India-China trade is not a win-win situation at the moment. There is a requirement to discuss, India-China trade and the steps to explore measures to boost bilateral trade that has been affected by the coronavirus and even explore policies to be self-sufficient in critical sectors.
By Dr.Teshu Singh
As on 15th April 2020, the total number of coronavirus cases are 1,986,936, with 125,953 deaths worldwide. The origin of the virus remains unknown. It is widely believed that virus jumped species and is traced to the “wet market” in Wuhan. It is believed that the new virus mutated from a coronavirus which is common in animals and jumped over to humans. The location of the wet market is intriguing. It is just 300 yards (277.73 m) from the Wuhan Center for Disease Control (CDC) and Wuhan Institute of Virology. Reportedly, amidst the US-China trade war, the American disease expert posted in China’s disease control agency left her job in July. Subsequently, the Coronavirus appeared on 17 November 2019.
While China has recovered from the pandemic, the rest of the world continues to fight the pandemic. In China, around 98.6 per cent major industrial firms have resumed their operations. In industrial companies, around 89.9 per cent of employees have returned to work. In Hubei province itself, the rate of resumption of work is 95 per cent. The small and medium-sized enterprises have also restarted. The government has promised a special stimulus package for the SMEs to get back to normal. The production and operation of critical pharmaceutical companies producing vitamin, antibiotic, antipyretic and analgesic has also resumed. The Chinese government is also introducing other fiscal and monetary measures to get back its economy. Some of the companies that opened in March realized that they have no order to fill; most of the orders were cancelled as the coronavirus spread worldwide. 4 Hence, these figures are questionable as there has been no external authentication of the data given by China.
As the pandemic has swamped many nations including the US, China is comparing its response to that of the US, which is facing a shortage of medical equipment such as testing kits and ventilators. China’s manufacturing units are back in shape, while that of other parts of the world is closed. Consequently, China has sold almost 4 billion masks to other countries in past one month and is scaling the production further. The quality of these masks however, is questionable and has created controversy leading to the poor image of China. Beijing is reaching out to different countries to help fight the virus. In the interim, China is donating coronavirus testing kits, ventilators, masks and Personal Protective Equipment (PPE). Xi Jinping has consoled the Spanish PM, by stating the “sunshine comes after the storm”. Italy joined the Belt and Road Initiative (BRI) just a year ago; it was the only G7 country to become part of the BRI. It has been badly hit by the Coronavirus and is in a miserable state of affairs. China dispatched a plane full of medical supplies to Italy and this was highlighted in all the leading Chinese newspapers. Xinhuanet published “China’s expert team, medical supplies fly into Rome” , People Daily highlighted ‘China’s expert team, medical supplies fly into Rome, China Daily captioned a news item as ‘Medical team arrives in Italy with 31 metric tons of supplies’ but it was revealed that China forced Italy to buy these products from them. Reportedly, it was found that even in these difficult times, China is forcing Italy to buy masks and other essential requirements. Before spreading of the pandemic in Italy, they had sent PPE to China to help Chinese citizens. China “sent Italian PPE back to Italy” and have charged for it.
On the Chinese response to the UK, the government might pull completely out of its 5G deal with China. Beijing has also threatened to stop the exports of certain drugs to the US. Spain, Turkey and Netherland have banned the kits and PPE coming from China. Further, to deal with this situation China published a list of authorized domestic companies that are certified for export to the US and Europe. These gestures by China are seen as a part of efforts to reshape the narrative that blames China for the early missteps it had taken to cover up the coronavirus incidents. Now, China is trying to share its lessons with the other countries. But this has not brought many laurels to China as the quality of the masks and PPEs are not up to the mark. But the damage has already been done, in the UK in an online call for boycotting goods, there were 78000 signatures. The European Union Chamber of Commerce has already issued a report stating that China may take over the lucrative industries with their products. In a recent poll, there were 61.9 per cent votes against China for its obfuscation and failure to alert the world about the reality of the pandemic coronavirus.
