China ahead of India in South Asian trade and investment

The Island / ANN

China has made inroads into South Asia by bolstering trade and investment with Nepal, Afghanistan, the Maldives, and Sri Lanka, and this mainly reflects the region’s strategic importance for China’s Belt and Road Initiative (BRI), particularly the smaller South Asian countries, says a new study.

The study, by Brookings India, released on Tuesday, noted that South Asia remains one of the least economically integrated regions in the world. Intra-regional trade remains well below its potential, at only 5% of the region’s global trade, because of "protectionist policies, high logistics cost, lack of political will, and a broader trust deficit".

In the case of Sri Lanka, there was heavy reliance, on imports from India, till 2013, owing to the Indo-Sri Lanka Free Trade Agreement. However, post-2013, both India and China export at par to Sri Lanka.

"In the last two decades, China has established itself as a major trade partner of South Asia. Beyond Pakistan, China has made inroads into South Asia by becoming Bangladesh’s top trading partner, in 2015, and bolstering trade and investment with Nepal, Afghanistan, the Maldives, and Sri Lanka. This mainly reflects the region’s strategic importance for China’s Belt and Road Initiative (BRI), particularly the smaller South Asian countries," the study said.

India’s trade with countries in South Asia has remained less than 4% of its global trade, since the late 1980s, while China has increased its exports to the region by 546%, from $8 billion, in 2005, to $52 billion, in 2018, according to the study.

India’s largest export market, in the region, is Bangladesh, followed by Sri Lanka and Nepal, whereas the largest imports, by value, come from Myanmar, Sri Lanka and Bangladesh.

All countries, in the neighbourhood, have a trade deficit with India, the highest, in 2018, being Bangladesh ($7.6 billion), followed by Nepal ($6.8 billion).

The study says that despite the growing trade volume, India’s trade with its neighbourhood has remained, roughly between 1.7% and 3.8% of its global trade.

This has happened despite trade agreements such as the SAARC Preferential Trading Arrangement (SAPTA), followed by the South Asian Free Trade Area (SAFTA) agreement, as well as the Indo-Myanmar Border Trade Agreement, the ASEAN–India Trade in Goods Agreement and the Indo-Sri Lanka Free Trade Agreement.

In contrast, China has consistently increased its trade with South Asia, barring a slight dip after the global financial crisis of 2008. In 2014, China’s trade reached a high of $60.41 billion, whereas India traded approximately one-third that amount at $24.70 billion, the study says.