The Sino-Indian clashes, in Ladakh, in May 2020, evoked a clarion call of “ #BoycottMadeInChina – Software in a week; Hardware in a year” from Sonam Wangchuk - on whom the movie “3 idiots” is based. He is a local lad, frustrated like others, with the Chinese nibbling, of Indian territory, for over 70 years. On 15th June, news of 20 Indian soldiers killed, by the inscrutable Chinese, with Neanderthal weapons – clubs wrapped with barbed wires - strengthened the resolve. The otherwise peaceful border - with no bullet fired since 1975 – was bloodied. India announced the banning of 59 Chinese apps like TikTok, Helo etc. – which the Information & Broadcasting Minister, Ravi Shankar Prasad likened to a “digital strike”. Delayed inspections, on Chinese imports, followed at the Chennai port - an attempt at imposing non-tariff barriers (NTB), copied from the Chinese playbook. De-escalation was announced for Galwan, Gogra/Hot springs even as unfruitful talks continued for Pangong Tso & Depsang Plains - impeded by Chinese intransigence - on retaining their 1959 claim line & creating a demilitarized zone in Indian territory through forced withdrawal of Indian posts.
If Military & Diplomatic
talks fail – as appears likely – political intervention – similar to the one in
2017, to end the 73 day Doklam standoff would become necessary. A weaker player,
generally, then ends up conceding more to maintain peace. While the domestic
media narrative can be managed, foreign players watching the situation closely
& aware of what actually transpired would draw conclusions, potentially conflicting with India’s aim at becoming the net security provider in
the Indian Ocean region (IOR). Therefore, it is time we rationally evaluate the
power differential between the two Asian giants to formulate an optimum strategy.
The official military budget of China at
$179 billion is 3 times India’s – an indication of the gross national power
asymmetry impeding military action. The Harvard University’s Belfar Centre
study claims troop parity of 2.25 lakh & advantages for the Indian air-force, operating from its northern plains - with full load, unlike the Chinese,
constrained operating in rarefied air from the Tibetan highlands at 50% load capacity. Likewise, Chinese strategic affairs expert, Huang Guozi, calls
the Indian mountain division the best in the world. The Indian strategic
affairs expert, Praveen Sawhney, however, avers that India is constrained by Chinese
supremacy in the cyber, space & electronic domains & that perhaps
explains the Indian quest for a diplomatic solution to the imbroglio. Russia –
the Grandmaster of strategic diplomatic chess - appear to have played a useful
role in cooling tensions.Higher Russian arms sales to India must have been an unacknowledged quid pro quo, since there are no free lunches in International relations.
As an alternative, to assuage
public angst, some analysts have argued for hurting China economically. The economic
data points follow:
(1)India’s Trade Deficit at $54 billion: India’s Director General
of Foreign Trade tracks exports to China & its dominions - Hong Kong & Macau –
separately. Therefore, some journalists have wrongly assumed that trade deficit,
with China, reduced from $63 billion, in 2017-18, to $48 billion, in 2019-20,
while the actual figs are $59 billion & $54 billion respectively - since
China has diverted trade through Hong Kong.
Furthermore, Chinese exports to India
are about $85 billion - less than 3.5% of their total exports (~ $2500 billion)
& hence a pittance – while our exports to China are about 8% ($330 billion)
of the export basket.
Talks to reduce trade
deficit - seeking greater market access to pharmaceuticals & IT -have
largely been unsuccessful. China created Baidu – a Google copy – Alibaba – an
Amazon copy – Sina Wiebo – a Twitter copy etc. by denying access to US tech
multinationals; similarly, Indian service firms suffer from entry barriers while
goods exporters face non-tariff barriers. Meanwhile, China has tried to catch up with the
West on technology vide higher R&D investments & theft.
(2)India mainly exports raw materials to China; The top 7 exports are listed below.
(3)While India imports intermediate & finished goods
India, since 2017, has raised
import duties – well below the World Trade Organization – mandated levels to
protect domestic industry & dropped corporate tax to 15%, for manufacturing, from Oct 2019 in a bid to attract companies to invest in India. Furthermore,
they have launched a production linked incentive (PPLI) of 4-6% to attract handset
assembly to India. The PLI scheme should be extended to computer hardware,
peripherals, electronic instruments & consumer electronics. Initially, components sourcing from China & assembly,in India, should be allowed to be followed later by encouraging local manufacture of components.
What should be the Indian Strategy?
