china india trade

Tech, Infra, Scale: The Challenges Hindering India’s Transition From the ‘Made in China’ Tag

India’s heavy reliance on Chinese imports for a wide range of products, including smartphones, semiconductors, and pharmaceuticals, is a major challenge for India to reduce its dependence on China.

Bengaluru: The complex history of India and China has shaped their economic relationship. Despite several conflicts and disagreements, China continues to remain a key trading partner of India.

India’s heavy reliance on Chinese imports for a wide range of products, including smartphones, semiconductors, and pharmaceuticals, is a major challenge for India to reduce its dependence on China.

Many goods that are manufactured domestically in India depend on Chinese imports for raw material and components. For instance, semiconductor chips, which are crucial in making electronic products, are imported from China and then used in the production of finished goods within India.

The Union government has launched several initiatives, like Make in India and production-linked incentive (PLI) scheme, to boost domestic manufacturing and address its excessive reliance on China. However, these programmes haven’t yet had any substantial effect on reducing the country’s reliance on Chinese imports.

For instance, Prime Minister Narendra Modi announced in December 2021 a $10 billion incentive plan to boost semiconductor manufacturing in the country. However, it remains to be seen whether this initiative and other efforts will effectively reduce India’s reliance on Chinese imports and develop a sustainable domestic manufacturing ecosystem.

India’s excessive reliance on Chinese imports

India’s dependence on raw materials from China is substantial. For instance, in 2022, India imported approximately $1.98 billion worth of iron and steel. An example highlighting this dependence is the construction of The Statue of Unity, where 553 bronze panels used on its surface were made in China.

Interestingly, even small merchandise items such as buttons are imported from China because they are cheaper than Indian goods.

A significant portion of these Chinese imports is directed towards fulfilling the demands of fast-growing sectors such as telecom, power, and electronics.

For the pharmaceutical industry, India is heavily dependent on bulk drugs and intermediate/producer goods from China. These are essential raw materials used by the Indian pharma industry to manufacture finished products for domestic consumption and international trade.

Such a huge reliance on Chinese raw materials poses a challenge to India’s manufacturing capability.

It’s evident that India would face difficulties in boosting its manufacturing sector without alternative trade partners or other domestic alternatives.

Finding substitute sources for these raw materials is crucial for India to reduce its dependency on China. But there’s a catch, as procuring raw materials from alternative sources will be costly.

“China has become the manufacturing hub of the world because it is able to produce things at scale. And having produced things at scale it is able to sell them for cheap. By selling them for cheap, it is able to dominate,” said Arun Kumar, retired professor of economics at the Jawaharlal Nehru University.

But is India not capable of producing the raw materials it imports?

“China has a headstart over technology. So, it is able to produce cheaper goods and then sell them to us including our own cultural symbols such as Ganesh murtis, pichkaris, gulaal and manjhas. India is weak in technology. This can be seen in our trade patterns. We import manufactured products and sell them raw materials and inputs for manufacturing. What China does is import raw materials, converts them into finished products and then sell them in the market. That way they are able to add value to the product which helps them in [increasing] employment and exports,” said professor Arun Kumar.

Is it possible to slow down trade with China?

Nearly 66% of India’s Active Pharmaceutical Ingredients (APIs) came from China in the first nine months of the financial year 2022. APIs, also known as bulk drugs, are the active components that produce the required effect on the body. For example, Paracetamol is an API for Crocin.

However, as part of the PLI scheme, 35 drug raw materials, which were imported before, are now being manufactured in India.

According to Arun Kumar, India cannot completely put a stop to its strategic reliance on the import of certain crucial products.

“Slowing down trade with China will require us to go to alternate sources and they are more expensive than China. Thus, it will increase our production cost. Diversifying our import sources will be inflationary. So, unless we do something about our technology, infrastructure, and production of goods at scale, we will not be able to compete with China,” he said.

Professor Arun Kumar believes India needs to focus on improving its technology.

