmaceutical products, in which India marginally exceeds China. In fact for India, medicinal and pharmaceutical products is the predominant category, while in China photographic apparatus, equipment and optical goods dominates. In the leading science- based category China enjoys more than double the comparative advantage that India does in the same industry category. Chinas advantage in the leading science based industry is much stronger (in terms of the number of commodities) than that of Indias in its leading science based industry. India has lost its distinct comparative advantage in aircraft launching gear; deck-arrestor or similar gear; ground flying trainers; parts of the foregoing in 2003. China on the other hand has gained comparative advantage in the science based categories of gliders and hanggliders, balloons, dirigibles and other non powered aircraft and propellers and rotors, and parts thereof in 2003. The analysis in the previous section reveals similarities in the structure of international specialization for both India and China. Labour and resource intensive manufactured commodities dominate the comparative advantage scenario for in the export of manufactured commodities for both the countries. With an ongoing process of trade reform and common objective

of garnering a larger share of the global market, it is only appropriate that we examine the extent of competition that India and China may pose to each other. The degree and nature of competition between India and China in the world market is evaluated by calculating the Spearmans Rank Correlation (SRC) coefficients for RCA indices for India and China in the world market for manufacturing products. The aim is to identify, according to factor intensity, the sectors where India and China compete/complement in the world market. A higher and positive value of the coefficient reflecting the fact that both the countries are contesting for a share in the world market is indicative of a competitive relationship between the two countries in the export market. A high negative coefficient in a similar fashion is indicative of complementarity in export specialization between the two economies. A value of zero for the spearman correlation coefficient implies no relationship. When calculated for the manufacturing sector as a whole in 2003, the SRC coefficient is zero indicating no relationship between manufacturing sector in India and China. Within manufacturing though, India and China have a competitive relationship in organic chemicals, inorganic chemicals- sectors that makes a high demand for capital, skill, technology, and scale, the resource intensive category of non-metallic mineral manufactures, n.e.s. and in manufactures of metals, n.es which is a low capital, skill, scale and technology commodity category (Refer Appendix Table A.11). In

the category of road vehicles (including air-cushion vehicles) India and China compete with each other in 2003, even though the two countries were in a complementary relationship in this sector in 2000. A complementary relationship is evident in labour and resource intensive sectors like textile yarn, fabrics, madeup articles, n.e.s and related products and articles of apparel and clothing accessories. For photographic apparatus, equipment and supplies and optical goods, n.e.s. watches and clocks and iron and steel both countries complement each other in 2003 but did not do so in 2000. Other sectors where a complementary relationship between the manufacturing sector in India and China is evident in 2000, but is not maintained in 2003 are medicinal and pharmaceutical products and footwear.