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A border spat is pushing India and China closer to a trade war

New Delhi cites security concerns as troops square off on disputed Doklam Plateau

A container ship sits docked in the background while a fisherman prepares to cast his net in the southern Indian port city of Kochi.   © Reuters

NEW DELHI Asia's two nuclear-armed giants, India and China, have been engaged in a tense border standoff for the past two months, raising concerns that their close economic and trade ties could take a hit.

The border issue has given rise to calls in India for a boycott on Chinese products. Swadeshi Jagran Manch, an organization promoting indigenous goods, has stepped up action against Chinese products through petitions and meetings with traders, claiming it has secured the support of millions of Indians. The organization is affiliated with the Hindu nationalist group Rashtriya Swayamsevak Sangh, the ideological parent of the country's ruling Bharatiya Janata Party of Prime Minister Narendra Modi.

Reacting to the campaign in India, the government-backed English-language paper China Daily said in an Aug. 14 opinion piece that boycotting Chinese goods will hurt the Indian economy. China's exports to India accounted for just 2% of its total export volume. On the other hand, China is India's biggest trading partner.

"Suffice to say, calling for the boycotting of Chinese products and those related to Chinese investors is not just a fool's errand but also risks backfiring," the daily said.

Total bilateral trade between the two stood at $71.5 billion for the fiscal year ended March. However, the trade is heavily tilted in Beijing's favor, with exports to India approximating $61.3 billion.

India's principal imports from China include telecom equipment, electronic components, computer hardware, bulk drugs and drug intermediates, and iron and steel. Exports to China include iron ore, cotton yarn, petroleum products and plastic raw materials.

New Delhi's trade deficit with China dipped to about $51.1 billion last year, down from $52.7 billion in 2015 but still troubling to India, which wants greater access to the Chinese market.

Indian Commerce and Industry Minister Nirmala Sitharaman informed parliament on Aug. 9 that 93 Chinese products are now subject to anti-dumping duties. These include a wide range of items, from chemicals and electronics to fibers and consumer goods.

"In addition, 40 cases concerning imports from China ... have been initiated by the Directorate General of Anti-Dumping and Allied Duties," Sitharaman said.

Anti-dumping duties are in place to protect India's domestic industry.

In response, a write-up in China's communist party backed Global Times warned of a trade war between the two countries. "Now Chinese companies must reconsider the risks of investing in India amid strained bilateral trade ties, and India should also be prepared for the possible consequences of its ill-considered action," it said.

Explaining that it is not just Chinese companies that will suffer but also Indian consumers, the newspaper said on Aug. 13 that "given the tense bilateral ties, China may consider temporarily suspending investment or economic cooperation projects in India to ensure the security of these investments."

It noted that China's Sany Group planned to invest nearly $10 billion in wind power, while Dalian Wanda Group was considering an investment of about $5 billion in real estate projects in India.

BORDER TIFF India and China have long been fractious neighbors, sharing a 3,500km border over which they fought a war in 1962. The latest dispute started in June when, according to New Delhi, a construction crew from China's People's Liberation Army entered the Doklam Plateau -- near the junction of the borders of India, China and Bhutan -- causing "serious security implications" for India.

Soldiers from both countries remain stationed in the disputed area.

"Doklam is getting attention from the national media from both countries," noted Pankaj Jha, professor of defense and strategic studies at O.P. Jindal Global University and former research director at the Indian Council of World Affairs. On whether the border dispute would impact economic relations, he said: "Given the lopsided trade balance between India and China, the trade ties will definitely be affected."

"One thing which won't get affected is the raw material that we import from China," he stated. "This includes pharmaceuticals and semifinished iron, as these are critical to our economy. But all other things like mobile phones and all kinds of electronic items [that India imports from China] will get affected."

Jha also noted that India has asked Chinese makers to share phone security information. "[If not], they will face consequences," Jha said. "Most of the time we have seen that the Chinese mobile [International Mobile Equipment Identity] number can be changed."

"There is also concern about the lead content in Chinese plastic toys," Jha said, adding the two countries "won't go to war over Doklam [but] I strongly believe that there will be an effect on trade."

In the last fiscal year, India imported some $11.3 billion worth of telecom equipment from China and about $4.4 billion worth of electronic components. Chinese handset makers control over 50% of India's $10 billion smartphone market, led by Xiaomi, Oppo and others.

The Chinese cellphones sold in India, China Daily noted, are mostly assembled locally. "Any attempt to keep them at bay or shut down Chinese-invested factories will hurt the Indian economy and cost Indian jobs," it warned.

Another critical Indian sector dependent on Chinese imports is energy. "In the rapidly growing solar energy sector, between April 2016 and January 2017, solar equipment from China had a share of 87% in a market pegged at $1.9 billion," the Indian daily Economic Times reported.

The newspaper also pointed out that India depends on China for cheap capital goods, noting that reducing imports of these would increase production costs. "India can fight trade wars with China only when it has removed the big skew in its trade with China, which can take a decade of manufacturing growth."

Nevertheless, Jha feels that Chinese companies -- especially those in telecom that want to expand in the Indian market -- would be hit if trade ties deteriorate as a result of the border rift.

'RACIST' VIDEO China's official Xinhua News Agency, meanwhile, has released a propaganda video on Twitter, accusing India of illegally entering its territory and of "hijacking" Bhutan, calling these moves two of the "seven sins" of New Delhi in the past two months.

"Have you ever negotiated with a robber who had just broken into your house and refused to leave," asks the video's female presenter, speaking English with an American accent.

The video triggered accusations of racism, especially because of the way it depicts Indians. In the clip, a Chinese actor portrays an Indian, wearing a turban with a fake beard and mustache while speaking in a funny accent.

"This is China's official sense of humor!" tweeted defense analyst Ajai Shukla. "Xinhua isn't quite sure whether it's producing a spoof ... or a propaganda piece."

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