They don’t know what hit them! This is how India’s Energizer bunny anchor Arnab Goswami, in his prime-time live telecast on Republic TV, was threatening the Chinese with a digital strike. The hyperbolic words which initially brought sickening thoughts that war was about to start between Asia’s two largest countries left Pakistanis, for sure – but many others also roiling a few minutes later – when it transpired that Arnab was referring to India banning 59 Chinese Social media Apps. This was to be India’s response to the gruesome hand to hand fighting that left 20 Indian soldiers dead – and around 70 seriously injured.
Whether China wanted to warn India on its growing strategic relationships with USA and its assertive role in the Quad or it was upset about Ladakh being declared Union Territory in Aug 2019– the new direction that has taken place between the two Asian giants now brings another angle to the rivalry: Trade and Digital Warfare.
Economic nationalism and keyboard warriors voicing their angst started #BoycottChina and #BoycottMadeInChina and the Prime Minister’s appeal for economic self-reliance and Atmanirbhar Bharat” (self-reliant India) was trending as hashtags on twitter. On Indian TV video footages were repeatedly shown of Indians breaking TV sets and Chinese made mobile phones.
In response, the Chinese government’s mouthpiece the Global Times described Indian economic boycott attempts as “In China, very few take those calls and actions seriously, with some saying India waging a trade war with China is like throwing an egg at a rock.”
Its not clear what Indian objectives are for the economic boycott: To hurt China? To make itself self-reliant (in lines of Trump’s ‘America first’ policy) or just to bolster the population’s morale after the beating it has taken from perceived inadequacy of the Indian government response to the Chinese occupying the Galwan valley.
India has banned some of China’s most popular social media apps. The famous TikTok App which had around 600m Indians as subscribers constituting 30% of its market. Along with TikTok, the government also banned other high-profile Chinese apps including WeChat, a messaging app, Weibo, a Chinese social network that’s similar to Twitter and Baidu Maps.
Indian Reality of GO Local
However, the reality is that India only accounts for 3 percent of Chinese exports – around $70bn out of its $2.5 trillion exports in 2018 – and India is probably hurting itself more. China by comparison is 9-10% of Indian exports. In 2019 India imported around $65bn and exported around $16bn.
Read more: China adamant on teaching India a lesson?
More importantly, what India imports – mostly intermediate and some finished products – from China include necessary products used in its domestic industries and these constitute an essential part of its supply chain. And not to be underestimated is that these quality Chinese components are available at competitive prices as compared to the supplies locally or from next best country.
These include electrical equipment and machinery, mechanical appliances, semi-conductor devices, iron & steel products, coal, auto components, and textiles. India is very dependent on China’s active pharmaceutical ingredient (API) supplies for its production of medicines. According to the Times of India it imports an average of 68 percent of its total bulk drugs and intermediates from China every year.
So far the Indian government has restrained itself from increasing tariffs on these imports given that increasing costs for domestic producers during a period of India’s worst recession would not be a great economic policy by the government. So the hyperbole behind the banning of social media Apps serves to ameliorate the vengeance of the Indian population over the killing of the 20 soldiers at Galwan Valley whilst costing the country very little.
In many consumer areas such as mobile phones – Chinese phones account for 4 out of every 5 phones sold: Xiamo and Vivo together have over 80% of the market with Samsung and Apple far below and indigenous phones accounting for around 1%. The majority of Indians can only afford the cheaper Chinese phones. Shares of Chinese solar power products account for almost 90 percent of the local market, auto components about 26 percent and telecoms equipment 25 percent.
Chinese Foreign Direct Investment in India
Another reality is that while the April 22 revised rules of investing in India targeted Chinese FDI into the country, Indian startups have received billions of dollars from China which would not otherwise be available from the local market. Chinese companies are amongst the largest investors in India.
The Indian foreign policy think tank The Gateway did a report in February 2020 where it pointed out that China had put in around $4 billion into Indian start-ups, and that as of 2020, 18 of India’s 30 unicorns — start-ups valued over $1 billion —received funding from Chinese investors. India itself has few venture capital companies that can invest this amount of money into start-ups.
After the introduction of the revised rules (April 2020) over 40-50 applications by Chinese investors already in pipeline have now been put on hold. India has always had a strong internal belief in import substitution and distrust of foreign companies in the country.
However the much needed capital has helped the country grow past two decades as the country liberalized itself. Whether it can afford to lose Chinese companies’ existing and planned investments in India which are estimated by Brookings Institution in a report in March standing close to $26 billion.
Post Galwan valley imbroglio India is now considering a potential ban on Huawei’s involvement in its 5G rollout plans. Indian newspaper Times of India has reported government having discussions over whether Chinese telecommunications companies Huawei and ZTE should be allowed to participate.
India has three major mobile companies that have all submitted interest in 5G tests: the country’s largest, Reliance Jio, uses Samsung, whereas Bharti Airtel and Vodafone Idea use several vendors including Huawei. Huawei equipment makes up one-third of Bharti Airtel’s current network and 40% of Vodafone Idea’s network.
May 2020, further US sanctions were announced against any global firm using American equipment to make semiconductors. The new rule restricts international companies from exporting computer chipsets and other key components to Huawei
India was expected to launch 5G later this year, which has now been delayed to mid 2021. Whether India goes ahead with the ban depends on how quickly the current tensions between the two Asian giants die down. What is probably more likely is that it puts a limit on the amount that can be outsourced to Chinese companies.
