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Exclusive | At odds with Beijing, but Delhi has no solid plan against Chinese trade in India

Over the past few years, India has imposed higher tariffs on Chinese imports, cracked down heavily on Chinese firms, and cut the flow of Chinese FDI . But, as an uneasy peace holds for the moment, officials say no major economic action is planned.

August 01, 2022 / 09:58 AM IST
(Representative Image)

(Representative Image)

Despite continuing efforts to stem the flow of Chinese goods and investments into India, there are no broad and wide-ranging measures planned against China, as both nations settle into an uneasy geopolitical peace for the moment, senior officials told Moneycontrol.

India-China economic ties have suffered since June 2017, when India and China had a military face-off, when China attempted to extend a road on the Doklam plateau spanning Sikkim's Nathang Valley and Bhutan. All bilateral talks had broken down after Chinese troops made an unprovoked attack at the disputed Pangong Lake and Galwan valley in Ladakh, and in Sikkim.

Since then, the government has tightened the screws on Chinese investments. New Delhi has also continued its spate of action against alleged unethical trade practices and legal skullduggery by Chinese businesses in India.

Case in point, the Directorate of Revenue Intelligence (DRI) has slapped a Rs 4,389-crore show-cause notice on Chinese phone maker Oppo's India business for allegedly evading customs duty by wrongfully availing of exemption benefits. It has also banned at least 107 Chinese apps from the Android and Apple play stores.

But despite all this, no 'sweeping action' is expected against China at the moment, a senior official said. "The first tranche of actions, including tariff hikes and investment curbs, had taken place after the Ladakh violence. Since then, boundary talks have been continuing. Unfortunately, China continues to have a large share of India's trade. But it will slowly reduce," a Commerce department official said. Official data shows that trade continues to be heavily in favour of China.

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Imports from China rule

Despite widespread curbs on imports of Chinese goods through higher tariffs, stricter rules of origin norms, tougher product standards, and anti-dumping duties, officials admit that India's imports from China have continued unabated. In fact, they have thrived as imports stood at an all-time high of $94 billion in 2021-22, swelling by a massive 45 percent over the year.

The global manufacturing hub for millions of industrial and consumer items, China has continued to successfully ship its products even amidst the Covid19 pandemic, when import orders had nosedived worldwide and logistical challenges grounded ships as containers grew scarce.

"Imports from China had remained constant at $65.2 billion in 2019-20 and 2020-21, even as trade flows to and from almost all other major trade partners were majorly impacted. However, before this we had some success," an official said.

He was referring to a single instance of imports falling, when the value of inbound goods from China reduced from $70.3 billion in 2018-19, to $65.2 billion in 2019-20. That year, India had imposed tariffs on mobile phone components, toys, and chemicals, among others.

The government had blamed the increase in imports on information and communication technology (ICT) products and medical and scientific instruments, due to the surge in demand for these products during Covid-19. However, imports in these categories remained strong through 2021-22 as well.

As of FY22, the largest imports are electronics ($30.2 billion), machinery and heavy engineering goods ($19.8 billion), organic chemicals ($12.5 billion), plastics and plastic articles ($4.4 billion), and fertilisers ($2.9 billion).

On the other hand, India's exports to China stood at $21.2 billion in 2021-22, up just 0.3 percent annually. The slow pace of growth has policymakers worried as China is the third-highest export destination for India, after the US and UAE.

"While exports have jumped 32.5 percent from $16 billion in 2019-20, it will take a concerted effort to keep up the momentum. The ministry is closely watching the trade deficit of $73.3 ($94 b imports, less 21.2 b exports is a trade deficit of 72.8, not $73.3 b) billion," a senior Commerce Department official said.

Investments slow down

Considering from the year 2000, China is the 21st largest investor in India, with a cumulative investment worth $2.45 billion as of March 2022.. Investments from the country fell steeply to just $11.1 million in 2021-22. Investments have continuously fallen over the past few years as the Department for Promotion of Industry and Internal Trade (DPIIT) has increasingly become tougher on FDI from China.

In April 2020, during the economic turmoil triggered by Covid-19, India argued that stricter measures were required to curb the 'opportunistic takeover' of Indian companies by foreign entities in neighboring countries. The Chinese have stakes in several Indian start-ups: Flipkart has an investment from Tencent (about 5 percent) and Alibaba owns a significant stake in Paytm.

Till 2020, Chinese investment was allowed under the automatic route, but not in sensitive areas like telecom, defence, national security, etc., he added.

According to DPIIT's Press Note 3, an entity of a country that shares a land border with India can invest only after receiving government approval. This has effectively barred the smooth flow of Chinese funds to India. As a result of all these measures, Foreign Direct Investment (FDI) from China stood at $60.5 million in 2020-21, down from $350 million in 2017-18, DPIIT data shows.

Meanwhile, investments from the Chinese special administrative region of Hong Kong, considered a global banking, tech and financial hub, has remained steady till recently. As of March 2022, Hong Kong was the 14th largest source of FDI for India, with $4.6 billion having come in since 2000.

While FDI from Hong Kong precipitously dropped to $94 million in 2021-22, it had risen to an all-time high of $834 million in 2020-21. Officials suspect a significant amount of Chine FDI is being routed through Hong Kong.
Subhayan Chakraborty has been regularly reporting on international trade, diplomacy and foreign policy, for the past 7 years. He has also extensively covered evolving industry issues and government policy. He was earlier with the Business Standard newspaper.
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