After the conflict between China and India in the Galwan Valley in June, India adopted a series of measures to boycott Chinese products, restrict Chinese investment, ban Chinese mobile apps and Chinese equipment, and cancel Chinese companies’ participation in Indian infrastructure construction. Recently, it has explicitly excluded Chinese companies from participating in the roll out of 5G in India.
Some sections of public opinion believe that the Indian government’s behavior is catering to domestic nationalist sentiments, while others believe that its “boycott of China” is an integral part of India’s long-planned goal of “self-reliance”. Exclusion of Chinese goods, equipment, and applications as far as possible will result in a corresponding increase of usage of Indian products, i.e. promotion of “Made in India”. India’s crackdown on Chinese companies is also selective. The strictest restrictions are on those exporting to India, contracted projects in India, and Chinese companies on the Internet; restrictions on Chinese companies that invest in setting up factories in India are moderate. India’s purpose in doing so is to attract more Chinese manufacturing companies to invest heavily in India. Industries/companies that make money from India, such as the Internet and contracting projects, are required to leave more opportunities for indigenous companies.
Both explanations contain germs of truth. Trying to “decouple” just out of strong anti-China sentiment is definitely irrational. If it is for the purpose of “self-reliant” economic development, it can hardly be faulted as an incorrect decision or as a kind of “selfish rationality”. There is nothing wrong with pursuing economic “self-reliance”, but attempting to do so through protectionism, exclusion of foreign capital and foreign goods will not only fail to achieve the goal of self-reliance but may also damage the capacity to develop “self-reliance”.
In recent years, with the increase in the penetration rate of smartphones, mobile and Internet market usage has developed rapidly in India, attracting a large number of foreign companies, including China, to seize the Indian mobile Internet market. According to statistics, of the top most 10 downloaded apps in India in 2019, seven are from Chinese companies or Chinese-funded companies. Some foreign companies do not even need to set up an office in India and can enter the Indian market without hiring Indian staff. This asset-light business model has made many Indian consortia jealous and desirous of replacing the foreign firms. The mobile apps with many users seem to be asset-light and highly profitable. But, in fact, they possess several core technologies, and back it up with huge amounts of “money to burn” in the early stages. It is difficult to say whether Indian companies have the corresponding technology and whether Venture Capital has been forthcoming adequately to spawn its own products after disabling Chinese apps.China’s high-quality, low-cost and efficient infrastructure cannot be replaced in the short term.
The Ministry of Transport of India prohibits Chinese companies from participating in its road construction. The power and power departments have announced a ban on Chinese power equipment and Indian Railways claimed to ban the Chinese control system because they mistakenly believe that Chinese companies participate in Indian infrastructure to make money, which is an opportunity that should be left to Indian companies. If India really has infrastructure companies and equipment with relevant capabilities, how would there be opportunities for Chinese companies in the highly protected Indian market For a long time, backward infrastructure has been a bottleneck hindering India’s economic development, especially manufacturing. India’s own companies lack the ability to quickly improve infrastructure.
China’s infrastructure is known for its low cost, high quality, and high efficiency. Rejection of Chinese companies will result in delays and slow improvement of India’s infrastructure.India intends to attract foreign investment moving out of China as well as transfer of Chinese-funded manufacturing industries. China has also actively proposed to India to discuss the “China-India Manufacturing Partnership”, indicating that China is willing to further encourage manufacturing investment in India. Many Chinese companies have also shown Interest in investing in India. In this wave of “Boycott China”, India is relatively mild in restricting entry into its asset-heavy manufacturing industry, indicating hopes of Chinese manufacturing investing more in India under the automatic route. But by “boycotting China” on security grounds without evidence of the same, India’s actions have damaged its investment environment and made Chinese investors deeply wary of the political risks of investing in India. Together with the “enemy country’s property law” that is still in effect, it has discouraged Chinese companies that had originally planned to invest in India.“Boycott China” also undermines the confidence of other countries in Indian investment.
As the world’s second largest economy and the world’s largest manufacturing country, China occupies an important position in the global industrial chain. Indian companies and foreign-invested companies in India need China’s supply of raw materials and parts, but resist Chinese products and equipment. The production of these enterprises cannot proceed normally. If India continues to boycott Chinese products and equipment, not only will China’s manufacturing industry not invest in India, but it will also undermine the confidence of other countries’ manufacturing industries looking to invest in India. Its goal of promoting the relocation of companies from Japan, the United States and other countries to India will also become difficult to achieve.
Before the economic liberalization and reform in the early 1990s, India had long rejected foreign investment and pursued “import substituting autarky.” Historical experience has proven that this is an important reason for India’s slow economic development. Only through cooperation with advanced foreign companies can the Indian manufacturing industry learn to grow and strengthen its indigenisation.
(The author is a senior researcher at Beijing Foreign Studies University Institute for Advanced Studies in Regional and Global Governance, and Executive Dean of Chengdu Shitong Institute)