The Chinese goods ban: All Bark and no Bite?

In a hyper-patriotic environment, calls to boycott Chinese products are getting louder. Is a total ban economically viable or is it mere optics to subdue?

The Made-in-China goods were very popular with the average Indian customer due to their considerable cost differential, if not the quality. But, post the border stand-off between India and China, Indian citizens have become acutely conscious of the yawning gap in trade with China.  

Today,  in a hyper-patriotic atmosphere, the common perception is that while our giant neighbour tries to nibble away at our territory,  purchasing its products will indirectly contribute to the China coffers, and thus to its comprehensive national power.

Interestingly, while the people are proclaiming a “citizen blanket ban”, the Indian government’s response has been subdued.  Apart from banning some 59 odd Chinese-owned apps, there seems very little being done to curtail or ban entirely the trade and investment between the two rival countries.

Calls to boycott Chinese goods are getting more strident by the day, with images of citizens throwing their TV sets off balconies going viral on social media. While these sentiments are not novel after conflicts between countries, the idea of destroying items already paid for appears rather drastic if not dramatic.

UNDERSTANDING BOYCOTTS

The word ‘boycott’ originates from a group of Irish farmers refusing to work when Captain Charles Boycott, the land agent of an absentee landlord, threatened to evict them. They had been protesting the non-reduction of rent due to a failed harvest that year. The farmers refused to show up to work, despite their short-term hardship, and Boycott was soon isolated. Local businessmen stopped trading with him, and the postman refused to deliver mail to him. Eventually, 50 Orangemen volunteered to work and were given the protection of a thousand policemen and soldiers, even though the local Land League leaders had said that there would be no violence from them, and this was true. The protection ended up costing more than the harvest was worth, and the first successful "boycott" was born. 

Here, we can see that the boycott was successful by employing a multi-pronged strategy of cutting-off trade, work, communication, and resources. It was also carried out by a group of people who held the power of production in their hands. The captain could not get the work done himself. The new approach of boycott, then, begs the questions -- is simply stopping trade enough to send across a message, and is this what is needed in response to the conflict? 

While India does have a massive trade deficit with China ($54.62 billion in 2019-20), there are many other aspects of the Indo-China relationship that intersect, and would need to be boycotted if we really mean business about cutting-off ties, which could cause the average Indian to rethink their stance. 

This is reminiscent of Mahatma Gandhi’s Khadi movement, which encouraged the boycott of foreign-made goods and promotion of Indian products to boost the country's economy.  However, this movement promoted an ideology against the British and helped foment the spirit of freedom and self-reliance in every citizen. It was one of the weapons in Gandhiji’s arsenal against the British colonial power.

INDO-CHINA EXCHANGES

As an active member of the global market, India depends on external trade for its growth. It is also a signatory of multilateral institutions like the WTO, under whose aegis it is a signatory to numerous multilateral agreements which clearly define its right to sell to others goods produced in India.  In the same vein, the very same agreements define India’s commitment to permit goods from other members to be sold in India without fear or favour. These agreements have been the catalyst for India’s rapid economic growth in the last two decades.

China is one of the biggest exporters to India. In 2019, India and China’s trade stood at $92.68 billion, more than 60% of India’s total trade. This included raw materials for products that are made in India, ranging from technology to automobiles to medication and even, ironically, defence gear. There have already been attempts to reduce China’s leverage in the Indian economy, with India pulling out of the Regional Comprehensive Economic Partnership (RCEP) and reducing China’s ability to invest in India through FDIs. But FDIs can simply get rerouted, as it did with SingTel and its involvement with Bharti Airtel. 

China leads lithium-ion battery production worldwide, with a 73% global manufacturing capacity. Many popular phones in India are made by companies such as Vivo, Oppo, Xiaomi, and One Plus, which are Chinese. China has also invested in many other Indian companies, such as PayTM and Bjyu’s. But these are not unilateral relationships. The reason for the flush of Chinese phone companies in India is that they are cheaper for the features they offer. In fact, the unique selling point of Chinese products has always been the ability to cram in several features for a small price, with moderate quality assured. This has given rise to production facilities being set up in India with nominal Indian partners.   Oppo, Realme and OnePlus smartphones are manufactured at a massive facility in New Delhi, employing around 10,000 workers.  The India head of Xiaomi, Manu Kumar Jain, says that the company manufactures all of the smartphones it sells in India locally, and employs more than 50,000 people in the country. 

An industry executive stated in the Economic Times that Vivo had undertaken a quick consumer study through its 30,000 shop-floor executives. They stated that there was no real impact on purchase patterns or consumer sentiments in June after the furore over boycotts. Moreover, Vivo still shows up as the sponsor of many Indian media outlets. 

The new ban on 59 apps is also alarming. Apps like TikTok have garnered massive popularity in even rural India, and it is bound to affect those on the lower rungs of development more than those who can afford to throw TVs from their balconies and then go buy a new one.  In April, TikTok’s parent had announced that it plans to hire 10,000 people globally, and India would be a major partner.

The auto industry has raised a red flag on the increased checking on Chinese goods at the ports. Over a quarter of India's auto-part imports -- worth $4.2 billion -- were from China in 2019, as per the Auto Component Manufacturers' Association of India (ACMA). Mounting waiting time could hamper the economy through disrupted supply chains.  With India staring at a -1.9% GDP growth rate in Q2, this could be a tough time. What we could expect is vagaries of quality and sky-high prices. 

ASSESSMENT

  • A boycott would only work if companies and the government instil a system where we have resources to fall back on. In future, an Atmanirbhar Bharat would be able to do this, provided corrective steps have been taken to make Indian manufacturing competitive at the world level. 

  • Import substitution is a valid proposition.  Some countries have managed to do so through temporary tariff support, which was progressively reduced to encourage competitiveness and market discipline. 

  • There also needs to be a tactical approach to this, such as not giving high-value strategic contracts to China. The decision to boycott non-essential products made in China can be left to the individual, while other countries like Vietnam and Japan could be tapped as alternative import sources for some critical electronic and pharmaceutical components.

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