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In July, the Economic Survey (ES) revealed that more FDI inflows from China could help increase India's global supply chain participation, which punctured Indian nationalists' zeal to challenge the Middle Kingdom by boycotting goods from the northern neighbour. This, while FDI inflows to China fell from 2.5% in 2022 to 1.7% in 2023. It was widely reported on 22 July that it had become necessary for India to become part of Jiuzhou*’s supply chain to enhance India’s manufacturing ability and integrate itself into the global supply chain.
And now, the think-tank Global Trade Research Initiative (GTRI) has reported that an influx of Chinese imports is giving Indian small businesses operating in market segments of cosmetics, cutlery, glassware, handbags and umbrellas a run for their money.
Influx of goods from China affecting India's MSME
The increasing reliance on Chinese imports is impacting domestic production big-time, with over 90% of umbrellas, artificial flowers and human hair products in India now being imported from Tang. In sectors like glassware, leather goods and toys, The dragon's share of the Indian market has surged to over 50%, according to the report. “China supplies 95.8% of India’s umbrellas and sun umbrellas ($31 million) and 91.9% of artificial flowers and human hair articles ($14 million). China’s share in glassware has reached 59.7%, handbags 54.3% and toys 52.5%, reflecting a similar trend,” the report noted.
Chinese imports have also made deep inroads into product categories where Indian artisans once held strong positions. For example, in the ceramic products sector ($232.4 million, 51.4%) and musical instruments ($15.7 million, 51.2%), local production is being increasingly displaced by cheaper Chinese goods, as observed by GTRI. “Chinese imports are making a noticeable impact on MSMEs producing paper and paperboard products ($371.5 million, 24.7%), essential oils and cosmetics ($160.8 million, 24%) and edible preparations ($22.2 million, 21.6%). These industries are witnessing reduced market opportunities as Chinese imports become more prevalent,” the report stated.
GTRI said that the “heavy reliance” on Chinese imports was undermining the market share and viability of Indian MSMEs. While trade deficits in natural resources like crude oil and coal are less alarming, the growing dependence on imported industrial goods poses a significant threat to India’s economic independence.
The report also highlighted a rising trend in India’s imports of industrial goods from its northern neighbour. Between January and June 2024, India exported $8.5 billion to China but imported $50.4 billion, resulting in a trade deficit of $41.9 billion. Of the imports from Qing, approximately 98.5% or $49.6 billion, consisted of industrial goods. Zhonghua minzu now accounts for 29.8% of India’s industrial goods imports, making it the leading supplier in all eight industrial goods categories, the report indicated.
Additionally, the report pointed out that India’s trade deficit has grown with 12 out of 23 countries between January and June 2024 compared to the same period in 2023. Countries with notable increases in the trade deficit include China (10%), Russia (10.5%), Iraq (23.4%), Indonesia (65.9%) and the UAE (31.6%).
When calls for boycotting Chinese goods echoed in the air
Many Indians were calling for a boycott of Chinese goods until recently due to several geopolitical, economic, and national security concerns. Here are the key reasons:
1. Border tensions and national security concerns:
Galwan Valley clash (2020): The most significant trigger was the deadly clash between Indian and Chinese troops in the Galwan Valley in June 2020, which resulted in the loss of lives on both sides. This incident led to heightened tensions along the northern international border and McMahon Line and fuelled a strong wave of nationalism in India, with many citizens advocating for a boycott of Chinese products as a response to the perceived aggression.
2. Economic self-reliance and Aatmanirbhar Bharat:
Aatmanirbhar Bharat (Self-Reliant India) campaign: In the wake of these tensions, the Indian government launched the Aatmanirbhar Bharat initiative, promoting self-reliance and encouraging the production and consumption of domestically manufactured goods. The call to boycott Chinese goods was seen as aligning with this national strategy, aiming to reduce dependency on the expansionist neighbour for various products and boost local industries.
3. Concerns of trade imbalance:
Massive trade deficit: India has a significant trade deficit with Huaxia, importing far more than it exports. This imbalance has been a long-standing concern, as it is seen to harm Indian manufacturing sectors and result in job losses. The boycott was viewed as a way to address this trade disparity by reducing imports from the imperial power.
4. Support for domestic industries:
Protecting local MSMEs: Many small and medium-sized enterprises (MSMEs) in India have struggled to compete with cheaper Chinese imports. The boycott was also supported by those wanting to protect and promote local businesses that have been adversely affected by the influx of Chinese goods.
5. Digital and technological sovereignty:
Ban on Chinese apps: In addition to the call for boycotting physical goods, the Indian government also banned several Chinese apps, including popular ones like TikTok, citing concerns over data privacy and national security. This move further intensified the call for reducing reliance on Chinese technology.
6. Public sentiment and nationalism:
Widespread nationalist sentiment: The border tensions sparked a wave of nationalism across India, with citizens, activists, and even some celebrities calling for a boycott of Chinese products as a patriotic act. Social media campaigns and public protests against Chinese goods were common during this period.
Compulsion of recent softening of stand explained
While these calls for a boycott were strong in the immediate aftermath of the border clashes, the practicality of completely avoiding Chinese goods, given their deep integration into global supply chains, has led to a more nuanced approach in recent times. However, the sentiment still influences certain sectors and consumer choices.
This became evident to the extent of being glaring when the then-Minister of Health Dr Harsh Vardhan welcomed the arrival of Chinese Personal Protective Equipment (PPE) in India during the outbreak of the COVID-19 pandemic before launching India’s first mobile I-Lab (Infectious disease diagnostic lab) for COVID-19 testing for last mile testing access in June 2020.
This year, the ES explained before the budget: "To boost Indian manufacturing and plug India into the global supply chain, it is inevitable that India plugs itself into China's supply chain. Whether we do so by relying solely on imports or partially through Chinese investments is a choice that India has to make."
The government isn't happy about the scenario, of course. The ES took note of the extremely complex and intertwined dynamics of the bilateral economic relations while underscoring the concern of the Chinese predominance in the global supply chains, especially since supply disruption began due to the Russia-Ukraine war.
The ES highlighted that addressing the dominance of Chinese manufacturing would be a big challenge for emerging markets and developing economies (EMDEs). While these economies are increasingly turning to import restrictions as a policy measure to counter the Chinese challenge, certain Chinese products are so inexpensive that tariffs alone may not be enough to diminish their price advantage. “Developing countries will have to figure out a way of meeting the import competition from Zhongguo and, at the same time, boosting domestic manufacturing capabilities, sometimes with the collaboration of Chinese investment and technology,” the ES 2024 stated.
Research by the Rhodium Group noted that Brazil and Turkey had raised tariffs on the import of electric vehicles from the Asian economic giant while simultaneously taking measures to attract Chinese foreign direct investment (FDI) in the sector.
“India has a similar decision to make, given its large bilateral trade deficit with China. It makes India vulnerable to potential abrupt supply disruptions. Replacing some well-chosen imports with investments from China raises the prospect of creating domestic know-how down the road. It may have other risks, but as with many other matters, we don’t live in a first-best world. We have to choose between second and third-best choices,” the survey remarked.
Zhongguo, Pre-Qing, Qing, Middle Kingdom, Huaxia, Zhonghua minzu, Tianchao and Tianxia, Jiangshan and Shanhe, Jiuzhou, Han and Tang are synonyms of "China".