India-China Trade: Dynamics of boycotting

By: Shubham Joshi and Lovesh Gupta

China’s expansionary policy relies on two major pillars- Military/ Political pressure and Economic imperialism. The military/political pressure can be seen in the South China Sea dispute, Hong Kong dispute etc. while its Economic imperialism policy or debt diplomacy, is visible through the OBOR initiative.

Even the current dispute with India is a part of its military pressure tactic, which our troops are handling with sheer diligence and determination. But this standoff has again given rise to anti-China sentiment on our social media platforms where a complete boycott of Chinese goods and services is being demanded. In this post, we would like to explore the intricacies of trade between both the nations so as to know all the aspects of it.

Let us first have a macro-level overview of the immersion of Chinese firms in Indian markets:

To understand the things in the micro aspect, we can divide the Chinese involvement in Indian markets in 3 major ways:

i) Chinese investments in Indian companies:
China has invested in most of our successful start-ups. Boycotting these companies may harm us more than China as it has taken them years to make the current ecosystem. The reason why Indian start-ups and companies look for foreign fundings is that Indian banks, which are major credit provider in our country, are actually very small in size when we compare them with Chinese banks. And since rising NPAs has always been tension for Indian banks, it stops them in betting money on start-ups as they have to burn excess cash initially to penetrate into the markets. The suggestions of merging top tier banks have also been proposed by committees like Narsimhan Committee to boost the credit availability and hence the economic growth of India.
Here are a few major companies where China holds its stakes:

Image source: News18

ii) Companies taking Chinese raw materials:
The success story of the Indian pharma sector is not hidden from anyone. India is currently the largest provider of generic drugs globally. Indian pharmaceutical sector industry supplies over 50 per cent of global demand for various vaccines, 40 per cent of generic demand in the US and 25 per cent of all medicine in UK. But only a few know that Indian drug makers import around 70 per cent of their total bulk drugs from China.
More than 60% of Chinese exports to India comprise of electrical machinery and equipment and organic chemicals, with an additional 7% in the form of plastic articles and fertilizers. The automobile market, especially 2-wheelers company like Bajaj and TVS, which exports to more than 70 and 60 countries respectively will also face a backlash if they are forced to stop their Chinese imports as purchasing locally might increase their costs and make their products loose their competitive advantage. Even our evolving agrochemicals market, which exports more than 50% of its production will get hurt, as it imports its raw materials from China.

Source: LiveMint

iii) Chinese owned companies:
The Chinese companies operating in India not only provide employment to Indian people but are also providing products at 10-15% cheaper price. And this saving has helped businesses like restaurants, movie halls, parks etc to thrive. If people are forced to increase their spendings on certain sectors, then they will reduce their consumption from these other sectors because income is constant in both cases.
We all know how skewed is the trade between China and the US. But as per Oxford, the cheap Chinese imports have enabled an American household to save on an average $850, which comes out to be close to 100 billion USD in total. Taking into consideration the money multiplier effect of USA (which is 3.01), it comes out to be 300 billion USD. In the case of India, the money multiplier effect is close to 6, so a saving of 1 rupee helps the Indian economy by 6 rupees.

Below are a few Chinese firms (Xiaomi, Realme, Oppo and Vivo) that are dominating the Indian smartphone market:

Source: Candytech

Here are a few crucial bottlenecks where we are lagging behind China (compiled from world bank database):

These issues need proper centre and state coordination in policy making. Apart from bureaucratic and administrative reforms, a structural roadmap is required. For example-
i) For starters, we can ask all our domestic units to limit their dependency on China for sub-assemblies and inputs to not more than one-third of final product value. The rest can be sourced from other countries initially and later government should help these input industries to develop in India through various schemes and subsidies.
ii) For Chinese firms producing in India, duty-free import should only be provided upto the same limit (one-third), and beyond that duties should increase gradually.
iii) Using non tariff barriers to promote the domestic industries and let them develop an ecosystem.
iv) Reinventing our SEZs with resolving the structural challenges like better infrastructure and lesser bureaucracy. Better logistic infrastructure with new initiatives like e-way bill is required.
v) Working on developing a cluster-based nexus to develop certain industries in areas where they can gain competitive advantage through easier access to factors of production as well as better connectivity to markets.
We should look at the bigger picture, instead of being hostile, would it not be better if, at this time when other countries are also against china, India should take advantage and negotiate with china on better terms of trade and focus on sectors in which India have or can have a competitive advantage and strategically reduce the trade deficit. Since both India and China account for 30% population and 20% GDP of the world. So maybe a symbiotic association could be a better alternative.

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