Is it easy to stop the Red Dragon surge?

How does the existing India-China trade numbers look like?

China is the second largest economy in the world, at $14 trillion, and India is the fifth largest, at $3 trillion – run deep. Numbers depict that there is no second thought about absolute reliance of India on China.

In fiscal year 2019-20, Import from China accounted for 14% (Rs. 5,50,785 Crores) of India’s total imports. Whereas, export to china accounted for just 5% (Rs. 1,79,767 Crores) of India’s total exports – creating deep trade deficit, and this trade deficit is not something new, but something that has been clotting for decades now. Whereas, China’s export to India account for nearly 2-4% of its total exports which it can afford to export to other countries, substituting India, and that would not potentially hurt China’s economy.

What are the imports from China and how disposable are they?

Is it easy to Boycott China? 

It is easy to attack Modi government at a time like this, because it cannot be as bellicose with China as it can be with Pakistan. There is no doubt that our economy is more dependent on Chinese goods and capital than China is on exporting it to us.

After an overview of Chinese dominance in India’s goods/consumer-products, we cannot ignore the fact that our capital industry is dominated by China too.

We believe this is an underestimation since Chinese equity investments in Indian companies and investments routed through third countries are not included in these calculations.

Now, looking at the mobile phone industry in India – from just 2 units in 2014, India today has 268 units making mobile phones and accessories because China has invested heavily in setting up manufacturing units in India. Since 2015, global handset makers, including Foxconn, Wistron, Oppo, Vivo, Xiaomi and Samsung, have set up plants in India, investing Rs 10,000 crore and creating 7 lakh jobs. Foxconn is setting up a Rs 34,000 crore display fab manufacturing unit in Tamil Nadu.

Not just in established and capital-intensive industries, but over a period of five years ending March 2020, 18 of India’s 30 unicorns are now Chinese-funded. Indian companies like Big Basket, Byju’s, Flipkart, Hike (messaging platform), Ola, Oyo, Paytm, Policy Bazaar, Snapdeal, Swiggy, Zomato, Udaan etc are vested with Chinese interests in varying degrees.

Indian corporate giants too have ventured into China to sell their goods and services to India and the rest of the world. These include prominent pharma firms such as Dr. Reddy’s Laboratories, Aurobindo Pharma, and Matrix Pharma, and leading IT majors like NIIT, Infosys, TCS, APTECH, Wipro, and Mahindra Satyam. Given such a broad range of cross-border investment inflows, a delicate balance has to be maintained with China. If each country refuses to protect the other’s investments, it can lead to other problems. We cannot keep China out because of WTO and other global commitments. This is true for projects with global funding too, unless we declare China as a hostile nation – which is something we cannot even dream of dealing with right now with a pandemic happening, a fragile economy and degree of dependence on China at present.

So what do we do now?

The Confederation of All India Traders (CAIT)’s war cry to boycott Chinese goods runs the risk of traders scoring an own goal, as substituting many of those items with locally produced goods competitively might prove difficult, though not impossible, in an extremely value-conscious market in India. CAIT has embarked on a new campaign, ‘Indian Goods – Our Pride’. The idea is to escalate the boycott of Chinese products and make them in India. It finalised a list of 500 broad categories and 3,000 products (from toys to fabrics, kitchenware to cosmetics) that can easily be made in India by Indians. The aim: by December 2021, imports of Chinese products worth $13 billion are substituted by local ones. Just think about it – the CAIT’s ambitious desire covers less than a fifth of the imports from China by the end of next year.

Estimates indicate that a third of the Chinese imports constitute low-tech goods that were either made earlier by Indians, or are still being made but in smaller quantities. These can surely be discouraged, and re-replaced by local products and brands. In addition, such attempts will prove to be a benificial for the hundreds of small and medium firms, which have languished due to the lack of demand. If the MSME segment kicks off, the overall manufacturing sector will get a boost, which will benefit the ‘Make in India’ scheme.

China’s access to cheap labour, economy of scale, and its adhering nation to stringent communism makes China way too competent than any other country. Emotional war-cry of ‘Boycott China’ and planning to just eliminate China in one single stroke is nothing more than a fallacy. China sells crucial machinery that adds to domestic manufacturing and exports and these can only be replaced slowly in next 5-10 years.

Indian buyers can opt for Indian-made ovens, cookers, artificial jewelry, idols of Gods, and such small-scale industry goods even if they need to pay a bit more. A motivation drive, and policy measures to help the smaller Indian firms, will be the steps in the right direction. As local sales grow, Indians will become competitive. They can emerge as exporters of these products.

We all know how India crushed China in two-wheeler industry. How India first took over its own two-wheeler industry, then captured African market and in 2018, became world’s leading manufacturer of two-wheelers and rest is history. This not only crushed China’s two-wheeler manufacturing but also in its parts and gears used. Why was this not done in TVs, computers, mobile phones, pharmaceuticals and other industries? It’s the same country, same labour laws, same infrastructure, but not the same entrepreneurs. Indian businessmen are characterized by a myopic vision—it’s both, short-term outlook as well as geographically limited. Of course, the government also does not help. However, the government, people and corporate can come together and lay down plan to triumph in all other industries just like it did in its two-wheeler industry.

As far as capital market is concerned, India must use it wisely. Instead of an outright ban, it must smartly attract Chinese investments but on its own terms. Remember, the more Chinese businesses invest in India, the greater the leverage. Revenge is a dish best served cold.