Sikkim standoff: China should fear the brewing trade war, it has more at stake than India

The ongoing India-China military stand-off at Doka La may or may not escalate to an armed confrontation depending on the course of psychological warfare. But, for sure, a trade war is on between the two major economies. While the trade war wouldn’t augur well for economies of either side, China has evidently more to lose. Experts on Chinese side have already warned their government of an economic backlash if India becomes an enemy. It is hard to miss the signs. Chinese dailies are already playing up the news that India has initiated 12 investigations against Chinese products in the first half of this year (read a report here ), even more than the 11 cases the US is pursuing against Chinese imported goods. “The Chinese government is highly concerned about New Delhi’s decision last week to investigate the Chinese products for dumping,” the report quoted Wang Hejun, the director general of the Chinese commerce ministry’s trade relief bureau. Another report  quoted the Global Times, a state-controlled daily in China, as saying ‘the list of Chinese products covered by India’s trade remedy investigations is getting ever longer, expanding from garments, glass, minerals and other low-end items to advanced products such as new materials and machinery.’ Not just higher scrutiny, India is already taking steps to reduce dependence on Chinese imports to even critical segments, such as drug imports. A report in the Hindu Business Line (read here), says the Centre is working to reduce the Indian pharmaceutical industry’s dependence on Chinese raw material imports. India has also put on hold the $1.3-billion deal under which Chinese company Shanghai Fosun Pharmaceuticals was to take over Hyderabad-based Gland Pharma. [caption id=“attachment_3850311” align=“alignleft” width=“380”]  Representational image. AFP[/caption] These instances tell us a trade war is already on between India and China — both claim to be the nerve centres of manufacturing in the region. The downside of the trade relations will hit India. This isn’t an easy decision for India. As the Business Line report points out, China is the major supplier of raw materials for active pharmaceutical ingredients to India and in some cases, including life-savings drugs, the dependence is as high as 90 percent. It isn’t easy to stop these imports unless there is a mechanism in place. But, looking at a larger picture, the economic impact of dwindling trade will not be too big for India as it doesn’t have much exposure to China except in certain specific segments. But China has much to lose. There are a few reasons for this: First, China has been enjoying a thriving trade relation with India over the years. India has about $ 52 billion trade deficit with China. Last year, India exported about $9 billion worth of goods to China while China exported $60 billion to India. Chinese presence is evident in almost all sectors ranging from electronic items to pharmaceutical products. Chinese companies would not want to spoil the business opportunities the Indian market offers to them. Second, an even bigger impact for China will be on the One Belt, One Road (OBOR) initiative. Antagonizing India could stall the progress of this ambitious Chinese project. China is well aware of this likely backlash. China has already invested heavily in this project. As noted in an earlier Firstpost piec e, China is in the midst of expanding its economic reach in South Asia through its much-hyped China-Pakistan Economic Corridor (CPEC), which is critical to its OBOR plan. A significant chunk of investments (at least $ 50 billion so far) have already gone into this project by Chinese companies. India has already expressed its displeasure to China on CPEC plan layout since it crosses through the contentious part of Kashmir, which is occupied by Pakistan and claimed by India. Some of its neighbors like Sri Lanka too have spoken in favour of India on this issue saying it is difficult for India to accept the CPEC since it passes through the ‘heart of Indian interests’. China will further risk the fate of CPEC and OBOR if it escalates tensions as India can pave hurdles on the progress of OBOR. Third, Chinese experts have already cautioned their government about the negative impact China will face in the Indian Ocean, where India has a dominant position. As this article in South China Morning Post notes, China is heavily reliant on imported fuel and more than 80 percent of its oil imports travel via the Indian Ocean or Strait of Malacca. “India is strategically located at the heart of China’s energy lifeline and the ‘Belt and Road Initiative’, and offending India will only push it into the rival camp, which [Beijing believes] is scheming to contain China by blocking the Malacca Strait and the Indian Ocean,” the article quoted Macau-based military expert Antony Wong Dong as saying. Fourth, India has much stronger diplomatic ties with US, Japan and a host of other countries than ever before. Making India an enemy would push China in the opposite camp and it will erode the gains it has been making as a peace-loving, matured country that aspires to become a world leader. Beijing wouldn’t want to gamble its hard-won image by prolonging the military stand-off with India. Also, it is set to host the 2017 BRICS meet in September where India is a member along with Brazil, Russia and South Africa. It will be a big embarrassment for the Chinese leaders to face an Indian delegation to talk on strengthening BRICS at a time when both countries are engaged in a trade war and likely military conflict. Perhaps, China has even more reasons to put an end to this uneasy phase at the earliest than India has, the main among them, of course being the fate of its ambitious OBOR initiative.