With economic measures, India seeks to turn tables on China

At a protest in Ahmedabad calling for a ban on products from China.PTI-

At a protest in Ahmedabad calling for a ban on products from China.PTI-  

Options are tilted in Beijing’s favour as it is far less dependent on India’s market than the latter is on Chinese imports

India is considering a range of economic measures aimed at Chinese firms amid the border tensions. The move to ban 59 Chinese apps may be just the start, with other measures likely to follow if tensions along the Line of Actual Control (LAC) continue, without disengagement.

On Friday, Power Minister R.K. Singh said India would not import power equipment from China — worth $2 to $3 billion annually — while Minister for Road Transport and Highways Nitin Gadkari said on July 1 Chinese companies would not be allowed to take part in road projects. Reports have said the government is considering trade and procurement curbs targeting China. The government is also increasing scrutiny of Chinese investments in many sectors, and weighing a decision to keep out Chinese companies from 5G trials.

The moves could potentially cost Chinese companies billions of dollars. The message from Delhi is it cannot continue trade and investment relations as normal, if China does not agree to return to the status quo of April before its incursions along the LAC began.

The Chinese government has hit out at the measures, while state media have widely criticised calls in India to boycott Chinese goods. China is itself no stranger to such moves, having frequently deployed economic countermeasures, from restricting market access to boycotting goods, in the midst of its own disputes, with countries ranging from South Korea and Japan to the Philippines.

China’s state media spearheaded a boycott of South Korean goods in 2016 and 2017, when Seoul deployed the U.S. Terminal High-Altitude Area Defense missile system. China then placed curbs on outbound tourism to South Korea, and closed almost 90 Korean-owned Lotte Mart stores in the mainland. In 2010, China began restricting exports of rare earths elements to Japan — a key ingredient for many electronics industries — following a collision near disputed East China Sea islands. Two years later, mass protests were organised by China over the islands issue, which led to boycotts of Japanese brands. With the Philippines, a dispute over the Scarborough Shoal in the South China Sea in 2012 led to China curbing imports on bananas.

China’s leverage

In all those relationships, China had particular leverage that it used to inflict immediate economic pain. In the India-China economic relationship, where trade is lopsided in China’s favour, both sides have different levers that they could turn to, but options are tilted in China’s favour because China is far less dependent on India’s market than India is on Chinese imports.

India’s biggest lever is its market. For TikTok, one of the 59 apps banned, India is the biggest overseas market with more than 100 million users. While the parent company ByteDance reported modest earnings of $5.8 million in 2018-19, its first full year in India, a source close to the company told the Chinese finance magazine Caixin that ByteDance “is anticipating a loss of more than $6 billion, most likely more than the combined losses for all the other Chinese companies behind the other 58 apps banned in India.”

If India does have leverage that could hurt potential revenues of Chinese companies, the problem for New Delhi is China could inflict immediate economic pain should it choose to. In 2019-20, India’s imports from China accounted for $65 billion out of two-way trade of $82 billion. India relies on China for crucial imports for many of its industries, from auto components to active pharmaceutical ingredients (APIs). Between 70% to 90% of APIs come from China.

Industry representatives have expressed concern over delays in customs clearances. If China curtailed exports to India, consequences would be more serious.

India faces difficult choices and needs to be selective in its measures, said former Foreign Secretary Shyam Saran. “You have to choose areas where you don’t get hurt more than they do,” he told The Hindu . “TikTok is a good candidate as India is their largest market. Telecom is another. This is a huge market for Huawei.”

Whether India’s measures will influence China’s behaviour on the border will ultimately depend on Beijing’s calculus, and whether its perceived gains from the current border stand-offs outweigh the potential costs of losing a key market.

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