“We need to have a technology policy. Unless we become more dynamic in terms of our technology development, in terms of our capital mobilisation, we will be dependent on some source or the other. To make our technology more dynamic, we need to do R&D [research and development),” he said.

“India is weak in that [R&D investment]. We are only spending 0.75% of our GDP on R&D whereas China spends 3.5%. The Chinese economy is five times bigger than ours. So, of a five times bigger economy, they are doing five times more R&D, which means they are spending 25 times more than us,” he explained.

“We need to step up our expenditure in critical areas and develop our technology to compete with China. To do R&D, we need to give high priority to education. We are creating a variety of problems in higher education. So even though we have good universities, they are suffering as a result of the fact that there is too much interference from the political and bureaucratic bosses. Thus, an R&D environment is not [being] created.”

Kashvi Sakaria and Srihari Rishabh are editorial interns at The Wire.

It’s Time We Debated What Needs To Be Done To Eliminate the Threat of a Two Front War

The government is pursuing an aberrant security policy of focusing militarily on Pakistan while appeasing China.

Starting with a stellar cricketing career as the opening batsman of India’s match-winning test team, and then a jump to being an anchor in a not so cultured TV show, followed ultimately by a political career, Navjot Singh Sidhu is a man who has courted controversy. This, he has managed to do by not infrequently opening his mouth, only to put his foot into it. But lately, his statement on relations with Pakistan and the emphasis on the importance of trade, which his critics have vociferously condemned, is perhaps near to the truth.

This endorsement coming from a security analyst may seem strange, but what is more bizarre – and frightening – are those security analysts in India who blithely talk of fighting a two-front war, as though that is a desirable outcome.

Is making peace with Pakistan – so as to confront the terrible danger from the north – not a sensible step? If reducing the threat of a two-front war is sound strategy, what is so bizarre about renewing trade with Islamabad? After all, those are the only two statements he has made – to improve relations with Pakistan, and to renew trade. Interestingly, after Galwan and the brutal killing of 21 Indian soldiers, trade with China has soared and is set to increase to $100 billion.

What appears to be fostering enmity with Pakistan – and appeasing China, if that indeed is government policy – are some bizarre miscalculations by the Union government’s policymaking institutions.

Almost three or four decades ago, when this author’s job was to write strategic papers, there was a universal feeling that once we had established a National Security Council with its own dedicated staff and moved towards integrating the armed forces, decision making on defence and security matters would be more far-sighted and wiser. But alas, these new institutions have yet to produce a single open-source document, white paper, or policy statement. Even a dictatorial, autocratic, authoritarian government like China has continuously turned out strategy documents, policy and white papers despite accusations of their functioning being opaque.

The wide discrepancy within the government on the state of the world in 2030 or 2035 results in policies that don’t give the impression of any coherence emanating from New Delhi. On the one hand, we had the aggression in Galwan, and yet, the MEA refuses to take even baby steps to leverage the Quad in the security space, retaining it as a diplomatic talk shop. The recent Quad summit does little to alter its passive nature. The government’s reticence is presumably aimed at appeasing Beijing into peacefully negotiating on the line of actual control (LAC), assuming that Beijing respects appeasement. On the other hand, the financial constraints on budgeting for defence expenditure are forgotten by many in the armed forces who talk blithely of engaging in a two-front war, no matter the cost.

Quad leaders (L-R): Indian Prime Minister Narendra Modi, Australian Prime Minister Scott Morrison, US President Joe Biden and Japanese Prime Minister Fumio Kishida. Photos: Reuters, Twitter. Illustration: The Wire

The great American strategic thinker Andrew Marshal who virtually died in office at the age of 92 left a legacy in strategic planning. Writing strategy was not to be embarked upon until every ministry was on the same page on what the near future looks like. Even today, there are senior foreign office practitioners who believe that China will rise peacefully and become a benign power, while the world is largely convinced that Beijing has hostile hegemonic ambitions. Most major governments in the West produce a periodic open source document stating what they think the world will look like, strategically, economically and technologically, a decade or two from now. But as stated earlier, the government of India has produced no open source strategic evaluation in the last quarter of a century.

