Economic Impact of the India-China Conflict

The Week

China and the U.S. are the two largest trading partners of India. For the period April 2019 to February 2020, China accounted for 11.8 per cent (USD70b) of India’s imports. India’s exports to China was a mere 3%. India’s trade deficit with China stood at USD3.3 billion in February. Overall trade deficit was close to USD10 billion (in China’s favour). Trade reduced significantly because of the pandemic and rising tensions.

India imports engineering goods, electronics, pharmaceuticals and automobile components. India’s exports to China include organic chemical, ores, slag and ash, mineral oils, mineral fuels and other industry products.

The total amount of current and planned investments by China into India has crossed USD26 billion (according to Brookings report). Alibaba has invested in Indian e-commerce company Snapdeal, digital wallet Paytm and food delivery platform Zomato. China’s Xiaomi leads India’s smartphone market with 30 per cent market share followed by Vivo, Samsung, Realme and Oppo. Sales by Chinese smartphone brands totalled more than USD16 billion in 2019. Xiaomi manufactures 95% of its phones it sells in India locally.

Although India will be impacted economically, China too will suffer with a boycott of its products. India will now cancel several pending public works contracts with Chinese groups. The state-owned telecoms company, BSNL, has been told to find non-Chinese alternatives for network upgrade. Many start-ups will be caught in the crossfire.

Regardless of who started this, China may have just delivered India to the U.S. A non-aligned country like India will find it hard not to seek partners to counter-balance Chinese military power.

China has trade or territorial issues with the U.S., Australia, U.K., Canada, Japan, Vietnam, Philippines, Indonesia, Malaysia and Brunei. Why? From a political standpoint this is a playbook from the past. When the CCP faces mounting discontent from the people, for example mishandling of the pandemic in this case, it turns the problem into an external issue. That appeals to nationalistic jingoism. It is the same with the U.S. in some ways. China-bashing was made popular by the extreme right (in the U.S.) and assiduously followed by Trump – forget his “love” for Xi.

Could China have acted differently?

There was empathy for the people of China with the “Wuhan” virus. It was an opportunity for the CCP to build stronger relationships on trade, medical supplies and research with neighbours. And this was especially so with the U.S. marching on a Trumpian tune of “Me” only. That has been lost with skirmishes and aggression in the Himalayas and the South China Sea.

The major casualty in all this is Trust. It will take a long-time for that to be restored. Meanwhile, we can pray for de-escalation of the India-China border situation. It is not in the interest of either nation to escalate present tensions and destroy each other for the vain glory of any leader.

Reference:

1. India rethinks strategic ties following border clashed with China, Financial Times, 18 June 2020, by various reporters (Amy Kazmin, Tom Mitchell and Katrina Manson)

2. Economic impact of India-China conflict: Why there won’t be just one loser, The Week, 18 June 2020, by Web Desk

3. India-China clash: An extraordinary escalation ‘with rocks and clubs’, BBC News, 16 June 2020, Soutik Biswas