As tensions simmer at the border between India and China, what is more, concerning is the economic fall out of the souring relationship between the two countries. This is because the economic interdependence of the two neighbors is too deep to be ignored.
China and the US are the largest two trading partners of India. While Indian exports to the US outnumber the imports from the country, the same is not true when it comes to China. And hence, to become friends-turned-foes with India would have business repercussions in China, too.
Covid-19 seems aggressive in taking hold over India and there is no set date till when we may get the vaccine. Adding to the current pandemic situation, the Chinese state of ditching India over Galwan valley deal if of strong concern to the Indian economy.
Why the Chinese act is a serious threat?
We have seen that India-China already had multiple discussions over the border issues. Having a serious clash after multiple meetings shows that a major problem still lies due to which no country is in agreement until now. This concerns as we may see some more clashes over borders.
Are we seriously heading towards WAR?
Strategic pressure from America & Russia may not result in a serious war between India & China. Therefore, the probability of a major war between India & China seems below.
What India import from China?
India's imports from China rose from 13.7 percent in 20-18-19 to 14.1 percent in 2019-20. India's major imports from the neighbor include engineering goods, electronics, pharmaceuticals, and automobile components. At a total value of over $18 billion, electronic imports formed a quarter of the total imports in February.
Nuclear reactors, machinery, and parts comprised another major chunk of the imports at $12 billion.
What India exports to China?
India's exports to China rose from 5.1 percent in 2018-19 to 5.3 percent in 2019-20 (until February). Organic chemicals, ores, slag and ash, and mineral oils, mineral fuels, and other industrial products comprise India's exports to the country.
Despite the total value of India’s exports growing by nearly half between 2010 and 2019, the sum going to China shrank 14 percent over the period, deepening a trade deficit that’s fueling India’s nationalistic turn.
How it may impact companies?
Disagreements may result in the imposition of trade barriers and trade taxes on bilateral trades by India & China. This may severely impact both country’s economies. Accordingly, Indian companies who purchase raw materials from China may have to pay more taxes on their raw material purchases which will add on to its cost. An increase in costs will impact the sales price of resultant products and which in turn as per the law of economics will result in sinking revenues. On the other hand, companies exporting to China will find it difficult to sell or decrease in sales as China may increase the tax on imports from India.
Chinese FDI to India
Alibaba, for example, has invested in Indian e-commerce company Snapdeal, digital wallet Paytm, and food delivery platform Zomato. Tencent, meanwhile, has backed Indian messaging company Hike and ride-hailing app Ola. Gateway House found that more than half of India's 30 unicorns—private firms worth more than $1 billion—have Chinese investors.
Meanwhile, India changed its FDI policy in April soon after the People's Bank of China decided to up its stake in India's HDFC bank to over 1 percent. As per the tweak, neighboring nations can invest in Indian firms only after getting the Centre's approval for the same.
The Chinese smartphone makers have already built factories and create jobs in India. Interestingly, these smartphone makers have embraced Prime Minister Narendra Modi's "Make in India" program. Xiaomi locally manufactures 95 percent of the phones it sells in India. And hence, any adverse announcements forcing Chinese businesses to shut shop in India will add to the burgeoning unemployment rates in India.
In smoothing over the current conflict, India and China must further deepen their economic and social links — otherwise, the next fight will be still more serious.
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