As developments following the Galwan skirmish in 2020 have shown, there is no let up on Chinese pressure on India, the only country with which it has had an army-to-army confrontation in recent times resulting in deaths and injuries on both sides.
A robust military response to Chinese aggression, some deft diplomacy and the forging of critical partnerships with the West without annoying Russia have kept the Chinese under check.
But this is small consolation when China is one of India’s top two leading trading partners and an indispensable one at that.
India’s pharma industry, like so many others, is excessively dependent on Chinese supplies. Even India’s vaunted Vande Bharat trains roll on Chinese wheels. As a trading partner China is one India cannot do without but the reverse is not true.
For China, India’s trade, currently at around $100 billion, is inconsequential compared to what it does with other economic blocs and countries of the world. The numbers in China’s Statistical Year Book - 2021 speak for themselves. At $646 billion the EU is only China’s second largest trading partner while America at $586 billion is third and Japan at $317 billion a distant fourth.
ASEAN, comprising countries in China’s backyard has, at $676 billion, emerged as China’s largest trading partner. Break ASEAN’s trade down to its major constituent countries, the figures are startling. Vietnam’s trade with China at close to $200 billion is almost double India’s while Malaysia’s is a little over $131 billion and Thailand’s close to $100 billion. But it is with a newly invigorated Indonesia with its huge deposits of rare metals and minerals that China’s trade is set to rise spectacularly from its 2021 level of $78.5 billion. So why is China trading with India at all?
A major reason is that China, like the rest of the world sees India’s rising and more youthful population as a promise and a tremendous present and future business opportunity. Infrastructure-wise and as a manufacturing base, India has also matured tremendously over the last couple of decades. Where else in the world can one find a country of India’s size or a single market of such magnitude and human resources of such abundance?
It is this fact that is leading to the gradual relocation of iPhone manufacturing to India. Big chip manufacturers from Taiwan are seriously considering setting up manufacturing bases in India as are foreign aircraft, locomotive and truck manufacturers. For China too today’s India is an ideal place to relocate many of its industries that are becoming unviable especially due to rising wages at home.
Despite being kept out of the PLI scheme, Chinese smartphone makers are leading India’s phone exports (BusinessLine, September 17, 2022). Its EVs are seen on Indian roads in increasing numbers. Indians see Chinese products as not only competitive price-wise but also to be high quality, value-for-money ones too.
One example: a popular Chinese brand MG Motors, according to an Autocar India report of November 10, 2022, has for the second year running ‘secured the highest ranking in the JD Power 2022 India Sales Satisfaction Index (SSI) Study’.
Rather than continue with a proven counterproductive policy of shunning China, India would do well to robustly engage it economically and negotiate better deals that will, among other things reduce the adverse balance of trade that exists today and bring in VCs from that country of the kind that have powered some of India’s iconic unicorns in the past.
It’s a fair bet that if India’s trade with China continues to rise touching $300 billion over the next few years with the possibility of exceeding ASEAN’s within a decade, China could be a much more accommodating neighbour than it is today.
This is what most other countries in the world have realised. This is evident in the recent rush of important European leaders to China among them Ursula Gertrud von der Leyen, the German head of the European Commission, and President Macron of France who was joined by heads of important French corporations from Airbus to the cosmetics giant, L’Oréal. The Australian Prime Minister is slated to visit China later this year after an impasse between the two countries that has lasted for so long.
Brazil under its new President Lula da Silva is re-engaging with China in a big way. It is, according to a April 13, 2023 South China Morning Post report, China’s tenth-largest trading partner, with bilateral trade value rising by 4.9 per cent to $171.5 billion last year, according to Chinese customs data.’
Countries like Indonesia and Vietnam have maritime disputes with China which are no less serious than the ones India has across its Himalayan borders with that country. This has not stopped any of them from deepening their economic relations with China. For all its posturing China is unlikely to get into any kind of military conflict with any country, especially the US when it has come this far economically but still has some way to go before it matches America in power and influence even in its own backyard.
When every major country in the world is reaching out to China and more than willing to trade with it, India should not be the lone exception and deny itself the benefits of doing business with a country as big or as important to us as China is.
The writer taught Public Policy and Contemporary History at IISc. Views expressed are personal