The current standoff between India
over a border dispute in the Sikkim region has given rise to speculation over how the latter would respond to the situation. The Chinese leadership has ruled out any talks with India
until the Indian troops vacate what it considers to be its territory. In response, the Indian foreign secretary has noted that differences should not become disputes between neighbours.
But the stalemate continues, bringing into sharp focus its impact particularly on China’s economic ties with India.
On social media including many WhatsApp groups, a campaign is already on to show how Indians can respond to China
by rejecting goods that are produced in that country and sold in India.
It is a campaign charged with nationalistic emotion. But how seriously can such a campaign really impact Chinese exports
or investments? To assess that, it is important to look at some numbers on India’s trade
and the flow of Chinese investments into India.
There is no doubt that Chinese direct investments
have been rising steadily. From being the 37th largest foreign investor in India
in 2011, it has now scaled up to the rank of the 17th largest foreign investor in 2017.
That appears to be a fast rise in the pecking order, but actually the size of total Chinese investments in India
and the annual flows are very little, almost insignificant either as a share of India’s total foreign investment
or as a per cent of China’s total investments abroad.
Consider the following numbers. Between April 2000 and March 2017, India
received cumulative foreign investments of over $332 billion. Of this, however, China’s share is only $1.63 billion. In 2010-11, China
invested only about $2 million in India.
That year, India
had received total foreign direct investments (FDI) of over $14 billion.
Of course, Chinese investments into India
picked up in the following years and rose to $495 million in 2014-15 and $ 461 million in 2015-16. But these increases were in keeping with the overall spurt in India’s foreign direct inflows in these years. If the pace of increase in Chinese FDI
is faster, it is because of the low base effect. India's total annual FDI
inflows were estimated at $31 billion in 2014-15 and $40 billion in 2015-16.
Look at it another way, China’s annual outward FDI
is estimated at $100 billion a year. Of this, India
has a tiny share of less than half a billion dollar. Should China
really worry about a border dispute harming prospects of its annual FDI
flows that at present are yet to cross the half-billion mark? The Chinese authorities would also not fail to note that their investments in India
during 2016-17 dropped significantly to $277 million.
On the trade
front also, the scenario is similar. India’s imports
in 2016-17 were estimated at $61 billion, while India’s exports
that year were only $10 billion. It is true that India's trade
deficit with China
constituted almost half of India's total trade
deficit, but these numbers do not appear too large from a Chinese point of view.
China’s total annual exports
are estimated at over $ 2.2 trillion. Thus, exports
of $61 billion to India
account for a small share in China’s total exports.
The same is true for its imports
from India, which again account for a small share in its overall imports.
In short, Chinese imports
or Chinese investments in India
might look substantial from an Indian perspective. But from China’s standpoint, trade
links with India
or investments in India
have not yet become too big for its leadership to worry about any border dispute’s impact on them. India
may hold the promise of a big market for China, but that promise is yet to be fulfilled.
India’s social media campaign against Chinese products may still make an impact on Indians’ purchase decisions and Chinese exports
may take a hit. Indeed, Chinese investments in India
and Chinese imports
in 2016-17 registered a decline after seeing healthy growth in the previous two years. But so small is the current size of the Indian market for China
that India’s north-eastern neighbour may not yet be bothered, let alone be inconvenienced.
Disclaimer: Views expressed are personal. They do not reflect the view/s of Business Standard.