Meanwhile, the Chinese are rapidly taking concrete steps towards becoming a world military power, pursuing bases in the UAE and in the Pacific Islands. They have already overtaken the US in net wealth in 2020, as predicted by Arvind Subramaniam, who was earlier the chief economic adviser to the Government of India. This they are doing by producing an aircraft carrier every four years, introducing hypersonic glide vehicle bombs and doubling their nuclear arsenal. All this while India has its main offensive component – the three army strike corps – facing west against an increasingly bankrupt Pakistan.

The only weakness China has is its maritime geography. Its sea coast abutting the Pacific Ocean does nothing to benefit the protection of 40% of its GDP, which is its foreign trade, in the Indian Ocean. The Pacific Ocean only enables the US Navy to operate off its doorstep. The Indian Navy, which has a foot on the Chinese jugular in the Malacca Straits, is crippled by a minute budget and a weak industrial infrastructure, that builds an aircraft carrier every 14 years.

What is required immediately is a directive by the PMO, to the Ministry of Defence and Ministry of External Affairs to produce a four-yearly perspective of ‘India’s world’. This should be an open publication, as is the custom in the US, and also serve as guidance to all ministries, to plan policy. We cannot afford financially to have two hostile neighbours, so we need to expedite matters to de-escalate the western front, and reorient our military grand strategy towards the Indian Ocean, as has been recommended by a paper circulated to all relevant government authorities. That will stop aberrant policy-making of the kind where a four-nation Quad is formed, but only as a talking shop.

The actual fact is that the Quad members are the foremost operators of maritime patrol aircraft. These aircraft are flown as part of normal peacetime activity. A proposal has been made to divide the Indo-Pacific into maritime air search areas between the Quad. This would have been a very minor step and would not have constituted the Quad’s overt militarisation. The proposal was sent to the external affairs minister but nothing came of it. A former Indian Navy chief had suggested the very small step of setting up a Quad maritime air search secretariat in Port Blair, which was also ignored. There will no doubt be other ideas and suggestions too. But the underlying weakness of the Government of India is its opacity and lack of intellectual debate.

Admiral Raja Menon was a career officer and a submarine specialist in the Indian Navy. He commanded seven ships and submarines before retiring in 1994 as assistant chief of naval staff (operations).

India to Impose Import Restrictions to Counter China Routing

“A lot of the Asian partners have become a place from where just Chinese goods are routed. We are going product by product to design various kinds of action, most of which will be on non-tariff lines,” an official added.

New Delhi: New Delhi is considering measures to prevent trade partners mainly in Southeast Asia from re-routing Chinese goods to India with little added value, two government sources said, amid strained ties with Beijing and a push for self-reliance.

India is planning to raise quality standards of imports, impose quantity restrictions, mandate stringent disclosure norms and initiate more frequent checks at ports of entry for goods coming from many Asian countries, the officials said, declining to be named as they were not authorised to talk to the media.

The moves will mainly target imports of base metals, electronic components for laptops and mobile phones, furniture, leather goods, toys, rubber, textiles, air conditioners and televisions, among other items, the officials said.

Last week, India’s trade ministry issued a notice to restrict inbound shipments of TVs by requiring importers to get a special licence.

The moves are expected to primarily hurt Malaysia, Thailand, Vietnam and Singapore – members of the Association of Southeast Asian Nations (ASEAN) with which India has a free trade agreement (FTA). India is also worried about heavy trade flows from South Korea.

“Raising duties has a limited impact,” said one of the officials. “Now we want to raise quality standards and also make sure that goods in FTA routes have roots in those countries. So customs would be more vigilant than before.”

India’s trade ministry did not immediately reply to an email seeking comment.

