India-China Trade Data Mismatch

Why in news?

The trade data mismatch of India and China which is attributed to ‘under-invoicing’ by Indian importers for the imports originating from China, has attracted wide media coverage.

How about the picture of bilateral trade between India and China?

• Trade ties - Trade ties began to boom since the early 2000s driven largely by India’s imports of Chinese machinery and other equipment.
• In 2008, China became India’s largest trading partner.
• Total bilateral trade - The total bilateral trade registered a 14.6% increase compared to 2021, amidst the military standoff in eastern Ladakh.
• India and China bilateral trade continued to boom, crossing 100 billion dollars for the second year in 2022.
• Major imports - India’s biggest imports in 2021 were electrical and mechanical machinery, chemicals used in industrial production, active pharmaceutical ingredients and auto components.
• India also imported medical supplies during the pandemic.
• Trade deficit - China’s exports increased while India witnessed a decreased in exports leading to a trade deficit of over 75 billion dollars.

What about the trade data mismatch?

• China reported its exports to India over 103 billion dollars while India claims the Chinese imports at 92 billion dollars, hence a mismatch of 12 billion dollars.
• This reflects significant asymmetries in international trade statistics.
• Impact - The discrepancies in international trade statistics can result in ill-informed policy decisions.
• Under-invoicing is one of the reasons for trade data anomalies.

What reasons have been attributed for trade data mismatch?

• Diversion of goods - Re-routing or re-exporting of goods imported from China generally do not reflect in India but Chinese Trade Statistics record these as exports to India.
• This leads to trade data asymmetries.
• Some of the trading models that re-routes or re-exports goods to another country includes
  • Merchanting trade transactions
  • Bill to-ship to model
  • Switch-bill of lading
  • High Sea Sale (HSS) transactions
• Free Trade & Warehousing Zones - Some Indian trading firms buy bulk goods from China and maintain inventory at FTWZ locations and sell them in small quantities at higher profit margins.
• Chinese Statistics will record it as exports, but for India it is not imports as the goods are kept at a FTWZ, a foreign territory, as defined under the SEZ Act, 2005.
• Record maintenance - The mismatch in trade statistics also happens due to maintenance of records of export statistics and that of import statistics records.
• Inconsistent attribution of trade partners - A country may record statistics on goods destined to claimed territories as ‘others’ instead of reporting it as an exports to an actual country.
• National differences - There can be national differences on reporting of underlying records i.e. statistical norms and standards used to compile trade statistics.

References

1. The Hindu Businessline│ Knots in India-China trade data
2. The Economic Times│ India, China trade deficit climbs to $75 billion
3. The Hindu│ China’s total trade surplus with India surpasses $1 trillion