Lockdown, steel output curbs hit exports to China

Though robust external demand resulted in a 45 per cent jump in India’s goods exports in financial year 2021-22 (FY22), imports by China were nearly flat for a host of reasons, including the lockdowns imposed in the neighbouring country to check the spread of the Omicron variant.

In FY22, India exported goods worth $21.25 billion to China, up 0.31 per cent year-on-year (YOY), but China’s share in Indian exports declined to five per cent in FY22, a reversal of the recent trend of steady rise since FY17, and much lower than the 7.3 per cent share in FY21, according to commerce and industry ministry data.

According to the ministry, the US replaced China as India’s biggest trading partner in FY22. This despite imports from China seeing the sharpest rise in at least a decade, as inbound shipments from the neighbouring country grew 44.4 per cent YOY to $94 billion in FY22. As a result, the trade gap was heavily skewed in favour of China, at $72.91 billion, as against $42.11 billion a year ago.

The tepid growth in exports to China was triggered by factors such as lockdowns in the neighbouring country to check the spread of the Omicron variant of Covid-19 in the last four months of FY22, Chinese restrictions on steel manufacturing, and a slump in the country’s real estate sector.

Iron and steel products are some of the key items exported to the neighbouring country. Similarly, export of plastics to Beijing declined as domestic demand for the product grew sharply.

According to Ajay Sahai, directorgeneral (DG) and chief executive officer (CEO), Federation of Indian Export Organisations (FIEO), a higher base was also a factor. “When overall exports declined by 8 per cent (in last year), our exports to China grew by 7 per cent in FY21. In FY22, we were on a higher base,” Sahai said.

“Demand for iron ore fell by 42 per cent [because of] restrictions on steel manufacturing. Similarly, steel exports dipped from $2.5 billion to $1.4 billion, because China was regulating the overheated real estate sector, and most of the steel products are used in construction. These two items have resulted in a decline of $3 billion in our exports,” he said.

The exports basket is largely dominated by steel, iron ore, copper, paper products, plastics, organic chemicals, among others.

Exports to China have been on a downward trend since December. In March, it fell 45 per cent, 17.9 per cent in February, 18.3 per cent in January, and 6.7 in December.

“The lockdowns in China are expected to hit consumption more than production. Lower domestic demand due to restrictions on mobility possibly contributed to decline in India’s merchandise exports to China in January-march 2022 by 30.3 per cent on-year. However, India’s overall export rose 23.8 per cent on-year in the same period,” a CRISIL report said.