Last week saw the biggest India-China clash since 1962 in the icy reaches of Ladakh. In a pre-planned attack, the Chinese Army brutally assaulted Indian soldiers leading to 20 deaths, 76 injured and 10 captured. According to the Modi government, the attack unfolded as “the Chinese side sought to erect a structure in Galwan valley on our side of the LAC”.
As a response to this military aggression, many Indians, including members of the ruling Bharatiya Janata Party have called for a reprise of the tactics of Swadeshi against China, first used during the Indian freedom movement against the British Raj. “Boycott China isn’t just a slogan any more, it’s an emotion running across the length and breadth of India,” tweeted MP and vice president of the Bengal BJP, Arjun Singh with a video of him lighting a Swadeshi-movement style bonfire of foreign goods.
However, experts say that boycotting China is easier said than done given the sheer volume of Indo-China trade and the dependence of Indian industry and consumers on both Chinese goods and capital. This is exacerbated by the poor economic condition of India at present.
Hindi-Chini buy buy
For one, China is India’s largest source of imports by some distance. In 2018-’19, India imported goods worth $88 billion from China (including Hong Kong). This was more than 17% of India’s total imports. This figure is more than double what India imports from the United States, which is at the second place with goods worth US$ 36 billion.
India, on the other hand, only exports around $30 billion worth of goods to China (2018-’19).
What makes this balance of power worse is the nature of what India exports to China versus what it imports. “We export mostly raw material and low value items to China,” explained Rakesh Mohan Joshi, chairperson of the Indian Institute of Foreign Trade. “But we import value added items.”
This outsized Chinese export potential is felt hugely in industry. A report by American think tank Brookings estimates that three in four power plants in India use Chinese equipment.
However, where China’s heft is most visible to the average Indian is its success in consumer goods. China totally and completely dominates the Indian smartphone market, for example. Four out of five top smartphone sellers – Xiamoi, Oppo, Vivo and Realme – in India are Chinese. This means three out of every four phones sold in India in the first quarter of 2020 were Chinese, as per Counterpoint Research.
A similar situation exists in the Smart TV market, where Xiamo is the Indian market leader, with a massive 27% of market share.
This domination extends across industries. Along with tech, China dominates rural consumer purchases too. As much as 45% of diammonium phosphate fertiliser and 13% of urea is imported from China. Any effort to boycott China in this sphere will mean a substantial hike in prices for the Indian farmer.
This consumer interest in Chinese goods has remained divorced from Indo-China relations. Compared to the first quarter of 2018, when the Chinese Big 4 mobile phone manufacturers had 55% of the Indian market, a year later that had expanded to 73%. It seems incidents such as the 2017 Doklam stand-off or China’s opposition to the Modi government removing Article 370, had little impact on Indians when they were choosing mobile phones.
“This sort of rhetoric has little effect on the market which works on things like value for money,” explained Rakesh Mohan Joshi. “Chinese goods are value for money and cost competitive.”
To make matters more complex, while much of the political rhetoric has focussed on getting Indian consumers to boycott products made in China, the effect of global value chain means the influence of China goes far beyond that. “A ‘make in India’ label doesn’t mean that everything in it is made in India,” explained Rupa Chanda, Professor of Economics at IIM Bangalore. “In today’s world, global integration is so deep, that it’s difficult to track which parts were made where.”
A study by business research firm Crisil found that if trade with China were to be disrupted, supply chains for Indian manufacturing would be badly hit. As much as 67% of electronic components are imported from China. This means that even if one were to buy an Indian electronics item, a large amount of the item’s value would still find its way back to China.
In some cases, restricting imports from China would significantly impact the industry’s capacity to produce goods at all. On bulk drugs for example, Crisil classifies the sector as one with “high dependency on imports from China” with as much as 69% imported from the country. Of specific concern is antibiotics, where dependency is as high as 90%. “If China decides to pull the plug on supply [of antibiotic], it will lead to a huge public health crisis in India,” explained Sandeep Narula, Associate Professor & Assistant Dean, School of Pharmaceutical Management, IIHMR University, Jaipur
Chanda argues that given these constraints, a boycott is hardly an effective answer. “We need to be a bigger player in global supply chains. We are not. That is the problem.”
Growing money trail
To add a third layer, on top of made in China goods and value chains is the matter of Chinese investment. “Over the past few years, China is moving away from only trade and is investing across the world – as well as in India,” explained Rupa Chanda.
Brookings argues that this inflow of money has transformed the role of China in India: “The growth of Chinese investments into India since 2014 has changed the nature of what has been a largely transactional trade relationship.”
Brookings estimates that total and planned Chinese investment in India stands at $26 billion as of March 2020.
Much of this investment has been in the form of acquisitions. For example, Brookings explains that so deeply invested is Alibaba in India’s largest online wallet PayTM that “the Paytm app, from its design to its colours, is a mirror image of Alipay, Alibaba’s widely used payments app in China”.
Alibaba has a 40% stake in One97, PayTM’s parents company.
Compared to the West, China has little involvement in the media space in India. However, that is now changing as Chinese economic power surges. Chinese App TikTok, for example, was the most downloaded social media app during India’s Covid-19 lockdown, as per data from App Annie. In 2018, as many as 44 out of 100 of India’s top downloaded apps were Chinese.
This media interface would – along with the hard dollar values of imports and investments – also make it complicated to follow through on “boycott China” calls.
Eventually, experts argue that given the nature of the India-China relationship, any calls to break off economic ties will hurt India more than China – a point made even more tricky given India’s poor economic condition at the moment. “This will hurt out manufacturers by denying them materials and hurt out consumers by denying them cheap, quality products,” explained Chanda. “We could not change this dependence on China when our economy was relatively better. How will you do it now during Covid-19 when purchasing power has fallen rapidly?”
As per HSBC, the Indian economy is expected to contract by 7.2% in 2020-’21.
Past five years data shows that India’s share in global exports has actually contracted, with countries like Vietnam and Bangladesh managing to grow their share. How likely is it that India would be able to reverse this trend now given how badly it has been hit economically by the effect of Covid-19?
This political buzz around boycott China thus clashes directly with economic realities on the ground given India’s inability to build industrial capacity and the value proposition of Chinese goods and investments. This might go some way in explaining the paradox of how snap polls show that 93% Indians favour a boycott of China in response to the Ladakh aggression in theory but at the same time, Chinese smartphone manufacturer OnePlus also saw its latest model getting sold out in India within minutes during a sale on an online shopping portal.