As India strives to become a manufacturing powerhouse, its relationship with China will probably get worse before it gets better
Throughout the year, they arrive in containers labelled “badminton rackets” or “adhesive tapes”. From India’s largest seaports, they are then dispatched to wholesalers all around the country, where any shopkeeper who knows whom to ask can buy them for next to nothing. Deemed “unreliable” and “dangerous” by the authorities, they’ve been banned since 2008. Yet Chinese firecrackers continue to be a massive hit – especially during Diwali, India’s biggest festival, which sees colourful rockets detonate without pause for at least five days.
But as this year’s edition nears its conclusion, Chinese bangers seem in danger of losing their spark. On Twitter, WhatsApp and Facebook, calls to boycott them have gone viral. A fake letter, purportedly signed by prime minister Narendra Modi, is asking Indians to shun Chinese goods outright. Officials from the ruling BJP party have spoken in favour of a ban. Local newspapers are citing double-digit drops in Chinese banger sales, supposedly as a result of the social media campaign.
Such claims are hard to verify, if only because Chinese crackers tend to be sold at makeshift stalls or under the counter. But India’s growing mistrust towards China is increasingly visible. It is in fact linked to one of Delhi’s longstanding obsessions: its decades-old enmity with neighbouring Pakistan.
India has long been frustrated by what it calls Beijing’s “all-weather” support for Islamabad. Cementing the Pakistan-China relationship are military and diplomatic ties: both see their alliance as a counterweight to India’s growing friendship with America. On topics like border disputes and terrorism, China invariably sides with its old ally, even when the international community seems united in its criticisms. The reverse is also true: Pakistan was one of only two countries (with Cuba) that supported Beijing after the 1988 Tiananmen protests. A survey carried out last year by the Pew Research Centre found that Pakistanis are only second to the Chinese in seeing China favourably.
“It’s almost as if the Chinese were to blame for the terrorist attacks”
To India, that is probably old news. But this year Delhi sees this cosiness in a particularly dim light. The subcontinent’s leaders have for years been advocating that Masood Azhar, the chief of Jaish-e-Mohammad (JeM), a Pakistan-based jihadist group, should be labelled as a terrorist by the United Nations. They were especially keen for it to happen this year, after JeM carried out two terrorist attacks on Indian soil in January and September, the latter killing 19 soldiers. Yet twice in 2016 Beijing used its Security Council veto to block Azhar’s addition to the UN blacklist.
That didn’t go down well in Delhi. “When you talk to people it’s easy to forget for a minute that this man is being harboured by certain elements within Pakistan. It’s almost as if the Chinese were to blame for the attacks,” says Alka Acharya, director of the Delhi-based Institute for Chinese Studies.
In a country sharply divided along political lines, tensions at the border have a rare ability to mobilise. “It’s something which people will go out of their way to denounce irrespective of political differences,” argues Pinaki Chakraborty, a professor at Delhi’s National Institute of Public Finance and Policy.
Privately, the Indian government has probably engaged with Beijing to try and build bridges on this issue. “China doesn’t have any desire to see instability in this area break out,” notes Tanvi Madan, director of the India Project at the Brookings Institution. Yet Delhi’s insistence has had no visible impact so far: hours after Modi spoke with Xi Jinping on the sidelines of last month’s BRICS Summit, the Chinese leader did not even mention the subject in his closing address.
Modi concluded the summit by condemning states that “nurture, shelter, support and sponsor” terrorists, claiming to be speaking on behalf of his fellow BRICS. But the summit’s joint declaration included none of these words.
Another headache for India is the China-Pakistan Economic Corridor (CPEC), a $51bn infrastructure plan that includes transport links running through disputed territories. The plan is part of China’s One Belt One Road (OBOR) initiative, a vast programme that aims to boost connectivity across Asia through infrastructure projects. CPEC is one reason why Delhi has been reluctant to endorse OBOR, which it sees as a unilateral initiative driven by Chinese interests. “The kind of connectivity India would like to support is much more collaborative,” Madan says.
Adding to these frustrations are Beijing’s moves to thwart India’s entry to the Nuclear Suppliers Group, a 48-nation body that rules the global nuclear trade. The prestigious club was created four decades ago, in reaction to Delhi’s own clandestine tests. A successful membership bid, which seemed within grasp in July after India secured US backing, would have rid the country of its nuclear pariah label for good. When Beijing said no, disappointment was severe.
