The China paradox: Virulent vibes, terrific trade

There is a deep-rooted feeling among the policy makers and businesspersons that China offers the lowest prices for goods in segments such as electronics, pharmaceuticals, and machinery.

Since 2017, after the Doklam standoff between the Indian and Chinese armed forces at the India-China-Bhutan border, anti-China emotions have swept across the country. The feelings surged in the recent post-Covid period when India focused on Atmanirbhar Bharat and economic self-reliance. The government took initiatives to ban dozens of Chinese apps. It stated that foreign investment from nations with whom India shares land borders required specific clearances, and restricted Chinese bidders from taking part in government projects.

Yet, shockingly, imports from the Red Dragon nation surged over the past two years. Official figures show that Chinese imports zoomed by more than 45% in 2021–22, compared to the previous year, and went up further by more than 4% in 2022–23. In comparison, Indian exports to China dipped by 28% during the same period. The post-Covid global economic revival can partly account for these trade trends. But experts contend that policy loopholes and a lackadaisical attitude of the Centre and business community are equally responsible for them.

For example, there is a deep-rooted feeling among policymakers and businesspersons that China offers the lowest prices for goods in segments such as electronics, pharmaceuticals, and machinery. But a few think tanks have concluded that this is untrue. Competitors can offer lower prices. According to a study, 15–20% of the critical items, which comprise 8% in terms of the number of imported products, but three-fourths of the India-China import bill, can be “alternately sourced” immediately.

Assocham, an Indian industry association, concluded that with a focus on 15 imported goods, India could “achieve import substitution and become self-reliant in the next two-three years.” In 2020, when its study was completed, these included electronics, with a monthly import bill of $2.8 billion, metal pack (iron and steel) with monthly imports of $3 billion, and chemicals and plastics ($3.5 billion a month).

However, Indian policymakers pursued a contradictory strategy. They intensified the ‘Make in India’ policy to woo foreign investments so that the country could emerge as a global manufacturing hub and thus enable western buyers to pursue a China+1 ‘decoupling’ strategy in the post-pandemic era. But they failed to delink India from Chinese imports. India did not look at the larger picture—or have an encompassing vision—to reduce imports from China.

Indian businesspersons continued their dependence on Chinese products due to the pricing and logistics factors. They were worried about profitability and decided not to mess with the old China-based supply chains, which were reactivated and re-energised in the post-Covid period. No wonder Chinese imports have swelled since 2021. While expounding Atmanirbhar Bharat’s benefits in public, the business community paid lip service to it in operational terms.

Products from China were also cheaper due to dumping, or predatory practices. Import prices were lower than the prevailing rates in the Chinese markets. India resorted to anti-dumping duties to combat them. But a study by the Centre for Digital Economy Policy Research (C-DEP) concluded India’s recent initiatives worked in favour of Chinese imports. Between September 2020 and October 2022, the finance ministry rejected 70 out of 120 anti-dumping recommendations, or over 58%, made by the commerce ministry. In stark contrast, the rejection rate was a mere 0.67% (7 out of 1,052 recommendations) between 1991 and 2020.

The C-DEP analysis concluded, “The continuing dumping of products by foreign companies (due to the rejections) … is causing substantial ‘injury’ to the Indian industry. The absence of a level-playing field has forced many Indian companies to shut down. Many others are struggling to survive in the face of the onslaught of imported foreign products.” Contrary to the finance ministry’s stance, stated the C-DEP study, anti-dumping duties helped both the larger and smaller MSME players in the country.

There is another concern vis-à-vis China. The Trade Promotion Council of India (TPCI) alleged that China misuses the bilateral, preferential free-trade agreements (FTAs) signed between India and other countries or regional blocks. The FTAs ensure lower or nil customs duties on imports from the signatory nations. An article on the TPCI website claimed that the FTA between India and the 10-member ASEAN nations was being manipulated by China. It added that China is benefitting “from tariff relaxations via a third country that is part of FTA while India is deprived of reciprocal market access (to China).” Chinese products are shipped through FTA nations to benefit from the lower customs duties.

Experts believe that given such trade practices, Chinese imports to India may be substantially higher than official figures. Since 2020, India introduced new country-of-origin rules and changed clauses in existing acts, forcing e-retailers, and sellers registered on the Government e-Marketplace, to display country-of-origin tags with imported items. Praveen Khandelwal, Secretary General, Confederation of All-India Traders (CAIT), hailed them as “bold” moves. CAIT launched a nationwide campaign to boycott Chinese goods, and listed 3,000 items which could be replaced by Indian products.

Several consumer surveys found that 40% of the buyers are interested in country-of-origin labels, and the majority are swayed by quality concerns and lower prices. FTA nations such as Indonesia, Japan and South Korea opposed the origin rules at the WTO. South Korea maintained that they increased costs for their exporters, and “act as obstacles” against the letter and spirit of the FTAs. Indonesia stated that the origin rules lead to delays and information leakages to unauthorised parties.

If domestic consumers and foreign sellers are not convinced, these rules can hurt both. The end result: an economic stalemate in the ongoing chess game between the Indian government and Chinese exporters, at the expense of the former’s stated objectives.

Alam Srinivas

Independent journalist and author

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