Macro Moves

What will be the impact if Indians boycott Chinese products

Created on 16 Jun 2020

Wraps up in 5 Min

Read by 6.2k people

Updated on 26 Aug 2020

"Boycott China" is the current anthem that resounds in India in retaliation against China's resentment. Amid the border standoff in Ladakh, there has been a clamor amongst citizens to boycott products from China, which is seen as the unreasonable aggressor. The outrage has been extensive on social media, with hashtags like #BoycottChina and #BoycottChineseProducts trending on Twitter and the video by Sonam Wangchuk prompting Indians to retaliate stating that while the Army can handle the Chinese attempts of incursion in Ladakh, can be dealt only with the support and cooperation of the general public.

Can such a campaign for the economic boycott of a country be a success, and is it a reasonable stance? In today's globalized world, which is inextricably interlinked, the supply chains of companies spanning various geographies may be a distant dream. Moreover, for several sectors, the fate of an entire industry could be jeopardized if its China links are severed. 

Impractical, at best. Impossible, in reality

Even if one wants to adopt this stance, it is nearly impossible to keep China at bay in the current scenario. Our daily consumption has a streak of China in it. Ironically, even the laptops and mobile phones that we use to propagate the boycott are made in China.

The contemporary production processes are complex and integrated. Every consumable has different components from various countries. For instance, our mobile phones: specific components are from China, investment, and capital from the US or a European country, software made in India, assembled in Taiwan. Therefore, it is an impossibility to isolate a country and boycott its products.

In the case of China, it is a different ball game altogether. Products created by Indian firms comprise of components that come from China or use Chinese machinery to produce them. Large, medium, and small businesses, extensively use low-cost Chinese machinery and capital goods, besides trading in many finished products from that country. Many have manufacturing units in China that cater to markets abroad as well as in India. 

Let us break up our analysis into pointers to understand why a total boycott is not possible.

  1. India imports a range of products from China, be it raw materials such as steel, minerals, etc. or finished products. It would not be economically beneficial to India if it tries to stop the import of finished goods. In the case of raw materials such as steel and minerals, imports can't be stopped.

    It may choose to switch the source of imports from China to another country. However, this is also not viable as if China is selling at a competitive price, there would be another country willing to buy these products. India will harm its economy by refusing to purchase cheaper commodities. 

  2. India's trade deficit with China was $53 billion in 2018-19, which is shrunk by $10 billion. However, this figure was all dressed up as most imports were routed through Hong Kong to make the trade surplus seem smaller.

  3. China's imports from India are around $2.5 billion, which it can afford to buy from alternate sources, and yet it's GDP will not be impacted as much. However, since India imports large quantities from China, it would be a difficult task to find a substitute source that can match the cost and availability of Chinese products. The outcome of this will only impact the Indian GDP.

  4. Several Chinese companies have set up their Indian operations recently under the "Make In India" campaign. A boycott of Chinese goods would result in these companies also facing pressure from China to stop production in India, leading to a considerable loss of employment in these companies.

  5. In the last year, there has been a spurt of Chinese investment in the Indian Start-ups scenario. China has invested in close to 90 Indian companies in a variety of sectors like e-commerce, financial technology, media, social media, aggregation services, and logistics.

Impact of a Chinese Boycott

A boycott of Chinese products would imply access to fewer cheap goods for consumers in India. A reduction in the import of more affordable capital goods would also push up production costs, making products costlier, thereby affecting the consumers.

Since India imports of electrical products are on the higher side, it would directly impact the prices of electrical gadgets and smartphones. Today, Chinese mobile companies such as Xiaomi, Oppo, Vivo, and OnePlus have a 51% market share in India's smartphone market.

In the case of the power sector, India is heavily dependent on China to source its renewable energy target. India's import dependence for its 37,916 MW Solar Power market for meeting its solar equipment demand was over 90 percent. China's dominance in the pharma sector supplying antibiotics and drug ingredients cant be underlined. The share of Chinese products in the Television Market for both Smart TV and the non-Smart TV segment is relatively high.

Similarly, in the Home Appliances section, the market share of Chinese products ranges from 10-12 percent. During the pandemic, the auto parts sector supply chain was impacted by the non-availability of parts from China. In the 108.5 MT steel market size, the share of Chinese products ranges between 18-20 percent. In the Pharma/API, which has a market size of Rs 1.5 lakh crore, Chinese products have a 60 percent share.

This is a clear indicator of how the economy's critical sectors are significantly dependent on China. The World Trade Organisation treaty also makes it impossible to impose a full ban on imports from any country, even if there are no diplomatic, regional, or trade relations. At most, the government of India can ban some Chinese products based on health and security issues.

Or restrict the entry of Chinese products in the Indian Market by imposing an anti-dumping duty and countervailing duty on the cheap Chinese products like electronic items and toys. The imposition of these duties would add to the cost of Chinese products in the Indian Market. This would allow Indian manufacturers to produce these products on Indian soil at a competitive price and generate employment in India.

India's Counterattack

Considering the penetration of Chinese products in India and the ballooning India-China trade deficit, boycotting Chinese products seems a mammoth task. The most practical solution would be to deploy an import-substitution method and produce alternatives at home, far from ideal. However, with revamped policies, India can increase its production and contribute a more significant amount in the global production value chain. For that, the government needs to pitch in to free up labor laws, land acquisition policies, easy access to funding, and so on. 

A boycott will only hurt Indian interests even more. However, with the worldwide growing sentiment of hostility against China, it'sIndia's apt time is to capitalize on this situation and attract companies to the 'Make in India' campaign. Border issues need to be resolved through proper dialogue. Shunning their products or services is not an answer; instead, we should negotiate with the People's Republic of China to open their Market further to Indian services and products.

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An MBA Finance graduate, having worked in the Telecom and Banking sector as a Risk and Compliance Manager. An avid blogger with a penchant for traveling

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