June 2020 witnessed the biggest India-China clash since 1962 at the eastern border of Ladakh that separates the two Asian giants. As a part of a pre-planned attack, the Chinese army brutally assaulted Indian soldiers leading to 20 deaths, 76 seriously injured and 10 captured. It’s unclear if there is any casualty at the Chinese side, but one thing is clear; a few inches or feet of Indian land China may capture in each such incident will not be worth the place it will be deprived of in the larger Sino-India relationship. According to the Indian government, the attack occurred as “the Chinese soldiers sought to build a structure in Galwan valley on the Indian side of the Line of Actual Control (LAC)”.
As a response to this military aggression, many Indians, including a few members of the ruling party, have triggered the tactics of Swadeshi against China, as they did during the Indian freedom movement against the British Rule (Raj). However, “Boycott China is no longer just a slogan, jump through the hoardings, it has become an emotion running across the country, following the death of 20 India soldiers.”
With the escalating border tensions between two nuclear-armed countries, India and China, the concern of economic fallout of the embittering relationship between the two Asian giants. The concern is growing because the economic interdependence & trading of the two neighboring countries is too deep & vast to be overlooked.
China and US are two major trading partners of India for years. While India exports more to the US than the imports from the country, the same doesn’t fit when it comes to China’s trading relations. And hence, it seems that becoming friends-turned-antagonist with India would have business reverberation and economic slowdown in China too.
However, market analysts say that boycotting China is easier said than done actually given the precipitous volume of India-China trade and the dependence of Indian markets and consumers on both Chinese goods as well as capital. This is aggravated by the poor economic conditions of India at the present, with the bonus of nationwide lockdown due to the coronavirus outbreak. Here’s how the “Boycott China Movement” following the India-China conflict will impact the trading relations between both countries.
India’s Biggest Importing Partners
China is by far, India’s biggest source of imports. For the period between April 2019 to February 2020, China accounted for nearly 11.9% of India’s total imports. However, the country’s total export to China was a mere 4 percent. India’s exports to China rose from 5.1 percent in 2018-19 to 5.3 percent in 2019-20 (until February). The figures are clearly showing that India buys more than selling to China. This trade deficiency with China, also determines India’s overall trade deficiency, is perhaps one of the biggest trade inadequacy between two leading consumer markets in the world.
In 2018-19, India’s import from China accounted for $88 billion (including Hong Kong), which was more than 18% of India’s total imports from various countries in the world. This figure is exactly double to what India imports from the US, which is the second biggest importer of India with goods worth US$ 36 billion.
Here are the 5 major sources of imports for India;
So, the figures are clearly highlighting that China is the biggest source of imports for India. While the US stands second on the list. The India-US relations are improving and the supportive gesture of the USA towards India in this hard time has made its way for further trading. It is anticipated that the United State could surpass what China has accounted for importing to India. As the US is constantly supporting India during the Indo-China face-off and recently deployed its army to Asia from Europe. However, importing goods could make more sense if the figure for exporting goods could stand around India’s figure for imports from China. It only exports nearly $30 billion worth of goods to China between 2019-19.
What exacerbates this balance of power is the nature of what India exports to China versus what it imports. “We export mainly raw materials and low-value items to China,” said Rakesh Mohan Joshi, head of the Indian Institute of Foreign Trade. “But import high-value items.” Organic chemicals, ores, slag and ash, mineral oils, mineral fuels, and other industrial products comprise India’s exports to the country.
India imports high-value goods from China;
However, India mainly exports raw material and other low-value goods to China.
The oversized Chinese export is growing hugely in the market. According to a report by American Think Tank Brookings, Nearly three in four power plants in India are harnessing Chinese equipment.
However, where China meets the Indian consumers and builds its base is its success in consumer goods, price-sensitive consumer goods where it takes place in India. The report suggests the total amount of current and pre-planned Chinese investment in India is nearly US$ 26 billion (approx Rs 1,98,000 Crore.) as China-based companies are investing in India companies, including startups and leading brands like Paytm – the Chinese e-commerce giant Alibaba Group owns nearly 40% shares in the company.
The figures are clearly indicating that India heavily relies on Chinese imports and any interruption of trade relations between China and India will substantially impact Indian businesses.
This is not a top-secret that there is no bigger market than India for Chinese goods outside their country. According to a report of CNN, Chinese investors have poured nearly $4 billion into Indian tech startups since 2016.
Take an example of Alibaba, which has invested in Indian e-commerce companies like Snapdeal, digital wallet Paytm, and online food delivery platform Zomato. Tencent, meanwhile, has rolled back from instant messaging company Hike and online cab provider Ola. Gateway’s research has found that more than 50% of India’s 30 unicorns – private firms with value more than $1 billion – have Chinese investors.
However, India changed its FDI policy in April and made it mandatory to get Central’s approval to invest in Indian firms. China retailed saying India’s new FDI policy violated the World Trade Organization’s principles and absolutely against the general trend of free trade.
Huawei is continuing to build 5G networks in India to serve India’s rapidly growing internet community, despite a US-led campaign against the Chinese company. However, the Indian government has already banned 59 Chinese apps, including Tik Tok that was drawing $6 million annually.
Some large companies like Xiaomi, followed by Samsung, Vivo, Oppo, and Realme are heavily invested in India’s fastest-growing consumer market where a rapidly growing middle-class consumer base will uplift the companies such as Xiaomi Corp, BBK Electronics that owns Oppo & Vivo. India nurtures the biggest base for Chinese smartphone brands, as they are price-sensitive and suit the budget of India’s young consumer base. India’s sales of Chinese smartphones were nearly $16 billion in 2019, according to International Data Corporation.
However, Chinese smartphone companies have started building factories in India and creating jobs in India. Followed by Indian Prime Minister Narendra Modi’s “Make in India” program, these companies have started moving from China.
The white is widely spread that India will be most impacted economically in case of a trade war with China. However, China too, will lose an essential and perhaps, one of the easily accessible, second-largest consumer markets in the world. Hence, the conflict will impact China in the same way.
