What started as a skirmish over violation of ‘undefined’ portions of the line of control (LAC) between India and China in Ladakh’s Galwan Valley, has degenerated into a full scale political crisis. Deaths of brave soldiers are difficult to stomach, and in a wave of nationalistic hurt, economic retaliation is the call. As this column is being written, the Dedicated Freight Corridor Corporation of India (DFCCIL), a Ministry of Railways PSU, has terminated a contract for signaling and telecom equipment awarded to Beijing National Railway and Research Group.
The gear for use in the Kanpur region of the railway system had a contracted cost of Rs 471 crore. Chinese companies, Huawei and ZTE, both under a cloud for their alleged ‘snooping’ links with the Chinese government, will now be barred from providing any telecom equipment to state-run phone companies. The ban may also be extended to private mobile phone firms.
Chinese participation in 5G tenders in India have been in doubt for a while; but now the Centre is also considering scrapping 4G telecom tenders for Bharat Sanchar Nigam Ltd (BSNL) to keep the Chinese companies out. On the import front, the government has indicated it is reviewing a list of 371 products that will face import restrictions here on.
Can we do without them?
The sentiment of ‘Boycott-Chinese- goods’ is running high, but the irony is the WhatsApp campaigns are being run on cell phones made in China. It is okay as an expression of anger to break Chinese made television sets. But in the long run, these campaigns have little effect as US car makers have learnt to their dismay. Some of us will remember funny images of Ford and Chrysler sponsored events in Detroit, where members of the public were invited to bash a ‘Toyota Corona’ and some Korean models with sledge hammers. American nationalist sentiment poured out as sweaty, suit-clad executives smashed Japanese cars. But this did not translate into sales of US-made cars. American families continued to buy cheaper and more fuel efficient Japanese cars.
The marketplace is emotion neutral. It has no place for nationalism; calculations are based on what is cheaper and better. So it is with China. It will be difficult to replace them unless we are ready to bear the economic cost. It is not without reason that China’s imports and exports grew from $280.9 billion or three per cent of global trade in 1995 to $4.6 trillion or 12.4 per cent in 2018, ahead of the US at 11.5 per cent and Germany at 7.7 per cent.
In respect to India, China is our second largest trading partner after the US, with bilateral trade between April and December 2019 amounting to a humungous $64.96 billion. While exports are just three per cent, imports from China have continued to rise from 13.7 per cent in 2018- 19 to 14.1 percent in 2019-20. The range includes everything from toys to engineering goods, electronics, pharmaceuticals and auto components.
Supply chain domination
China, in the global supply chain, has become an exporter of intermediate products that are crucial to the manufacture of scores of finished goods in the electronic, auto, pharmaceutical and power generation industries. This cannot be wished away. For instance , Bloomberg Research has shown that 70 per cent of India’s imports of active pharmaceutical ingredients (APIs) – the base drugs from which various formulations are made – come from China. This totals $2.4 billion of India’s $3.56 billion annual import spends. Almost all our Vitamin B12 supply and the important antibiotic Tetracycline are imported from China.
Chinese firms share of the Indian solar power generation market is about 78 per cent. Even in thermal, coal based power generation, Chinese equipment has dominated the private power plants. About 40,000 MW of thermal power units covering Essar Power, Adani Power, Reliance and GMR Energy, have used Chinese equipment, Central Electricity Authority data shows. In consumer goods, China remains the world’s largest manufacturer of mobile phones, computers and television sets, producing over 90 per cent of cell phones (1.8 billion units), 90 percent of computers (300 million units) and 70 per cent or 200 million television devices in 2018. India’s purchase of these goods is close to the international ratio.
As we said earlier, the marketplace is ultimately a function of price combined with quality. It’s not love of the Chinese that we buy from them. The day local producers can supply better power plants, and cheaper cell phones, consumers will shift in a jiffy. The larger lessen is that war and diplomatic face-offs between nations undermine economic growth in the long run.
What will happens to hundreds of Indian start-ups like PayTM, Big Basket and Byju’s who are funded by Chinese investors like the Alibaba Group and Tencent Holdings? Trade and investment have their own rules which don’t follow national boundaries. One therefore hopes the face-off with China will be seen as a skirmish it is, and business as usual is restored.