Abu Dhabi, UAEWednesday 17 July 2019

How Chinese exports took over India

As relations sour, some are questioning New Delhi’s trade deficit with Beijing

India's prime minister Narendra Modi and China's president Xi Jinping during the latter's visit to India in 2015. Reuters
India's prime minister Narendra Modi and China's president Xi Jinping during the latter's visit to India in 2015. Reuters

Fahad Khateeb, the owner of a light manufacturing business in Mumbai, says that he and a number of other companies in a manufacturing association he is a member of, are actively trying to stop importing Chinese components for their products, as tensions rise over a Himalayan border dispute.

“A trade war is almost happening as of now – it’s not just a possibility,” says Mr Khateeb. “Indians are giving very serious thought to cutting down imports from China as much as possible.”

He says Chinese imports account for 20 per cent of the components of his products.

“We’re now trying to use Indian counterparts that do the same thing as the Chinese manufacturers, and apart from that we have other countries we can import from – there’s Taiwan, South Korea, so we’re looking at importing directly from there.”

Tensions between India and China have been escalating in recent weeks over a border dispute. The two countries are locked in a stand-off, after Chinese construction workers in June started to extend a road in a disputed Himalayan territory, which Bhutan – an ally of India’s – and China both claim as their own. India deployed troops to the Doklam area to bring the work to a halt, prompting accusations by China that India was trespassing and leading it to post its own forces in a nearby area.

China is India’s largest trading partner, with total trade between the two countries reaching almost US$71 billion last year. This is skewed towards imports from China into India, given the low prices and availability of Chinese goods, with imports of over $58bn into India last year.

In terms of trade, electronic components, chemicals and plastics are among the main goods imported from China. Cotton and petroleum products are some of the main items that are exported from India

Chinese state media have said that there is a “looming” trade war because New Delhi this month imposed anti-dumping duties on 93 products from China.

But any impact could be short-lived and limited given the extent of India’s dependence on China for goods, some point out.

“Trade between India and China is part of an ancient trading route that has survived all types of tensions for centuries,” says Suhail Nathani, the managing partner at Mumbai-based Economic Laws Practice. “The synergies of trade between India and China will overcome any aberration.”

Investment from China into India, which has been expanding, could also be under threat because of the row, lawyers say.

India has been stalling on approving a planned takeover worth more than $1bn by China’s Shanghai Fosun Pharmaceutical of Indian drugmaker, Gland Pharma, which is based in Hyderabad. The deal was announced in July last year, and is awaiting the go-ahead by the Indian government’s Cabinet Committee on Economic Affairs.

“There is some uncertainty on which way the Indian government will lean, given the recent geopolitical tension with China – from a timing perspective the deal seems to have got stuck in the middle of it,” says Kartick Maheshwari, a partner at Khaitan & Co, an Indian law firm.

India is planning to reject the deal, according to Bloomberg, citing unnamed sources familiar with the matter.

Industry insiders have suggested that beyond the impact of the border dispute, there may be reluctance on New Delhi’s part to give up control of the production of important medicines used for export and in the local market to a foreign company.

If the deal was to go ahead, this would be the largest takeover of an Indian company by a Chinese firm.

Although China and India relations have long been frosty, Chinese investment into India has been on the rise in the past few years. Chinese internet retail company Alibaba and Beijing-based smartphone manufacturer Xiaomi are among Chinese firms that have been ploughing investment into India.

Alibaba has invested in Paytm, an Indian mobile wallet that has surged in popularity after the prime minister Narendra Modi’s demonetisation move towards a less cash-based economy.

Another Chinese internet major, Tencent, has also been looking to capitalise on India’s growing e-commerce market. In April, it teamed up with eBay and Microsoft to invest $1.4bn into the popular online Indian retailer Flipkart.

“Investment is going to take a direct hit at least in the next couple of months,” says Mr Khateeb.

Chinese companies are also focusing on the smartphones business in India. Xiaomi is producing phones at two manufacturing facilities in the state of Andhra Pradesh in southern India. Another Chinese smartphone maker, Vivo, is manufacturing in the country and looking to grow its presence, while China’s Oppo also has investment plans for the market.

In a clear sign of the extent of China’s move into India, Oppo took over the sponsorship of the Indian cricket team this year in the cricket-obssessed nation, while Vivo is the title sponsor of the Indian Premier League cricket tournament.

Meanwhile, Chinese developers are interested in India. Dalian Wanda Group, owned by China’s richest man Wang Jianlin, last year announced plans to develop a $10bn industrial zone in Haryana in northern India.

Indian investment in China is at relatively low levels. But a record figure of more than $1 billion of foreign direct investment flowed into India from China last year, according to data from the Indian government.

Since coming to office in 2014, Mr Modi has signalled an eagerness to strengthen economic ties with China and encourage investment into areas including infrastructure, an area that China is keen to invest in.

Mr Modi has spoken of the importance of a “look east, link west” policy, although he has also referred to the relationship with China as “complex”.

China and India signed $22bn of business deals in sectors including solar energy during Mr Modi’s visit to China in 2015.

Mr Khateeb explains that there could be a silver lining for the Indian economy as a result of any reduction in imports from China, as one of the main ambitions of the government is to transform the country into a global manufacturing hub.

“Being a manufacturer myself, I would prefer that imports from China are cut to size, so that Indian manufacturers are able to showcase what their capabilities are, not only in India, but abroad,” he said.

Updated: August 19, 2017 08:41 PM