But India & US account for about 95% of China’s trade surplus of $422 billion (India~ $55 billion) US ~ $345 billion); only a joint effort, can be successful. India on its own shall fail if its initiates a trade war with China as the latter - with an economy 5 times larger - can clamp down hard. Furthermore, Chinese products could make their way, into India, through other nations where they have their subsidiaries or Free Trade Agreements (FTAs); tightening rules of “Country of origin” could help. Intermediate goods could be procured from other countries, but at a higher cost, which could either erode the profit margins of Indian companies or impact consumer wallets if passed through. A call to patriotism to make consumers pay more is merely rhetorical for a higher pay-out for one product would force a consumer to cut consumption on another or dip into savings, to maintain consumption, either of which is not a desirable macro-economic outcome.
Joint effort at forcing China play by the rules of the international order is always a preferred option. The D -10 (Democracies 10) - as proposed by British PM, Boris Johnson, if it can evolve into a closed garden approach - of denying/reducing access to Chinese products into these markets - which account for about 50% of Global GDP, of $85 trillion, can be successful. However, Trump is mercurial & due for a re-election later this year & hence cannot be banked on; Joe Biden may well win & the real contours of his China strategy shall emerge only after he is sworn in. The resignation of Japanese PM Shinzo Abe & the willingness of German Chancellor Angela Merkel to continue to do business with China means that consensus on this issue shall be delayed. Partial decoupling could ultimately happen since the world has realized the perils inherent in the rise of a revisionist China.
The alternate view is that retreating
from the global economy & xenophobic nativism does not help India. Rajiv
Bajaj of Bajaj Auto alluded to how Indian 2 wheeler manufacturers – TVS, Bajaj
& Hero – upped the quality game & defeated the Chinese in African &
Latin American markets – earning a price premium too. There is no denying that ultimately we need to beat China through better efficiency rather than protectionism.
Therefore, instead of a sledge
hammer approach of boycotting Chinese products, India could do the following
(a)Demand reciprocity on market
entry & use Tariff / Non-Tariff Barriers to achieve same
(b)Segregate Chinese product
imports into 2 categories – products with Strategic implications like Telecom,
Active Pharmaceutical ingredients (APIs), power equipment etc. & those without. Dump down on the
first category immediately - even if it means higher costs - while working on reducing dependence on the rest
over a 10 year period through a well thought through FDI, Trade, Industry &
Commerce policy.
Products with strategic implications can be identified by visualizing the likely Chinese war strategy
(1)China could, initially, initiate a cyber attack to run down the Indian military's command & control posts & follow it up by deactivating Telecom networks to create a chilling experience among the populace as part of Psychological warfare.
ERGO: Protect Telecom Networks by creating barriers to Telecom equipment supplied by Huawei & ZTE & ban Chinese Apps with a potential for collecting data & hence surveillance. Create a local ecosystem to produce own mobile components, as a medium term plan, to reduce reliance on China.
(2)China could use an Anti satellite System (ATS) weapon to shoot down Indian satellites to impede satellite communication, generally used to offer latency, in the event of Telecom networks downtime mentioned in (1) above. Laser weapons to damage cameras atop spy satellites could be another.
While US has GPS (Global Positioning System), India has NAVIC - used for real time positioning & timing of services, utilized while launching weapons. Attack on NAVIC inevitable but India can fall back on GPS, Galileo of the EU (European Union) or QZSS of Japan as an option.
(3)China could activate spyware embedded into power transmission equipment, plunging India into darkness, impeding Industry to effect GDP & manufacturing - including that of ordnance needed to be fed to front-line troops. Launching missiles to hit the hinterland is not essential if a power plant blast can be activated using Trojan horses.
(4)China appears to have secured the ability to hack into electronic spectrum to take control of enemy drones & air-crafts. Data links among fighter air-crafts has become an integral feature of network-centric warfare & needs to be secured.
(5)While India is the Pharmacy capital of the world, most of the APIs are imported from China & it is reasonable to expect China to restrict supplies in the event of a conflict. While Europe can be an alternative to supplies, it pays to create self sufficiency.
War theatre has evolved into a realm where Technology offers a country an option to wage a war without even a soldier crossing the border - through attacks launched vide cyber, space & electronic spectrum domains; India, thus needs to identify the Trojan horses embedded, in equipment, imported from China, & impose necessary safeguards.
Conclusion
The “peaceful rise” of China is
an oxymoron. A dragon-elephant tango sounds romantic but just visualizing the
discomfort of dancing with a fire spewing partner drops one to reality. Phased decoupling with China & encouraging allies to replicate the same is the solution.
