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Implications of India-China tensions for international trade and commerce

Implications of India-China tensions for international trade and commerce

Implications of India-China tensions for international trade and commerce
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By CNBCTV18.com Contributor Jul 17, 2020 4:59:18 PM IST (Updated)

The question of whether India can sustain and withstand retaliatory measures from China is one that requires much thought and deliberation from the government.

Written by: Vasanth Rajasekaran and Reshma Ravipati

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In response to the border clashes between Indian and Chinese troops, the government has launched a series of measures aimed at curtailing the reach of Chinese goods and businesses within the country. The intention is to try and reduce India's dependence on Chinese imports and cause a pinch in the Chinese economy. Although at first glance, this may seem like a noble way to strike back at China, moving too far along this road could cause more harm than good to the Indian economy.
Dependence on the Chinese market
India has banned over fifty Chinese mobile applications including TikTok, CamScanner, WeChat and Shein. The notification for this ban came in the wake of a nationwide wave of anger which resulted in people campaigning against the purchase of Chinese goods and destroying such Chinese goods and shops that sold them, in plain and public view. The Indian government is now gearing towards adopting more drastic measures to cut back Chinese presence in the Indian market. The Department of Telecommunication has instructed state-run BSNL and MTNL to exclude Chinese vendors from participating in their tenders.
While such drastic measures run the risk of getting flagged as trade barriers and drawing the attention of the World Trade Organisation, the tone of the international community towards China seems rather sour at this juncture. India might have struck at the right time to pull off an unprecedented move like this. Economic implications aside, the international community might back India in its endeavors, and even follow suit to retaliate against the Chinese ban on popular foreign applications and sites such as Facebook, Whatsapp, Twitter etc.
Having said that, the fact that the Indian telecommunications and electronics market today is dominated by Chinese brands such as Realme, Oppo, Vivo, OnePlus, Huawei, ZTE, Haier, Xiaomi etc. cannot be overlooked. Chinese products being cheaper by a margin, as compared to their Indian counterparts, have made a wide range of electronic goods more accessible to the common man.
India's dependence on cheap Chinese electronics is too extensive to wash out overnight. India is also dependent on China for active pharmaceutical ingredients, and imports nearly ninety percent of active pharmaceutical ingredients used by Indian generic drug manufacturers to make antibiotics from China. The Indian government will have to identify and support local manufacturers to ameliorate their capabilities and offer competitively priced indigenous alternatives or build ties with other countries with low-cost manufacturing facilities for these items.
The road to shutting China out
India fears that China is violating rules of origin norms and pumping goods into India through their common trading partners in Asia, by abusing the loopholes in existing trade agreements. The Ministry of Commerce and Industry in India has called into scrutiny various free trade and bilateral agreements that India is roped into, with countries that have similar agreements with China.
India has already refused to sign the Regional Comprehensive Economic Partnership (RCEP), fearing that it could pave the way to Chinese goods flooding the Indian market and overthrowing domestic manufacturers. However, if we are looking at backing out of other such regional and bilateral agreements as well, India has much more to lose than China does in the long run.
More concerning is the possibility that China may decide to strike back by throwing Indian companies out of China. We are already seeing reports of customs authorities in Hong Kong and China, holding back some consignments of Indian exports after Indian ports started inspecting Chinese imports. This is only going to get worse if India implements a blanket ban on Chinese imports, against all odds.
If India really seeks to check the unregulated flow of Chinese imports in India and create a dent in the Chinese economy, India would have to do a lot more than just cut down imports that are coming in directly from China. We would also have to narrow down all consumer products that are manufactured or processed, even in part, in China before finally being assembled and exported to India from another country. The obvious knee-jerk reaction of shutting down these big brands would only have a minuscule impact, if at all, on the Chinese economy. On the other hand, the question of whether India can sustain and withstand retaliatory measures from China is one that requires much thought and deliberation from the Indian government.
—Vasanth Rajasekaran is Partner, and Reshma Ravipati is an Associate at Phoenix Legal. The views expressed are personal
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