India - China: China Gaining in Trade War 

STORIES, ANALYSES, EXPERT VIEWS

India - China: China Gaining in Trade War 

External Affairs Minister Jaishankar’s joint press conference with his Australian counterpart  Marise Payne at Melbourne on 12 February, has sparked a minor row with the Chinese foreign ministry.

 

Wars of words

Speaking at press conference Jaishankar said the situation at the LAC has arisen due to the disregard by China in 2020 of written agreements with India not to mass forces at the border, he said.  "So, when a large country disregards written commitments, I think it's an issue of legitimate concern for the entire international community," he added.

China and India should "follow through" on the border agreements to uphold peace and tranquility at the Line of Actual Control, a Chinese Foreign Ministry official said Monday, after External Affairs Minister S Jaishankar  blamed Beijing for the current situation at the LAC due to the disregard of written agreements by China.

Foreign Ministry spokesman Wang Wenbin countered  Jaishankar's remarks by stating  "On the border issue, China always maintains that we should follow through on treaties and agreements we signed and we jointly uphold peace and tranquility at the border region.”

To another question on the Quad  Foreign Ministers blaming China for the ongoing border conflict, Wang reiterated Beijing's oft repeated stand on the eastern Ladakh standoff and said that the responsibility does not rest with China.  "As to the China-India relations the merits of the matters are very clear and responsibility does not rest with China,” he said. 

"Now the two sides are in communication on improving the border management and the measures to building trust, we hope the Indian side will abide by our agreements do not issue irresponsible remarks and to uphold the peace and tranquility along the border region with concrete actions,” Wang said.

The eastern Ladakh border standoff between the Indian and Chinese militaries erupted following a violent clash in the Pangong lake areas and both sides gradually enhanced their deployment by rushing in tens of thousands of soldiers as well as heavy weaponry.  The tension escalated following a deadly clash in the Galwan Valley.

After a series of military and diplomatic talks, the two sides completed the disengagement process in the north and south banks of the Pangong lake in February and in the Gogra area in August last year.

India and China held the 14th round of Corps Commander-level meeting on January 12 during which the two sides agreed to maintain dialogue through military and diplomatic channels to work out a "mutually acceptable resolution" of the remaining issues of the standoff at eastern Ladakh.

 

Apps ban on large Chinese tech firms

Fresh developments on India, China include an apps ban  belonging to large Chinese tech firms such as Tencent, Alibaba and NetEase, that are re-branded versions of apps already banned by India in 2020. The 54 Chinese apps include Beauty Camera: Sweet Selfie HD, Beauty Camera - Selfie Camera, Equalizer & Bass Booster, CamCard for SalesForce Ent, Isoland 2: Ashes of Time Lite, Viva Video Editor, Tencent Xriver, Onmyoji Chess, Onmyoji Arena, AppLock and Dual Space Lite.

The latest move could be an instance of the tensions between the two neighbouring nations locked in a protracted border dispute impacting business dealings.

 

India-China: trade as a weapon

But indications are that businesses are not really suffering with the bilateral trade deficit with China is getting bigger by the day, even unbridgeable.   A modest deficit of $743.85 million in 1999-2000 has skyrocketed to $69.38 billion in 2021. China’s exports to India have today reached $97.52 billion against India’s $28.14 billion to China.

What’s worrying, writes Abhijit Bhattacharyya (Commentator and Author) “is that there’s nothing to suggest that this humongous deficit will be capped any time soon. It’s worrying also because China’s overall 2021 trade surplus has hit a record $676 billion.

“With such financial and economic muscle having penetrated deep inside India, and the weak Third World countries…….India should be ready for further hijacking of commerce and trade and forcible occupation of territory…..”

Bhattacharyya emphasises “the whole of $69.38-billion trade profit of China is more than that of India’s 2022-23 $65-billion defence budget.”

Dipping of foreign currency reserves: Such over-dependence on Chinese products could degenerate into a chronic financial disease. “Indeed, this unending outflow of foreign exchange reserves, for buying Chinese stuff, from state coffers, in medium and long terms could well create an avoidable difficulty with $256-billion debt (43% of the total outstanding of $596 billion) maturing in the next 12 months.” This is despite India’s healthy foreign exchange reserve of $632.7 billion.

India needs to realises the grim reality.

 

What is driving India’s imports:  India’s biggest imports are:

  • electrical and mechanical machinery
  • a range of chemicals that are intermediate imports used by industries
  • active pharmaceutical ingredients
  • auto components
  • and since 2020, a large amount of medical supplies

 

The top items include both finished goods such as:

  • integrated circuits (up 147%),
  • laptops and computers (up 77%)
  • and oxygen concentrators (up four-fold)

and intermediate products such as:

  • chemicals (of these, acetic acid imports were up eight-fold)

Recent trend: Experts say India’s dependence on China for finished goods has shown no signs of easing. The rise in intermediate imports is less of a concern as it is a sign of industrial recovery and greater demand for inputs.

Indian exports to China have also grown by more than 50% in the last two years.These are mostly raw materials such as ores, as well as cotton and seafood, and not finished products.

The five-year trend shows the trade deficit continues to widen. The deficit has grown from $51.8 billion in 2017 to $69.4 billion in 2021.

Implications for India-China relations:  While trade continues to boom, The Hindu states other aspects of economic relations have dramatically changed in the past two years.

In the wake of the LAC crisis starting April 2020, the message from New Delhi was that it cannot be business as usual while there are tensions along the border. Investments from China in the past year have thus, plunged amid tighter curbs. In the tech and telecom space, the once rapidly increasing Chinese investments in start-ups including from tech giants such as Alibaba and Tencent, has come to an abrupt halt.

India has also tightened scrutiny on Chinese firms in India. Tax investigations were recently conducted in companies including smartphone manufacturer Xiaomi.

The trade pattern is unlikely to dramatically change in the near future.  New Delhi is considering a long-term plan to reduce some of these import dependencies. Options are to either accelerate long-discussed but slow-moving plans to manufacture some of these critical goods in India or source from elsewhere.

The rest of the India-China economic relationship still remains somewhat in a state of freeze as talks continue to resolve the tensions along the border.

 

Parliament not discussing China

Despite this grim reality, the first part of the Budget Session has ended, without a mention the word ‘China’. Even questions raised by MPs in Parliament are disallowed allowed ‘because of national interest’.

This situation, writes Manish Tewari (former Congress Minister) “is counterproductive for the message it sends out is that the Government of India is trying to hide facts from its own people."

Tiwari finds “the silence of the collective Opposition” in the matter even more disconcerting…….Not once has the Opposition come together collectively to demand that the government must concede to a discussion on China. It is baffling as to why in the business advisory committee meetings the leaders of Opposition in both houses have not jointly and collectively pressed aggressively for a discussion on the border situation qua China.”


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