Recently, India has been contemplating several economic strategies targeted at Chinese corporations due to ongoing border tensions between the two nations. In an effort to discourage China’s incursions along the Line of Actual Control (LAC), India has implemented a ban on 59 Chinese apps; additional measures may follow if tensions persist. The Indian government aims to communicate that normal trade and investment relations with China are conditional on the country’s agreement to reinstate the status quo present in April, prior to its LAC provocations.
The Scope of Proposed Economic Actions
The Indian government is presently considering implementing trade and procurement curbs specifically aimed at China. Additionally, scrutiny of Chinese investments in numerous sectors has increased, with a decision pending on whether to exclude Chinese companies, including those related to 5G trials. The Union Minister for Road Transport and Highways recently announced that Chinese companies will be barred from participating in road projects.
Potential Implications for India-China Trade
Economic relations between India and China are currently skewed in favor of the latter: while China’s exports to India constitute less than 3% of its total exports, India imports goods worth $65 billion from China, contributing significantly to the bilateral trade of $82 billion. If China decided to leverage this imbalance, it could inflict immediate economic pain on India.
India’s Dependence on Chinese Goods
India’s economy heavily relies on Chinese goods, whether directly imported from China or procured through other nations. Key industries, such as auto components and Active Pharmaceutical Ingredients (APIs), are particularly reliant on Chinese imports. China supplies between 70 to 90% of APIs required by India’s pharmaceutical industry.
Chinese Investments in India
In terms of investments, Chinese funding for Indian tech start-ups has exceeded $4 billion, with significant capital injections into companies such as Paytm, Swiggy, Ola, and Flipkart.
Possible Impact on Chinese Economy
The economic measures imposed by India could prove costly for Chinese companies, potentially resulting in billions of dollars lost in contracts and prospective earnings. For instance, TikTok, one of the 59 banned apps, is bracing itself for a loss exceeding $6 billion as India is its largest foreign market with over 100 million users.
China’s Stance on India’s Economic Measures
China has requested that India reassess the recent economic sanctions imposed against it. According to Chinese authorities, these measures specifically target certain Chinese apps, contradicting the spirit of international trade and e-commerce. China asserts that such actions are not in the best interest of consumers and market competition in India.
China’s History of Trade and Procurement Curbs
Chinese coercion often employs economic sanctions as a key tool. These can include trade restrictions, calls for boycotts, and tourism cut-offs. Countries that have territorial claims disputes with China are often subject to these punitive measures.
The Way Forward
While losing contracts to India could cause discomfort for some Chinese companies, it is unlikely to significantly impact their overall operations. Therefore, India needs to be strategic and selective in its approach. For example, India could restrict the involvement of Chinese firms in its telecom sector, particularly in 5G trials. However, since a large segment of the existing 4G network infrastructure is Chinese-built, India will continue to rely on China for its maintenance and servicing. Consequently, India may struggle to inflict substantial damage on China’s economy, despite potentially causing harm to individual companies.
