Economic Impact of the India China Conflicts
- bhavya gupta
- Aug 5, 2020
- 3 min read
As the fume ignites at the border between India and China the more concerning aspect is the economic fallout of the drowning relationship between the two countries. This is because the economic interdependence of the two neighbours is too deep to be ignored.
China is India’s biggest trading partner in the world and India also has the largest trade deficit with China (which means that India imports more than it exports to China). This deficit has doubled in less than a decade.
The trouble for India is its overall leverage with China is such that it cannot inflict serious pain on the five-times-larger Chinese economy as a whole, even if it could hurt individual companies. This, while India remains deeply dependent on Chinese goods, whether they are procured from China or elsewhere, although China’s exports to India account for less than 3% of its overall exports. On the investment front, Chinese investment in Indian tech start-ups has crossed $4 billion, according to estimates, spanning major investments in companies including Paytm, Swiggy, Ola and Flipkart
Chinese products form a critical part of the supply chain for firms in many sectors in India. With the economy struggling to recover from the pandemic, any potential escalation between the two nations could escalate operational as well as supply-chain risks. India can look to find alternatives for Chinese products but such a step would be tedious and expensive.
China should recognize how much it will benefit from India’s development, just as richer countries gained from its own increasing wealth. That should mean opening up its domestic market to key Indian exports such as IT. Making the approval process for Indian generic pharmaceuticals easier, too, would help to lower China’s sky-high drug prices. New rules were introduced on this front last year, but it’s not clear they’ll succeed: China’s trifling pharmaceutical imports from India actually declined in 2019.
Coercive actions
Economic sanctions have been one of the key tools of Chinese coercion, according to Zhang Ketian, who is writing a book on Chinese coercion and is assistant professor of international security at George Mason University. Based on interviews with Chinese experts and policy documents, Ms. Zhang noted that coercive actions were selective and focused on “targets when economic cost of coercing is low” but the impact is high.
the recent clashes with Chinese troops in the Galwan Valley in Ladakh on 15th June in which 20 Indian soldiers lost their lives. Since then there have been growing calls in the country to boycott goods from the neighboring country. Chinese products, services, and investments are deeply entrenched in India’s supply chain and the nationalistic sentiment could potentially lead to a trade war between the nations
One study of late 20th century conflicts by economists at Sorbonne University in 2008 found that while openness to trade doesn’t automatically prevent war, there’s a greater risk of conflict when countries grow less economically dependent on each other, as appears to now be happening with China and India. Paradoxically, that means globalization can make matters worse: Countries that become more integrated with the world economy are more able to endure the loss of commerce with a single
nearby rival.
Moreover, losing this market would come at a time when the Chinese economy is facing its own challenges in the wake of the pandemic and facing increasing barriers in many Western countries.
Though far away, mounting tensions between the two most populous countries in the world need watching carefully.
References:-
Comments