The government will also discuss raising the value-addition requirement for products imported from those countries from the current level of 20-40%, the official said, adding FTAs could be reviewed too.

India has long had an uneasy relationship with China and a Himalayan border dispute escalated into the worst clash in decades in June. India said 20 of its soldiers were killed.

China is also India’s second-biggest trading partner, with trade worth $87 billion in the fiscal year ending March 2019, and a trade deficit of $53.57 billion in China’s favour, the widest India has with any country.

Thai and Malaysian authorities said they had not received any official communication on the issues of raising non-tariff barriers or re-routing of goods.

Thailand’s trade ministry said in a statement to Reuters that the ASEAN treaty should be reviewed to make it more liberal in terms of tariff liberalization and rules of origin and to have simpler customs and verification procedures.

Meanwhile, Indian officials said the government was inclined to only stick to those FTAs that it deems mutually beneficial. India has a trade deficit with most of the countries it has signed FTAs with.

“Very clearly in ASEAN agreements India has got, in many respects, the bad end of the stick, particularly in the field of electronics where we now find a number of products are being routed through the ASEAN economies to India,” said George Paul, CEO of the Manufacturers’ Association for Information Technology.

(Reuters)

Trump: India, China No Longer ‘Developing Nations’, Take Advantage of WTO Loopholes

Trump, championing his ‘America First’ policy, has been a vocal critic of India for levying “tremendously high” duties on US products and has described the country as a “tariff king”.

Washington: US President Donald Trump has said that India and China are no longer “developing nations” and were “taking advantage” of the tag from the WTO and asserted that he will not let it happen anymore.

Trump, championing his ‘America First’ policy, has been a vocal critic of India for levying “tremendously high” duties on US products and has described the country as a “tariff king”.

The US and China are currently engaged in a bruising trade war after Trump imposed punitive tariffs on Chinese goods and Beijing retaliated.

Earlier in July, Trump asked the World Trade Organisation to define how it designates developing-country status, a move apparently aimed at singling out countries like China, Turkey and India which are getting lenient treatment under the global trade rules.

In a memorandum, Trump had empowered the US Trade Representative (USTR) to start taking punitive actions if any advanced economies are inappropriately taking benefits of the WTO loopholes.

Addressing a gathering at Pennsylvania on Tuesday, Trump said India and China, the two economic giants from Asia, are no longer developing nations and as such, they cannot take benefits from the WTO.

Also read | Trump’s Trade Wars Are a Trap, Not a Solution

However, they are taking the advantage of a developing nation tag from the WTO and putting the US to a disadvantage, he said.

“They [India and China] were taking advantage of us for years and years,” Trump said.

The Geneva-based WTO is an intergovernmental organisation that regulates international trade between nations.

Under the global trade rules, developing countries claim entitlement to a longer timeframe for the imposition of safeguards, generous transition periods, softer tariff cuts, procedural advantages for WTO disputes and the ability to avail themselves of certain export subsidies.

Trump expressed hope that the WTO will treat the US “fairly”.

He said the WTO views certain countries like China and India as “they’re growing”.

“Well, they’ve grown,” he said and warned that the US will not let such countries to take advantage of the WTO.

“We’re not letting that happen anymore…Everybody is growing but us,” he said.

(PTI)

How a Dawoodi Bohra Family Established Itself as a Shanghai Business Powerhouse

Tracing the history of the Ebrahim family’s business history that spans across Shanghai, Hong Kong and Bombay and is HSBC’s oldest surviving client.

China and India are more deeply intertwined in recent history than we imagine. The connections date to before the two modern nations were formed and cluster to a great extent in the port city of Shanghai. Many settlers aligned themselves with the British, with mixed success. A daring, new multi-disciplinary anthology sheds fresh light on how, for nearly 200 years, Indians of all stripes not only traded with China, but put down roots, built houses, managed factories and expanded their cemeteries. They married Chinese women, birthed further generations and suffered through a Japanese occupation (1932-1945) along with the rest of Shanghai. This is the story of one such family of Indians which was among the early settlers in the city.

