the big story

New Delhi takes aim at ‘Made in China’

The TLDR: The government backed off from taking on China’s military, but it seems determined to attack its wallet. The latest move requires all products on the government procurement platform to declare what percentage of their components are imported, and from where. This may be the first step towards imposing a similar requirement on products listed on Amazon, Flipkart and elsewhere. 

Er, this sounds both complicated and boring…

Lol! True, this isn’t exciting news but it is significant. Let’s start by explaining how the Government e-Marketplace works. 

• All government ministries and departments—central and state—use the GeM to make bulk purchases of goods and services. This ranges from office stationery to sarkaari vehicles.
• Right now, there are 394,461 sellers on the platform who sell 18,30,688 products and several services.
• During the last financial year, it accounted for transactions worth Rs 500 billion. That total value is expected to rise to Rs 3 trillion. 

So there’s a significant amount of money at stake here—and a lot more as the government starts to spend its way to recovery. 

Ok, so what’s this new rule?

It is now mandatory for sellers to declare the country of origin for their products and services. They also have to declare what percentage of their product is locally manufactured. Why this matters: As per the new Atmanirbhar Bharat initiative, government buyers must purchase products that are at least 50% ‘Made in India’. 

Point to note: The order does not specifically target China, but there is no doubt that this is a message aimed at Beijing.

This is it? That’s all we’re doing?

Nope, it is the latest in a series of China-focused rules, which include:

• State-owned telecommunication companies BSNL and MTNL have been asked  to stop using Chinese equipment to upgrade their 4G networks. This may soon extend to private carriers like Jio and Airtel. 
• Earlier this week, the Railways cancelled a massive Rs 471 crore contract with a Chinese company. 
• The Maharashtra government put on hold Rs 5,020 crore worth of investment proposals from China. 
• The Commerce Ministry is moving quickly to impose barriers on the import of 371 categories of Chinese goods—which include toys, sports items and furniture worth $127 billion. Electronics, drugs, apparels, and consumer durables from China are also on the list. 
• A recent government order on Foreign Direct Investment has already put the skids on Chinese investment in Indian startups. The home ministry is likely to nix security clearance for six Chinese investment proposals worth Rs 1,000 crore. 

Coming next: There is already huge pressure from Hindu nationalist groups to extend this ‘Made in India’ logic to e-commerce platforms. The Swadeshi Jagran Manch—the economic wing of the RSS—has declared: “The government should extend the rules to all platforms so that consumers get a choice not to buy Chinese products.” Adding to that pressure: small and medium-sized traders who see an opportunity to deliver another blow to online giants like Amazon and Flipkart. 

Point to note: Both are key constituencies for the BJP.

And all this will hurt China?

Well, it depends how you look at the stats below:

• China has been India’s largest source of imports since 2004-05. In 2018-19, we imported goods worth $88 billion from China (including Hong Kong).
• Nearly 40% of these imports are ‘capital goods’—which refers to things like heavy equipment used in manufacturing goods. Consumer goods account for only 20%—i.e. the ‘Made in China’ stuff sold directly to us. 
• We import high value goods from China—such as electrical machinery, nuclear reactors, organic chemicals, iron and steel etc. As the Brookings Institute lays it out: "With India, the trading relationship had a one way dependency, with China accounting for 73% of telecommunication equipment, 82% of semiconductor devices, 81% of antibiotics and 75% of active pharmaceutical ingredients.”
• Our pharmaceutical industry imports 80% of the raw materials required to make essential active ingredients in their drugs. In the case of certain life-saving antibiotics like cephalosporins, azithromycin and penicillin, the dependence is as high as 90%. This is no different in the case of Covid drugs like hydroxychloroquine. 
• Then there are our cell phones...
• Last but not least: our most successful startups. A Gateway House report pegs the total amount of Chinese investment at $4 billion—which includes Big Basket ($250 million), Paytm  ($400 million), Paytm Mall ($150 million), Zomato ($200 million) and Snapdeal ($700 million).

The key data point: China is our second-largest trade partner. Throw in Hong Kong—which enjoys a separate trading status—it is actually #1, accounting for 15% of our total global trade. We, however, contribute only 2.1% to China’s total. 

The bottomline: Yes, losing the India market will hurt Beijing. But, OTOH, our economy is also highly reliant on Chinese imports. Cutting the cord is not easy, and impossible to do overnight. There’s a little bit of China in everything we use every day. As the map below testifies:

Reading List:

• The Telegraph has the most readable report on the latest order. 
• The Wire offers the best overview of the extent to which the Indian economy is deeply enmeshed with Chinese goods, services and money.
• For arguments against a boycott: Read analysis by the Takshashila Institution and Frontline.
• We also recommend Finshots’ piece laying out the right way to boycott China. And it lays out the unintended consequences for both the consumer and the environment.
• For a view sympathetic to a boycott: Read R Jagannathan’s citizen’s guide in Swarajya. Also: his column in Mint.
• This Brookings Institution paper offers a comprehensive view of Chinese investments in India.
• Quartz sums up the economic power differential between India and China in five charts.