#BoycottChina Working? Indo-China Trade Falls To 6-Year Low; These Products Impacted

#BoycottChina Working? Indo-China Trade Falls To 6-Year Low; These Products Impacted

#BoycottChina Working? Indo-China Trade Falls To 6-Year Low; These Products Impacted

With Indo-China border tensions, increasing cold vibes and changing economic ties, the bilateral trade between the two countries has crashed, signalling the prevailing anti-China sentiment in the country. A lot of business with Mainland China is also conducted via Hong Kong.

India’s trade with mainland China and Hong Kong declined by over 7%  to $109.76 billion in FY20, its steepest fall since FY13. 

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Trade Declined Drastically With China and Hong Kong!

The steep jump is a sharp reversal from the 3.2% growth in trade in 2018-19 and the more robust 22% jump in FY18. 

Import substitution of electronics going into TVs, refrigerators, ACs, washing machines and mobile phones caused a $1.5 billion drop in imports from China in FY20. Other items that registered a decline include mineral fuels, mineral oils, pharma and chemicals.

Bilateral trade with mainland China alone recorded a 6% decline in FY20 to $81.86 billion. This was the first time ever that trade with Mainland China declined for the second consecutive year. In FY19 it had declined by 2%. The rate of contraction in bilateral trade in FY20 was the steepest since 2012-13 when it had declined by 10.5%.

Meanwhile, bilateral trade with Hong Kong – another big trade partner for India, fell by an even sharper 10.17% in FY20. Similar to mainland China, this was again the steepest decline since FY13 when it had fallen by over 14%. The fall comes after a period of 3 years of high double digit growth in trade between the two partners.

China Is Not India’s Largest Trading Partner!

The fall in trade with mainland China has also resulted in a narrowing of the trade deficit between the two. It is now under the $50 billion mark for the first time in 5 years at $48.66 billion. 

Mainland China was India’s largest trading partner between fiscals 2014 and 2018 but became #2 in 2018-19 when the US overtook it. Unlike the US though where India enjoys a trade surplus – $17.4 billion in 2019-20, the massive trade deficit with mainland China was always a concern for India. In 2017-18, the deficit between the two countries had hit a high of $63 billion.

In fact, monthly trends show the deficit is contracting at a much faster pace. In March, it stood at just $1.816 billion, which was the lowest level ever in a month since December 2010 when the deficit was $183.7 million. This is also contradictory from January 2018 when the monthly trade deficit had hit an all time high of over $5.8 billion. In the last 20 years, India has enjoyed a trade surplus with China in only 3 months.

The deficit in the case of Hong Kong is a bit unusual. Unlike mainland China, India enjoyed a trade surplus in the past largely due to high value export of diamonds and other gems and jewellery, which account for over 86% of India’s exports to the island. 

The surplus turned into a deficit for the first time in fiscal 2019 due to the slowdown in the gems and jewellery sector in India. It has widened a bit in 2019-20.

Yet, in outright value terms, when mainland China and Hong Kong are taken together, the deficit has only narrowed from $59 billion in 2017-18 to $58 billion in 2018-19 and now more sharply to $54.62 billion in 2019-20. Furthermore, like in the case of China, the deficit with Hong Kong in March 2020 of $220 million was the lowest since February 2019 when India had a surplus of over $620 million.  

China’s Motives Questioned!

China has been accused of spreading the coronavirus across the world, leading to economic distress. The distressed global economy has caused a significant backlash among business communities and consumers across the world. 

The calls for a complete boycott of Chinese products that have risen in India from time to time in the past. However, now they have become more sinister. On Wednesday India’s largest trader body Confederation of All India Traders (CAIT) that has over 7 crore retailers and wholesalers under its wing gave a call for a complete boycott of Chinese products and has prepared a list of 3,000 items where it would actively scout for a local substitute.

“Our target is by December 2021, we should reduce imports from China by upto Rs 100,000 crore ($13.3 billion),” said Praveen Khandelwal, national secretary general, CAIT. “The Indian consumer does not want to buy Chinese goods anymore. He is concerned with the spread of the virus and its impact on the Indian economy as also with the transgressions by the Chinese army on our border. We support them in this cause and will encourage them to buy local products.”

Ashwani Mahajan, national co-convener, Swadeshi Jagran Manch, an organisation that promotes native goods and has close ties with the government in India, said, “Ever since China joined WTO (December 2001), our trade deficit with them has only increased and it’s not because they are very efficient but because they have been dumping goods on us. This dumping has destroyed our industries.” She added, “There is a change happening around the world. Earlier countries were supportive of goods and services moving freely from one country to the other, in the concept of global supply chain etc. But now they are all rethinking. In the new global emerging scenario we also need to rethink. Countries are worried about China’s motives.”

With projections of a contraction in the Indian economy in fiscal 2021, its overall trade with the world will also see a fall this year. The impact on business with China however, is likely to be much deeper.

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