At the same time, as the countries are struggling with the pandemic, China is expanding its strategic and economic in the South China Sea. China has conducted military drills and deployed military in the maritime space. China has established the two research stations on artificial islands of the South China Sea. The stations are at Fiery Cross Reef and Subi Reef under the Chinese Academy of Science’ Integrated Research Center for Reefs and Island that was set up in the Mischief Reef. The US has criticized this development amidst the coronavirus pandemic. The South China Sea is one of the core interests of China but assertiveness at the time of global crisis is unacceptable at the international level. This may not go well with other countries of the region.
These developments point towards a new kind of “charm offensive” being unleashed by China. Beijing is also moving ahead with its “cheque book diplomacy” and using all sort of tactics to showcase its humility, economic power and might as and when required.
Post-Coronavirus: China and the World
In the post-coronavirus situation, it will be still hard to ignore China. China is the second-largest economy in the world and the largest trading country worldwide, its global importance is difficult to be downplayed.
China is intricately weaved in the global value chain. It has achieved the level through a structural transformation infused by trade and Foreign Direct Investment (FDI) liberalization since 2000. The global value chains have been negatively impacted by the pandemic. Perhaps, it has shown the world their over dependence on China and the need to diversify the global value chains. Moreover, China is the largest trading partner with most of the countries. It is in a position to leverage its industrial capacity and resources to create synergy with technologies it has acquired over the years. Such cooperation based on comparative advantages is well-placed to tap potential demand through further opening-up of its market, which will lead to a more connected market in terms of production factors, services, capital and technologies, thus offering all the makings of a new system of the industrial division of labour. This may create a world that is more dependent on China.
The BRI, a signature initiative by Xi Jinping has created an interdependence that is hard to ignore China. Xi Jinping has said: “China will actively promote international co-operation through the BRI. In doing so, we hope to achieve policy, infrastructure, trade, financial, and people-to-people connectivity and thus build a new platform for international co-operation to create new drivers of shared development”. The main sources of funding for the bulk of these BRI-participating projects are the Chinese development banks, the USD 40 billion Silk Road Fund, and two of the large state-owned commercial banks. Additionally, the BRI has already created “Debt Trap” in countries like Sri Lanka, Pakistan, Laos, Mongolia and Djibouti. These countries have been identified at high risk of “Debt Trap” and already owe more than 45 per cent their GDP to China over BRI. Given the level of dependence, it is unlikely that these countries can wish away from China. The US and Europe will still be able to manage the economic repercussions of the pandemic but these countries are still dependent on China.
In the last three months, China is trying to project itself as a leader and forerunner of public health. Perhaps this was a kind of image China needed at the time of the on-going US-China trade dispute. China is going through turmoil both internal and external. The Chinese leadership today is split between whether to continue to concentrate its efforts on containing infections and persevere in a prolonged battle against the virus or shifting its focus to revitalizing its economy. However, the Chinese government continues to downplay the impact of the pandemic as limited and temporary. Putting back the economy on the track is very critical for Xi Jinping as in 2022, Chinese Communist Party’s 20th Congress will take place, until then Xi Jinping wants to stay in office and form a new team of leaders around him that are of his choice. The next year, 2021, is special year as it marks the centenary of the founding of the Chinese Communist Party. The first step for Xi is to put the economy back on track before the convening of the National People’s Congress at a relatively early date so that he can turn the nation’s focus fully on economic reconstruction.
Post-Coronavirus: India-China Relations
Before the outbreak of the pandemic, Wuhan was a very special city of China in India-China Relations. The first informal Summit was held in the Wuhan and the outcome of the summit was famously known as the “Wuhan Spirit”. The Wuhan Summit was held against the Doklam Crisis and it was successful in establishing the strategic communication channel at the highest level between the two sides and had given an upward trajectory to the bilateral relation. Since the outbreak of the coronavirus Wuhan’s significance has become more associated with the pandemic rather than with the summit.
