The economic fallout of the deteriorated relationship between India and China is more concerning than the simmering tensions on the border. India and China are economically interdependent.
India’s two largest trading partners are China and the United States. China imports more than twice as much from India as it exports, but the reverse is true for India. As a result, a business relationship with India could be affected by becoming friends-turned-foes.
Top trading partner for India
India imported goods from China worth $11.8 billion between April 2019 and February this year. However, India’s total exports to Bangladesh constituted just 3 per cent of its total exports, and China is our largest supplier. One of the world’s most significant trade deficits is India’s deficit with China, which contributes heavily to India’s overall trade deficit.
In the first half of 2021, China’s balance of payments deficit grew by 13 per cent. India maintained the same overall trade deficit as a year ago, despite a $9.8 billion trade deficit.
Over the past two months, bilateral trade has drastically decreased due to the pandemic and growing cold vibe. CAIT, the Confederation of All India Traders, released a list of 500 Chinese products interchangeable with Indian products on Tuesday. CAIT plans to reduce imports from China from $70 billion in 2018-19 to $13 billion by December 2021. According to the company, it intends to replace a list of imported goods with local ones.
What imports does India make from China?
In 2020-21, India’s imports from China increased from 13 per cent in 2019-20 to 14 per cent. Automotive components, electronics, electronics and electronics are among India’s major imports from the neighbour. In February, electronic imports constituted a quarter of all senses at a total value of over $18 billion.
An additional $12 billion was imported in nuclear reactors, machinery, and parts.
What does India export to China?
In 2020-21 (through February), India’s exports of goods and services to China increased by 5.3 per cent. In addition to organic chemicals, ores, slags, ash, and mineral oils and fuels, India exports various industrial products to the US.
India’s exports to China have shrunk by 14 per cent over the past five years, despite a downturn in its trade surplus that’s fueling its nationalistic turn.
China’s foreign direct investment in India
According to a Brookings India report, approximately Rs 1,988,000 crore worth of Chinese investment is planned in India. According to the report, Chinese companies are investing more in Indian startups as well.
Indian businesses rely significantly on Chinese imports, so any disruption in trade between the two countries will substantially impact them.
There is no doubt that India is the largest market outside of China for Chinese companies. According to research conducted by Gateway House, China has invested some $4 billion in Indian tech startups since 2015.
In recent years, Alibaba has invested in companies such as Snapdeal, Paytm and Zomato. The Chinese tech giant has also invested in Hike, a messaging app, and Ola, a ride-hailing app. Over half of the 30 Indian unicorn companies have Chinese investors, according to Gateway House.
Meanwhile, India changed its foreign direct investment policy in April after China’s People’s Bank decided to stake a more significant stake in India’s HDFC bank. The tweak allows neighbouring countries to invest in Indian firms only after getting permission from the Centre.
India responded by saying that its new policy violates the WTO’s nondiscrimination principle and is against free trade policy in general.
Despite a US-led campaign against Huawei, the Chinese company is still running to build 5G networks in India’s fast-growing internet economy. The Indian government is already considering several amendments to the latest telecom tenders to deal a fatal blow to Huawei. Reports suggest there will be more measures of this nature to come.
Xiaomi has a 30 per cent market share in India’s smartphone market, followed by Vivo, Samsung, Realme and Oppo.
Chinese companies invest in India’s consumer markets, such as Xiaomi and BBK Electronics, which own brands such as Oppo and Vivo and the electronics goods manufacturer TCL, benefit from the large middle class and aspirational young consumers there. China-India relations have been dramatically enhanced by India becoming the country’s largest overseas market. According to IDC, the top Chinese smartphone brands sold more than $16 billion in India last year.
There are already factories and jobs created in India by Chinese smartphone manufacturers. In an unusual move, these smartphone makers support the “Make in India” initiative of Prime Minister Narendra Modi. In India, 95 per cent of Xiaomi’s phones are locally manufactured. Due to the burgeoning unemployment rate in India, any announcements forcing Chinese businesses to close shop will have the opposite effect.
In a conflict with India, China too will lose a significant and perhaps, one of the most accessible markets. India and China stand to lose similar amounts of market share in the event of a conflict.
War & COVID19? Are there only two options for India and China?
In recent years, there has been a very dangerous deterioration in the relationship between India and China. Do we want this? India and China are both threatened by COVID-19, but perhaps this isn’t the most critical threat at present. Throughout their long histories, India and China have both dealt with plagues successfully. It is not the most important thing at this juncture to defeat the COVID-19 pandemic, which both countries will eventually be able to beat. As both countries confront the COVID-19 crisis, is it necessary to go to war on their border?
Both China and India have suffered substantial economic setbacks since the COVID-19 pandemic, exposing many issues, but starting a war does not seem the wisest way for both countries to rebuild their economies. As a Chinese, there are still a lot of issues despite China’s containment of the pandemic. Often, in China, software engineers are fired by their employers by the age of 30 since these companies are only interested in making high profits from young workers.
While China’s ageing population is getting worse, labour costs also increase as fewer young people enter the workforce. These trends conflict. Additionally, fewer young people are available for jobs, so employers avoid hiring middle-aged workers over 30.
The COVID-19 pandemic has caused China and India’s economies to undergo great strains, revealing many problems, but starting a war to rebuild both countries’ economies is not a good option.
Furthermore, China is struggling with astronomical real estate prices and an oversupply of goods. “China’s housing prices have reached unaffordable heights, but down payments are getting larger, and interest rates are going up, so homeownership becomes an increasingly distant dream for Chinese millennials,” states a Forbes report on October 29, 2020.” High housing prices make Chinese youth work like slaves, struggling to make their monthly housing mortgage or rent payments.