Such foreign policy rows may not be what puts most Indian people on the street. “Somewhere in people’s minds the political fallout of international diplomacy is kept separate from China’s manufacturing prowess,” says Akshay Mathur, director of research and analysis on geoeconomics at Gateway House, a Mumbai-based think-tank.
But the country’s current leaders do not seem to share the same sense of pragmatism. “China is not doing anything different from what it was doing in the past, but Modi’s stance has been to take a stronger nationalistic approach on such matters,” says Acharya. “For the government, progress on these issues has become a pre-condition to getting into a much more serious economic relationship with China. So we’re stuck.”
While the prime minister hasn’t called for a boycott of Chinese goods, she adds, his brand of nationalist politics has allowed small, local outfits with more abrasive views to flourish. But another factor is also providing a fertile ground for protectionist appeals to thrive: India’s huge trade imbalance with China.
“The region’s less advanced economies are seeing their own employment decline as a result of the Chinese impact”
Numbers help put things in perspective. China is India’s largest trading partner, with goods totalling $71bn crossing their border in the last financial year. But it is also the source of India’s single largest trade deficit, which reached a record $53bn in 2015-2016. Of crucial importance is what the shortfall is made of: while China mostly purchases raw materials from India, it sells a lot of manufactured goods to its neighbour.
“The light industry goods India ships from China have strong employment links, and a number of policymakers want to protect those jobs,” says Swati Dhingra, a lecturer at the London School of Economics. “Of course some of this is tied to the protection of vested interests, but there are also some legitimate concerns arising from what Chinese exports are doing to other Asian countries. The region’s less advanced economies are seeing their own employment decline as a result of the Chinese impact.”
Chinese exports are often in direct competition with the wares sold by India’s micro enterprises and SMEs, the lifeline of India’s economy. “It’s not really that Chinese products are rivalling against high-tech Indian goods like cars and sophisticated machinery, which are typically produced by multinationals,” says Mathur. “They are competing against toys, dies, Diwali decoration and crackers that typically boost the revenues of domestic producers during festivals. That creates a serious issue for small producers’ livelihood.”
Delhi regularly resorts to anti-dumping measures to stem the influx. Of the 572 such actions India took between 1995 and 2015, nearly a quarter were aimed at Chinese products, according to the World Trade Organisation. “The government has been trying to curb alleged dumping by Chinese firms, which it accuses of choking the local industry. Sometimes bans also have to do with safety standards: the quality of certain milk products has been put into question, for example,” says Dhingra.
Yet such measures have sometimes had perverse effects on India’s economy. Where they’ve been used to protect a tiny number of domestic producers, Dhingra notes, coercive actions have hurt other Indian firms by depriving them from essential inputs. And at a time when India aims to become a more potent exporting machine, its leaders are well aware that protectionism can easily backfire.
Modi’s Make in India campaign, which aims to boost domestic firms by attracting foreign investment, is not advocating higher tariffs and quotas. A sizeable chunk of this investment, in fact, is expected to come from China. And this hints at India’s ambiguous view of China’s economic prowess, one that is coloured both by insecurity and respect. “The Indian public has much admiration for what China has achieved: it sees it as a large Asian economy that has successfully climbed the industry ladder. And it recognises that India has got a long way to go before it can catch up,” says Madan.
Calls for a blanket boycott are unlikely to be followed. India’s commerce minister issued a note last month to explain the idea was simply not feasible, and it’s unclear how much support the initiative really has on the ground.
“There probably are some people in the public who want to be seen as doing something, and it doesn’t take much for a hashtag to catch fire.” says Madan. “But calling for a boycott is something that’s quite familiar in Indian history. The strategy was part of the means used to promote independence under colonial rule, when non-violent movements would shun British goods. So it’s not a new idea. And it’s also much harder to do now than in the 30s or 40s, because Chinese goods are everywhere.”
Case in point: activists calling for a boycott online are probably doing so using Chinese-made phones.
Further reading: I wrote an article on the boycott campaign for The Economist last week. You can find it here