This year marks the 70th anniversary of India-China Relations. At the second informal summit, it was agreed that as an apart of 70 years’ celebration 35 related events will be held in each side. However, amid the pandemic, the celebrations seem bleak. On 1 April 2020, both leaders exchanged congratulatory messages with each other on the 7 decades of relations. Against the backdrop of the coronavirus pandemic, India is one country that has shown patience. India sent its airlines to bring back Indian citizens from Wuhan and has not sent any hostile or negative message to China in this last four months. Rather Indian Foreign Minister discussed the novel coronavirus with his counterpart Wang Yi. After the meeting, the Chinese ambassador to India Sun Weidong said in a tweet: “Dr Jaishankar agreed not to label the virus and the international community should send a strong signal of solidarity.’’
India and China are key trading partners; China is the second-largest trading partner of India after the US. In 2019, bilateral trade reached USD 87.07 billion with a trade deficit of USD 53.57 billion. Trade Deficit is already an irritant in the bilateral relations and is the third-highest after the trade deficit of the US and the Netherlands with China. The main reason for this swelling trade deficit is the lopsided trade, India imports from China USD 70.32 billion while it exports only USD 16.75 billion. The main reason for this is the composition and structure of the trade. According to Chinese data, in January and February 2020, the trade between the two countries had declined by 12.4 per cent. On the other hand, the People’s Bank of China (PBoC) has acquired 1.01 per cent of stakes in HDFC bank shares. According to shareholding disclosures for March quarter, PBoC held 1.75 crore shares of HDFC. It is not clear as to when the PBoC bought the entire share between January and March, thus causing a concern for Indian financial sector.
There is a need to rethink about India’s increasing dependence on the Chinese imports especially in sectors like Active Pharmaceutical Ingredients (API), electronics and telecommunication. India imports around 80 per cent of API, due to the coronavirus the cost of the API’s have also doubled. India produces 20 per cent of the world’s supply of drugs by volume and is the world’s biggest exporter of the generic drug. China has invested heavily in its research and development sector. Consequently, they brought down the cost of APIs and the Indian PSU’s had no option but to shut down in the wake of cheaper Chinese imports.
Against the background of the pandemic, India should ask for better access to Chinese market and insist on a broad trade agreement based on reciprocity. India has been asking China to provide market access to its food and agro products, pharmaceuticals, IT and IT-enabled services (ITES), tourism and services. These are the sectors in which India has proven strengths and significant global presence but minuscule presence in China. Indian companies continue to experience unlisted restrictions in China. India is one of the largest manufacturers of generic drugs but it has not been able to enter the Chinese market because of its protectionist policies. The Indian pharmaceutical companies are exporting generic drugs to the US and Europe, and most of the drugs have received FDA and EU approval. Intriguingly, China does not allow imports of drugs from India.
India could also think of raising import duties on products imported heavily from China. This will also push indigenous products in the local market. Given that the Chinese products and investments worldwide are facing pressure, henceforth, India can put preconditions on the Chinese investment in the country. The pattern of Chinese investments in the country is a matter of concern which is mostly in mobile phones and e-commerce. Until now most of the investments are in brownfield projects but India needs investments in the greenfield projects.
Amidst the US-China trade dispute followed by the COVID-19 many companies are moving out of China. Japan has already allocated USD 2.2 billion of a stimulus package to help its manufacturers shift out of China. India could use this opportunity and make competitive and attractive policies to bring these companies.
India-China trade is not a win-win situation at the moment. There is a requirement to discuss, India-China trade and the steps to explore measures to boost bilateral trade that has been affected by the coronavirus and even explore policies to be self-sufficient in critical sectors. Thus there is an urgent need for introspection and formulation of pragmatic policies towards China especially with respect to the bilateral trade.
The author is a Research Fellow at VIF India
This article was originally published by VIF India and it belongs to them