One sweltering-hot morning in Hong Kong in August 2017, Taha Jaffer Ebrahim, the fifth-generation leader of the Abdoolally Ebrahim Group, was wrapping up with clients in his office in Kowloon, as I waited my turn, admiring the old photographs adorning the walls of the hallway.

Ebrahim is a warm and articulate gentleman, who wears the full beard that his religion and the community of Dawoodi Bohra Muslims prescribe. The very word Bohra is derived from the Gujarati vehwahar, which can be interpreted as derived from “trading.”

We are meeting to try and trace the company’s history in Shanghai. All that is left of their Shanghai presence are two photographs: a framed snapshot of the company’s headquarters on the Bund and a group photograph of the office staff taken in 1938. Sitting at the centre is Taha Ebrahim’s grandfather, Abdeally Noordin (1883-1974), who himself was the grandson of the company’s founder, Seth Ebrahim Noordin (1824-97).

The company’s continuous presence in Hong Kong since 1842 is much better documented, but China was where most of the group’s trade once took place. “Shanghai was, without any doubt, more important than Hong Kong,” Taha Ebrahim said, when we sat down in his conference room.

Taha Ebrahim says that what he knows of its Shanghai history has been handed down from father to son, father to son. The company also maintains internal historical archives. At our meeting, Taha Ebrahim unfolded a large family tree, and spread it on the table.

The company history, detailed on its website, adds to Taha Ebrahim’s account. Research through the archives of the North China Herald, Shanghai’s earliest English-language newspaper, later uncovered the obituaries of founder Seth Ebrahim Noordin and his son, Essabhoy Ebrahim. Those sources, combined with references to the firm found in the newspaper yielded enough information for a rough sketch of the family’s Shanghai history.

At the urging of the 47th Dai-ul-Mutlaq, the head of the Dawoodi Bohra community, Syedna Abdul Qadir Najmuddin A.Q., Ebrahim Noordin travelled to Hong Kong in 1841 along with the British East India Company. He was 17 years old.

Ebrahim Noordin.

It was smack in the middle of Britain’s Opium War with China. Where did Ebrahim Noordin leave the rest of his family? Where was his sister Wazira and her husband Abdoolally Rajabali? All we know is that in 1842, Ebrahim Noordin formed a commercial partnership with his brother-in-law, Abdoolally Rajabali. Abdoolally Rajabali sold his share to Ebrahim Noordin very early on, but the Abdoolally name stuck as the first name of the young trading company. On one of his journeys back and forth, company legend has it that founder Seth Ebrahim Noordin survived a shipwreck and drifted to Bombay on a bale of cotton. The company’s intrepid leader also founded Hong Kong’s first ever cross-harbour ferry services between Tsim Sha Tsui and Central. The service was a forerunner to the Star Ferry Company, incorporated over 50 years later, in 1898.

According to the group’s website, an 1864 Hong Kong government gazette notification reveals that the British government promised Abdoolally Ebrahim and Co. compensation for the confiscation of its cargo in Canton some 25 years earlier. That would put the year of cargo confiscation at 1839, the year when China’s Daoguang Emperor appointed special imperial commissioner Lin Zexu to shut down the import of opium. Foreign traders surrendered over 20,000 chests—of those, nearly 7,000 chests belonged to Indians (Thampi & Saksena, 2009, p. 40).

The conflict between foreign traders and China intensified into the first Opium War (1839-1842), which led to China opening up five treaty ports along its coast, in Guangzhou, Xiamen, Fuzhou, Ningbo and Shanghai, where foreign merchants could live and trade freely. “Although the British government received a huge indemnity from the Chinese at the end of the war, it took a very long time to pay compensation to the individual traders – in many cases, more than 20 years,” write Thampi and Saksena, which explains the notice in the Hong Kong gazette.

