Cost Benefit Analysis of Chinese Boycott

Dr Ashwani Mahajan
China’s continual border disputes with India and the killing of our 20 jawans, dumping of their goods in Indian markets, supporting our enemies and especially terrorists with money and weapons, building of infrastructure in Pakistan occupied Kashmir (POK), in the name of China-Pakistan Economic Corridor, against our wish; both the people and the Government of India are dismayed with China and want to teach China a lesson. Demand has been gaining momentum across the country for boycott of Chinese goods and to keep Chinese investment and Chinese companies out of contracts in the infrastructure sector. In such a situation, although 90 to 95 percent people are determined to boycott Chinese, the Government is also continuously curbing the Chinese investment. Hundred percent checking of consignments originating from China is being carried out at ports. But some still believe that the boycott of China may cause major damage to our economy. Therefore, economic relations with China should continue as before, in the interest of the economy.
It is true that imports from China are cheaper than what we produce in our country. In such a situation, it wouldn’t be prudent to boycott cheap imports. In this context, it would be appropriate to make an analysis of cost and benefit of boycott of Chinese goods.
What do critics say?
Critics of the boycott say that stopping China’s goods will invite inefficiencies in the country as there will be no pressure to improve efficiency to our industries, impacting our export possibilities. Secondly, they also say that this will harm poor consumers as they will have to buy expensive alternatives. Thirdly, critics say that we have extreme dependence on China and other countries for intermediate goods and spare parts. China is an important part of our overall supply chain. Boycott of China may adversely affect production and employment in the country as production will be interrupted if the import from China is interrupted. If we raise tariffs, other countries will also retaliate by raising tariff on Indian goods. Moreover, according to critics, we will not be able to do any harm to China by boycotting Chinese goods, because Chinese imports into India are not significantly important for China. They say that still India’s imports from China are hardly 2.7% of their total exports. In such a situation it is not possible to cause any damage to China by boycotting them. Interestingly, the same logic is being pushed by country’s major opposition party, Congress, against the boycott of the Chinese. Ever since the phase of boycott of Chinese goods has started in the country, the Chinese government’s mouthpiece ‘Global Times’ has also been making the same argument. Is it a coincidence that our intellectuals, Indian National Congress and Chinese state media are on the same page? Along with these arguments, the Chinese media also says that India does not have the capacity to compete with China in any way. They say that people will soon calm down after talking about a boycott and China’s imports will continue unabated in India.
What is reality?
It is true that today there is too much dependence on Chinese imports. But this is equally true that in the last couple of years, imports from China came down from 76.4 billion in 2017-18 to 65.3 billion in 2019-20 . In 2018-19, major fall was seen in Electrical and Electronics, imports of which declined by nearly 8 billion. In 2019-20 imports of Electrical and Electronics further declined by 1.5 billion, which was 7.3 percent fall in one year. Import of iron and steel declined by 12.3 percent in 2018-19 and further by 22 percent in 2019-20. In 2019-20, import of organic chemicals declined by 7.3 percent and fertilizers by 11.4 percent. Imports from China, which were rising in leaps and bounds earlier have shown a significant downtrend due to anti-dumping duties on Chinese products, hikes in tariff rates on goods regarding which our dependence is more on China; and imposing non-tariff barriers by way of standards. Due to this, production of all these items has also increased in the country. Significantly, we are working at much lower capacity then necessary in case of many of these products. There has been some improvement in rate of capacity utilization, thanks to reduction in these imports from China. Significantly, in 2018, in chemical industry 24 percent to 37 percent of capacity remained un utilized and we were importing Chinese chemicals. And if we try and use the full potential in these industries, where capacity is not fully utilized, on the one hand, and build additional capacity on the other, then our dependence on China can also be reduced significantly. For this, by stopping foreign imports in the country, we can make full use of production capacity and create additional capacity in the country.
Critics argue that cheap Chinese imports provide an opportunity to improve efficiency to produce at a lower cost in the country and if imports are stopped, the opportunity to improve efficiency in the country will be lost. They forget that our industries have actually been destroyed due to cheap Chinese imports. For example, one of our industries that have been badly affected due to these imports from China, is active pharmaceutical ingredients (API) industry. In case of APIs, we used to produce 90 percent of them in the country and dependence on imports was hardly 10 percent. Because of dumping today, our production has been reduced to hardly 10 percent and for rest 90 percent we depend on foreign countries, out of which 70 percent dependence is on China only. But it is equally true that if unfair trade causing injury to our industry is stopped, we can make all these APIs ourselves. It is true that though we have over dependence on Chinese goods, in the present circumstances, we have to get rid of the same at the earliest. It is also not fair to say that the country does not have the capability to replace Chinese goods. It has to be understood that for the electric and electronic products and components, for which we have dependence on China, we can develop or acquire technology and produce them in the country. Recently, production of PPE kits, test kits, ventilators, etc. in the country has also provided an opportunity to prove our capabilities of improving our capabilities from nearly scratch.
Those who argue that through boycott we can’t impact China in any big way, is also not true. It should not be forgotten that our imports are undoubtedly only 2.7 percent of China’s exports, our trade deficit is 11.6 percent of China’s trade surplus. Today, the US is also severing its economic ties with China. Not only this, Europe, Latin American countries, African countries, Australia is all reducing their economic engagement with China. The silence of critics about the impact of all this on China’s economy is surprising. It has to be understood that China is going through a huge economic crisis, due its deeds. People and governments all around the world need to join hands in such a situation to teach a lesson to China. Self-reliance along with boycott will be the right step for India.
(The author is Associate Professor, Department of Economics, P.G.D.A.V. College (University of Delhi)