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India and China are two of the fastest growing economies in the world. They are also neighbors and share a huge boundary spanning thousands of kilometers. However, they do not share an amicable relationship. India and China have fought a full-fledged war in 1962. Even after the war, skirmishes between the two emerging nations have been the norm.
One such skirmish took place in 2018 at Doklam which is the tri-junction of India, China, and Bhutan. There were fiery speeches being made both by India as well as China. In the end, good sense prevailed, and a resolution was reached. However, it is a fact that many activists on the Indian side believe that China is an enemy. China’s unflinching support to Pakistan does not do much help to diffuse the situation. There have been several threats being issued by Indian nationalist groups. These groups call for a total and complete boycott of Chinese goods. However, is the situation really so bad? Is a boycott even required? If so, will India be able to boycott these goods successfully?
In this article, we will try to skip through the rhetoric and look at the facts.
Regardless of what the nationalistic groups might feel, China is a strategic trade partner for India. India imports more than 16% of its goods from China. Also, this number has been rapidly rising. On an average each year, Indians import 12% more from China than they did in the previous year.
It is also true that the trade deficit between India and China is massive. This is because India exports $2.5 billion worth of goods to China. Whereas on the other hand, it imports more than $50 billion worth of goods! Indian nationalistic groups believe that this trade deficit is not because Chinese firms are more efficient. Instead, they believe that the trade deficit is because of the predatory practices followed by the Chinese government. Chinese goods are usually about 10% cheaper than their Indian counterparts. However, it is also a fact that the Chinese government provides about 17% subsidy to their exporters. Hence, in a way, the competitive advantage of the Chinese companies is only because of their government’s intervention.
It is true that Chinese companies are more efficient than Indian companies. Since India’s infrastructure is not well developed, Indian firms spend 9% more on transportation, energy, and logistics. However, this cost advantage is nullified by the import duties that India imposes on Chinese goods. The real advantage comes from the government subsidies mentioned above as well as the ability of Chinese companies to borrow cheaply from their banks. On an average, Indian companies have to borrow at 11% whereas Chinese government banks lend to their companies at around 6%. Many Chinese firms have also been accused of using trans-shipment routes to evade duties. For instance, Chinese firms ship goods to Bhutan and then to India. This is done to avoid duties.
All these instances have led many to believe that China is a fierce competitor. The idea that Indian consumers should continue spending money on goods which hurt Indian interests is unacceptable to many. This is the reason why several calls have been made to boycott Chinese goods.
The bottom line, therefore, is that Indian companies need to work harder before they can compete with the Chinese. The government also needs to chip in by providing better infrastructure and by reducing the rate at which loans are given to Indian corporations. Only when the gap between India and China is narrowed, can India boycott Chinese goods. If such a boycott is done now, it will hurt Indian interests more.
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What the Current Wave of Protectionism and Populism mean for the Future of Globalization and Free Trade
February 12, 2025