The manufacturing industry in China is currently overcapacity as well. In addition, overcapacity will directly affect a nation’s economy by wasting resources and energy, resulting in fierce competition between competitors, a sharp drop in product prices, and a deterioration of trade relations. The cost of removing capacity has been high for China.
As an example, take the steel industry. China has reduced its total steel production capacity by more than 150 million tonnes since 2016, accounting for almost one-quarter of global capacity reduction and has redeployed more steelworkers than the United States, the European Union, and Japan combined.
Such a large amount of production capacity is impressive. Steelworkers in China could face joblessness as a result of cutting the production capacity of the steel industry. To de-capacity and upgrade its manufacturing, China needs a stable international and domestic environment. China recently adopted a “dual circulation” policy to address this issue.
Under the laws of history, when a country experiences economic difficulties, its population is likely to demand war. The possibility of conflicts on the border between China and India will increase if COVID-19’s economic impact is not resolved promptly. China and India cannot avoid a battle on their wall. Would the war benefit either country? Chinese and Indian people should think calmly about this issue.
Conflicts on China’s border with India could increase if the economic impact of COVID-19 is not addressed soon. China and India can neither avoid the possibility of a war.
Having Indian friends has made me realise that India is rapidly developing, but maintaining social peace and stability is key to faster growth. In my field of study, artificial intelligence, many of the books I read are written by people from India. Their written computer programs are exquisite; they believe fully in India’s development and created tremendous wealth.
I’ve learned how to code artificial intelligence vision recognition and develop blockchain projects through their online courses. I am taught by highly enthusiastic tutors who are very patient and passionate about helping me become an excellent artificial intelligence engineer and make myself wealthy with artificial intelligence. These friends of mine from India are committed to the rapid development of the Indian economy.
I cannot imagine how my Indian friends and I would handle each other in a future border war between China and India. Both Indians and Chinese benefit from a peaceful and stable environment. The Chinese and Indian governments are not at the point where they want to kill each other. More communication is needed.
Small and Medium-sized Enterprises (SMEs) are a significant source of conflict between China and India, preventing the two countries from understanding each other economically and in terms of trade. I have had the honour of meeting Indian students studying in China over the past three years, who have said that the Chinese and Indians are not too different from one another.
Communication channels between the two countries are the leading cause of misunderstanding. There are a few large companies that cooperate with China and India, for instance. India’s economy is driven primarily by thousands of small and medium-sized enterprises. Small and medium-sized enterprises are unable to transact with Chinese firms. China and India should focus on economic and trade cooperation rather than the border since it will benefit both Chinese and Indian entrepreneurs and citizens.
China and India cannot be hampered by the COVID-19 virus but can use it as an opportunity to build friendly cooperation. China and India can refuse to sit down for numerous reasons. Still, it might be more productive for both sides to solve the COVID-19 crisis instead of starting a war. I am interested in hearing from Indian scholars about the future relationship between China and India. It is essential that China and India jointly develop peacefully, regardless of our standpoints. Let us at least strive for a joint peace before the consequences of a rupture instability become apparent.
The Indian-Chinese relationship has hit a snag.
Although relations between the two countries are experiencing a “challenging phase,” recent discussions have favourable results by easing logistics during the COVID-19 pandemic.
Jaishankar answered questions about India-China relations and the outcome of his recent conversations with his Chinese counterpart, Wang Yi, during a virtual session here.
I discussed with Foreign Minister Wang Yi that COVID is something more significant, and we should cooperate in combating it,” Jaishankar said.
The minister understood that Indian companies ordering supplies from China were experiencing difficulties and should focus on making the process easier.
The chain is flowing, which is excellent, he said after the meeting. “Several airlines received approvals immediately” after the meeting.
India and China remain in a disengagement process but are not yet at the desired de-escalation point.
According to him, the relationship is going through a tough time right now. In violating long-standing agreements and understandings, Chinese forces have positioned themselves near and along the Line of Actual Control.
It’s been a year since they’ve been there, and there’s been trouble on the border. Last June, bloodshed was reported there after 45 years.
For a good relationship with its neighbour, India has clearly that peace and tranquillity in the border areas are essential.
This is something we have maintained and discussed with the Chinese. Our progress has been mixed in some areas, such as the disengagement process, while still being discussed in others.
Nonetheless, we are not yet at the de-escalation stage, which will come after disengagement has taken place.
A series of military and diplomatic talks held at the beginning of last year between India and China led to their troops and weapons from Pangong Lake following a standoff caused by multiple friction points. Disengagement talks are currently underway between the two sides to resolve the remaining issues.
As a guest minister, Jaishankar is attending the G7 Foreign and Development Ministers Meeting in the UK.
On Wednesday, the Global Dialogue Series, organised by India Inc. International and the Indian High Commission in London, was altered from a hybrid to a virtual event after members of the Indian delegation tested positive for COVID-19. The Cabinet minister has been forced to conduct all remaining UK engagements, including G7 meetings, virtually.
COVID-19 and its Impact on Indo-Chinese Relations
China and India continue to have complex relations despite seven decades of diplomatic ties. India’s opposition to the BRI, China’s all-weather friendship with Pakistan, and continuing tensions over the disputed Himalayan border have further compounded tensions between the two countries, which resulted in a deadly border clash in June 2020. The speakers will discuss the implications of COVID-19 on China-Indian strategic and economic relations and what this means for future bilateral cooperation.