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Rediff.com  » Business » Sikkim standoff: China's economic stakes in India is no worry for Beijing

Sikkim standoff: China's economic stakes in India is no worry for Beijing

July 14, 2017 18:56 IST

India may hold the promise of a big market for China, but that promise is yet to be fulfilled


Image: File image of India-China trade route at Nathu-La, 55 km (34 miles) north of Gangtok, capital of India's northeastern state of Sikkim. Photograph: Reuters

The current standoff between India and China 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 with China and the flow of Chinese investments into India.

There is no doubt that Chinese direct investments in India 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 from China in 2016-17 were estimated at $61 billion, while India’s exports to China 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 to India 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.

A K Bhattacharya
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