Diwali or not, India can’t boycott Chinese goods

Last fortnight, close on the heels of the rise of firecracker nationalism against Chinese goods on social media, Reserve Bank of India (RBI) was busy making adjustments for yuan’s entry into India’s foreign exchange reserves. Not only RBI, most of the global central bankers too had to alter metrics of their forex reserves after yuan’s rise as the world’s fifth most powerful currency.

Only three days after India’s surgical strike on terror launch pads across the LoC, the yuan became a Special Drawing Rights (SDR) currency, the elite club of four global currencies under the International Monetary Fund (IMF). After the American dollar, the Japanese yen, the British pound and the euro, only the yuan has found a place in the premium currency basket.

As all countries constitute their foreign exchange reserves in denominations of SDR currencies, India, along with other nations, are now required to create yuan reserves as well.

We can vent our frustration by endlessly cursing former governments for China’s growing influence, but when a country makes more than 50 per cent of the world’s computers, two-thirds of its DVDs, ovens and toys, Made in China is the unpalatable global reality. China has, in fact, forced the rewriting of the history of global trade. History shares no precedent when a country captured markets worldwide by becoming the singular global manufacturing power.

It is not at all impossible that the mobile phones with which messages of Chinese goods boycott are sent or received are fully or partially made in China. The mobile network carrying these messages could be made by the Chinese companies ZTE or Huawei, or the sim cards could have come from China. Even if the phone is Korean or Japanese, the China factor will come into the picture because these two countries import electronics worth $70billion annually from China. It is also possible that these phones are charged with electricity produced at a unit with a Chinese turbine.


China’s access to the Indian market is far more deep and extensive than low-end consumables like firecrackers and other Diwali decorative essentials. The total firecracker import is unlikely to cross the million dollar mark, however, foreign trade statistics suggests that India’s largest imports from China are electronics ($20 billion), nuclear reactor and machinery ($10.5 billion), chemicals ($6 billion) and steel ($2.3 billion). In 2015-16, India’s import from China was worth $61 billion, out of which the top ten imports amounted to $48 billion. After China, India’s largest imports come from United States, Saudi Arabia and UAE. Imports from China is almost equal to all three put together. The cracker revolutionaries must know that India’s share in China’s global export, more than $2 trillion, is less than even three per cent.

The China challenge will have to be dealt rationally, not emotionally. Indian manufacturing sector’s dependence on China has not been studied well. The last such effort was made in 2011 when the national security adviser of that time confidentially studied the Chinese penetration into Indian economy. The conclusions were startling:

1. China is well in the position of pricing its products 40 per less than that in India. More importantly, India has comparatively very limited number of products in global trade.

2. In 2011, China’s share in telecom imports by India was 62 per cent. Today it could be above 75 per cent, with fast growth of 3G and 4G networks.

3. China is the world’s largest bulk drug-manufacturer and India is 100 per cent dependent on China for its pharmaceutical (Bulk and API) supplies.

4. And, most importantly, China accounted for 26 per cent of India’s manufacturing GDP as per NSA’s study in 2011. NSA study had projected China’s share may go up to 75 per cent in next five years. This estimate has proven accurate largely. World markets have capitulated to the fact that whatever China would buy would become pricey and what it would sell would become cheaper.

After the rise of China, nations have started focusing on their core competence and cost reduction measures to counter the invasion of Made in China stuff. India, too, instead of a boycott, will have to work on reducing the cost of production, focus on technique and promotion of smaller units, for alternatives to low-cost imports from China. As far as high tech imports are concerned, India can play its market card in a more astute manner, while adjusting to the realities of global trade. Back to the China-Pakistan liaison, from where the crackers began bursting.

The international security scenario has significantly altered after China assumed the status of the world’s second-largest economy. China’s strategic influence emanates from its economic power. It has invested about $46 billion in the China-Pak-Economic-Corridor, which is equivalent to 20 per cent of Pakistan’s GDP.

Patriotic emotional outbursts are welcome, but India will have to build its economic muscle, because in today’s world, cargo ships carry the flag of strategic power, not the battle ships.

First published at dailyo.in

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