From Ebrahim Noordin’s obituary, in the North China Herald (1897) we learn that Abdoolally Ebrahim and Co. was established in Guangzhou (then Canton) in 1847 – he clearly had a keen nose for business opportunities. A Shanghai government website (2017) lists Abdoolally Ebrahim as being founded in 1851. The firm’s Chinese name is 祥记 which may be translated as “Lucky Sign” and is headed, in that listing, by 翁志峣 Weng Zheyao. The address is No. 671 Sichuan Middle Road. According to the listing, the firm imported chemical materials, fibre and other commodities into China and exported raw silk, silk goods, beans, tea, cotton, cotton cloth, Chinaware, hardware and other industrial products.

Seth Ebrahim Noordin kept an eye on all developments in the commercial world. China’s foreign trade expanded by leaps and bounds after the Opium War, leading to increased trade financing and money-changing facilities, all of which spurred the opening of foreign banks in China. Most of these were branches of British banks, headquartered in London or Bombay. The Hong Kong and Shanghai Bank was the first to be created locally, fuelled by the immediate needs of traders in Shanghai and Hong Kong.

Just ten days after the Hong Kong and Shanghai Banking Corporation was founded in Hong Kong, on March 3, 1865, Abdoolally Ebrahim and Co. rushed to bank with them. They are HSBC’s oldest surviving client.

‘The sum of the money put [into HSBC on March 13] 1865 was HK$14,800. By any imagination, that’s several billion dollars in today’s money,’ says Taha Ebrahim.

According to the company’s history, Ebrahim Noordin sent his brother-in-law Abdoolally Rajabali to open the Shanghai office in 1842. Seth Ebrahim Noordin’s North China Herald obituary puts the Shanghai office opening at 1874, the year Ebrahim Noordin turned 50, and the same year HSBC made its first public loan. Regardless of what the actual opening date might have been, the obituary notes that the firm carried out extensive trade in opium, yarn and sundry businesses in Shanghai and Canton. “From a petty merchant, Mr. Noordin rose rapidly by his undaunted energy, spirit, and ability…” it says.

By 1886, Seth Ebrahim Noordin had amassed such a fortune that he was able to build Najam Baug in Mumbai, a well-known community centre for the Dawoodi Bohra Muslims. By then, Noordin would have been about 62 years old. He would have likely retired to Bombay, having left the China business for good. In 1890, at the age of 66, he was appointed a Justice of the Peace in India, according to his obituary.

“He was very well known in India for his many acts of charity and the large sums, amounting to thirteen lakhs of rupees, he contributed to different charitable and benevolent institutions for people of all nationalities, and his own community in particular,” his obituary said. In 1892, Seth Ebrahim built Zainee Masjid, a large mosque for his Dawoodi Bohra community in the very centre of Bombay – “at an expense of seven lakhs”, the obituary adds.

Seth Ebrahim Noordin left his firm thriving in Canton, Shanghai and Hong Kong and his sons continued the work. One son, Essabhoy Ebrahim, Taha Ebrahim’s great-grand uncle, appears to have spent time in Shanghai and made enough of an impact in the city to merit an affectionate obituary himself in the North China Herald (1897). It appears that Essabhoy was the manager of Abdoolally Ebrahim’s Shanghai branch in 1883. He had some of his father’s verve, for he made many friends in India and in China, according to the newspaper.

Under Essabhoy Ebrahim’s presumed tutelage, the firm was an active member of the community of foreign merchants, led by the British and Abdoolally Ebrahim and Co.’s name appears as a signatory to petitions and letters to various authorities that illuminate a variety of the city’s foreign merchants’ concerns. Many of these efforts point to the uneasy coexistence of a forced foreign presence on Chinese soil among resentful local citizens.

Excerpted from the forthcoming book Stray Birds on The Huangpu: A History of Indians in Shanghai, edited by Mishi Saran and Zhang Ke.

Mishi Saran is an award winning novelist and author of a travelogue on the Silk Road. She has lived in Shanghai and Hong Kong.