Exchange Rate Impact on Bilateral Trade between India and China

China and India had similar development strategies prior to their breaking out of their deliberate insulation from the world economy and the ushering in of market-oriented economic reforms and liberalization. China began reforming its closed, centrally planned, non-market economy in 1978. India always had a large private sector and functioning markets, which were subject to rigid state controls until the hesitant and piecemeal reforms of the 1980s. These became systemic and far broader after India experienced a severe macroeconomic crisis in 1991. The political environments under which reforms initiated and implemented in the two countries and their consequences were very different. India continues to be an open, participatory, multiparty democracy, while China has an authoritarian, one party regime, however, it is liberalizing. In the Indian context, the analysis of macroeconomic data brought forth the fact that in the last decade and more so, in the last few years, China has become a major trading partner in trade activities of India. The main objective of the study is to find the impact of valuation i.e., appreciation of Chinese Renminbi (RMB) on India‘s trade with China. The findings of the paper hold that appreciation in RMB will affect the bilateral trade between India and China.