Why a complete boycott of Chinese goods is impractical?

The recent border skirmish between India and China in the Ladakh border has led to calls for a boycott of goods from China.

According to a snap poll conducted by CVoter, as many as 93 % of Indians are in favor of boycotting all Chinese goods. At the same time, China’s smartphone maker OnePlus saw its latest model sold out within minutes of going on sale on Amazon India. This shows how freezing trade ties with China is only easier said.

[You may also read: What is the trade war between US and China?- Explained]

The PSUs have spearheaded this movement against China. The Government has asked state-run telecom company BSNL to not buy 4G telecom equipment from China. Indian railways terminated a contract worth Rs.470 crore with a Chinese firm engaged in signaling works in Uttar Pradesh.

Maharashtra’s government has put on hold three direct investment plans by China worth ₹5,020 crores. Also, three states namely – MP, UP, and Haryana pledged that they will not allow Chinese investments.

Further, on 23rd June, the Government made it mandatory for sellers on the Government e-Marketplace (GeM) portal to clarify the country of origin of their goods when registering new products. The portal also has a ‘Make in India’ filter, and government offices will be able to ascertain which products have a higher content of indigenously produced raw materials. The Government is also contemplating similar proposals for private e-commerce platforms like Amazon etc.

However, a complete boycott will hurt India more than China.

[You may also read: Everything You Need To Know About China’s OBOR/ BRI initiative]

China is India’s second-largest trading partner at 10.6 % of our trade. If taken together with Hong-kong, it is our largest partner. On the other hand, India is China’s 12th largest trading partner at just 2.6 % of its trade.

Moreover, China is the biggest source of imports for India. According to the United Nations Conference on Trade and Development (UNCTAD) data for 2018, 15.3% of India’s total imports are from China, and only 5.1% of India’s exports go to China. Therefore, as India is heavily dependent on Chinese imports, any boycott would have a limited impact.

Other reasons why a complete boycott of Chinese goods is impractical are:

• Though we can curb Chinese imports of non-essential, low-quality, low-value goods like toys, kites, etc, there are certain sectors for which finding an alternative is either difficult or expensive. For instance- Chinese firms dominate over 73 % of the smartphone market in India as of March 2020 with Xiaomi, Vivo, Realme, and Oppo occupying the top positions. Chinese smartphones are cheap and are value for money as they provide as many features as premium brands like Samsung. In the Smart TV segment also, Xiaomi has a market share of 27 %. Other essential imports from China are Electrical Machinery, Nuclear reactors, Organic chemicals, boilers, and household items.
• Not just finished goods, India imports a lot of intermediate goods (raw materials) from China in sectors like automobiles, pharmaceuticals, electronics (including smartphones), telecommunications, etc. Therefore, even these products manufactured in India have a huge proportion of intermediates from China. ‘Make in China’ is important to ‘Make in India’. For instance- 25 % of India’s telecom equipment market is met by China. China accounts for 18 % of India’s auto components imports and around 70 % of its total imports of bulk drugs and intermediates. Around 67 % of electronic components come from China. [You may also read: Impact of COVID-19 on Pharmaceutical sector in India]
• Power sector equipment: Barring a few, all privately owned thermal power generation units, with a capacity of roughly 40,000 Mw, constructed over the past 10 years have been built on Chinese equipment. At the same time, close to 75 % of Indian solar capacity is built with Chinese solar cells and modules owing to low cost.
• Even fertilizers and their inputs critical for the agricultural sector are imported from China. As much as 45% of diammonium phosphate fertiliser and 13% of urea is imported from China.
• Another problem is that China is deeply integrated into the world’s supply chain. Most of Apple phones sold in India are assembled in China. China is not called the factory of the world for nothing. China’s share of global manufacturing output climbed from 8.7 percent in 2004 to 28.4 percent in 2018. The lockdown in China after the outbreak of coronavirus in Wuhan severely impacted various sectors like pharmaceuticals, automobiles, electronics, textiles, solar power, etc across the globe. Therefore, it has become difficult to associate a product with a particular nationality and boycott accordingly.
• Rising imports from Hong Kong is another concern. China has been routing goods and investments to India via countries like Hong Kong, Thailand, Singapore, Mauritius, etc. This further complicates the issue of nationality.
• Impact Investments from China: China has gradually stepped up its investments in the start-up segment in India. In the last three years, Chinese and Chinese-origin investors have invested about $3.7 billion (Rs 23,600 crore) into Indian startups. Chinese venture funds like Alibaba, Tencent, and Bytedance have a significant presence in India. China has investments in Tik Tok, Paytm, Byju’s, Oyo, Ola, Delhivery, Zomato, Swiggy, Snap deal, BigBasket, Make my Trip, Flipkart, and many more start-ups and apps. 18 of the 30 Indian unicorns (start-ups with a valuation of over $1 billion) have a Chinese investor. Hence, boycotting will impact the inflow of capital from the second-largest economy in the world. Consider this- as per reports from the TOI– Zomato is yet to receive $100 million from the $150 million it raised from China’s Ant Financial in January this year. It is being examined if this capital needs Government approvals due to curbs on investments.[You may also read: The Great Wall Against Chinese FDI].

As explained, it is not easy to boycott goods made in China considering its GDP is 5 times that of India.

As Nitin Pai says- the best China policy for India is 8% real economic growth. India should focus on identifying structural bottlenecks and design policy interventions to unleash its potential in the manufacturing sector and gradually reduce dependence on China. Any knee-jerk reactions like complete boycott will do us no good.

[You may also read: Companies to move manufacturing out of China– Will India benefit? & Why India’s textile sector lost out to Bangladesh?]]

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