It is clear that China does not need to engage in a tactical conventional military war with India, as it has enough economic ingress into the country to damage it from the inside. This understanding already exists in Indian defense experts, such as Pravin Sawhney stated in the June issue of Global Village Space magazine – “today China has a capability, in our power grids, in our communication grids, in our defense grids because we have used their equipment in all these grids over the years; they were always the cheapest.
Now, they have the capability that they can put their malware in the machines because the manufacturer knows where to put it. And they have cyberweapons today. So today they have a capability, if they want perhaps, to shut half the country down.”
Maybe it was understanding of such fears and the dawning realization that India should not be so economically dependent on China that led to India banning Chinese Apps and reviewing its decision on 5G as well, whilst ostensibly citing security concerns, saying they pose a “threat to sovereignty and integrity.”
Huawei: Symbol of West’s fear of China’s rise
May 2020, further US sanctions were announced against any global firm using American equipment to make semiconductors. The new rule restricts international companies from exporting computer chipsets and other key components to Huawei. Without those chipsets, Huawei cannot build 5G base stations and other equipment, and this puts its 5G equipment business under immense threat of collapse. Huawei which in early 2020 had announced it had over 91 commercial 5G contracts, of which 47 were in Europe, 27 in Asia and 17 elsewhere, is likely to see parties renege on their contracts due to pressure from the US.
On June 24, U.S. Secretary of State Mike Pompeo announced that “the tide is turning against Huawei as citizens around the world are waking up to the danger of the Chinese Communist Party’s surveillance state.” The United States has been pushing its allies for close to two years to not permit 5G technology which is seen as being integral part of the new arms race. So far only Australia, New Zealand, Japan, and Taiwan acquiesced to US demands.
Discussions are underway in the UK which previously resisted US pressure and allowed a role for Huawei in the 5G rollout whilst limiting it to 35 percent, although as I write this stories abound about the UK government backtracking on this, citing that in light of the US sanctions introduced in May it would have a “significant impact” on the company’s viability.
Chinese Ambassador Liu Xiaoming to the UK, stated that any U-turn made by the country would tarnish its image as a proponent of free trade and having an independent foreign policy, “If you dance to the tune of other countries, how can you call yourself Great Britain?” he asked. He warned that the UK would “bear the consequences” if it treated China as a “hostile” country and banned Huawei from participating as a supplier in it’s 5G system.
For Indian strategy to hurt China economically it has to work in tandem along with other willing partners, which in particular includes the US – which under Trump is already eager to curtail China’s rise and economically hurt it. After the Indian ban on TikTok, Pompeo in an interview suggested that the USA may also mull over it – although it only has around 30m users in the United States.
The USA has had a trade war with China for the past 2 years and increased tariffs on over 6000 products – some of which were later reviewed and removed just before relations worsened between the two countries after the Corona pandemic. Getting China out of the US trade system is not easy.
Santosh Pai, honorary fellow, Institute of Chinese Studies, has dubbed this approach by India as ‘Make in India 2.0’
In the first week of July, Amazon following Wells Fargo issued an internal memo asking its employees not to use Chinese App, TikTok – move was welcomed by some congressmen. However, within hours Amazon reversed its decision. While it’s not known what exactly happened inside Amazon’s brain center, but informed speculation is that world’s largest online retailer was made to realize that a seriously significant percentage of whatever it sells at most competitive prices originates from China.
China substitute: ‘Make in India 2.0’
During the ongoing Corona pandemic the constant references by the Trump administration of the Chinese virus, Wuhan virus and blaming China and WHO for allegedly not informing the world early enough of the nature of the crisis – right or wrong – gave many countries who mismanaged their own handling of the corona virus a cover to blame the crisis on Chinese.
In economic terms, many also realized the need to have more than one manufacturing hub to rely on and have publicly announced they will ask local companies to look elsewhere. Japan has very proactively announced a fund of $2.2 billion to help its firms to move from China and relocate elsewhere.
In this environment we can understand Modi’s speech on May 12th in which he talked of Indian ‘self reliance’ and espoused ‘buy Local, Be global.’ An amalgamation of the early 20th century Swadeshi movement combined with 21st century globalization. He mentioned the word self-reliance 17 times in his 30-minute national speech on TV.
He is hoping that given its location, domestic market and English speaking labor it can become the preferred destination for foreign investments in the next few years. Santosh Pai, honorary fellow, Institute of Chinese Studies, has dubbed this approach by India as ‘Make in India 2.0’
The success of this push for India to become China’s go to substitute will become clear in time. But given that India does not have a strong manufacturing sector and its notorious bureaucratic red tape produces massive inefficiencies chances are that more and more companies – under US pressure – will end up moving to Vietnam and Thailand rather than India.
Najma Minhas is Managing Editor, Global Village Space. She has worked with National Economic Research Associates (NERA) in New York, Lehman Brothers in London and Standard Chartered Bank in Pakistan. Before launching GVS, she worked as a consultant with World Bank, USAID, and FES and is a regular participant of Salzburg Forum. Najma studied economics at London School of Economics and International Relations at Columbia University, NewYork. she tweets at @MinhasNajma.