As gold prices slump, the Chinese stock exchange plunges and Indian rupee falls to new lows, monetary policy analysts are revisiting the competitiveness of China – India bilateral trade. A report by India’s apex bank – the Reserve Bank of India notes that exports from China into India are gradually becoming uncompetitive against other developing nations in the region. The report entitled ‘India China Bilateral Trade Relationship’, authored by Prof S K Mohanty of Research and Information System for Developing Countries also shows the impact on Indian exports due to the fluctuation in the Chinese yuan.
An economic research paper, this report it outlines four major sectors wherein India imports what the report considers goods that are available for cheaper in neighboring competitive nations. The four sectors mentioned include chemicals, textiles, base metals and machinery. It also mentions imports of minerals, plastics, gems & jewelleries, and automobile parts from China have also turned out to be uncompetitive. The combined share of these eight sectors exceeded 93 percent of total uncompetitive imports during 2007-09.
A policy paper meant to guide those in power to a healthier basket of traded goods, Prof. Mohanty, believes that the uncompetitive goods emanate from rising input costs – a large part of which are labour and raw material costs. Rising up the value chain a dream of past Chinese President Hu Jintao, input costs are gradually erasing China’s cheap prices, the one major factor which contributed to her mass exports and status as an economic super power. Yet, at the same time, now at a higher value, the same good are available at better qualities. Maybe one needs to also factor in quality Vs price in deriving competitiveness of a product in international markets?