There is a curious paradox in the relationship between the world’s two most populous countries. On one hand, Himalayan border skirmishes that began in May 2020 threaten to significantly escalate tensions between China and India, which have repeatedly found themselves at odds with each other throughout past decades. On the other hand, flourishing trade offers a glimpse of an economic partnership with potentially mammoth proportions.
Total trade between the two countries last year reached $125 billion – a record high. Chinese exports to India accounted for the majority of this figure, totaling $97.5 billion.
While the exports include goods spanning a vast range of categories, Chinese tech firms have reaped the most benefits, including manufacturers of electronics and industrial parts.
India’s smartphone market has been dominated by Chinese companies for many years now. The most recent data from Counterpoint show that Xiaomi maintained its leading position in the first quarter of 2022, holding a 23% market share. South Korea’s Samsung was second with 20%, followed by three more Chinese firms: realme with 16%, vivo with 15%, and OPPO with 9%.
China’s newly minted generation of tech giants are not the only firms to have capitalized on the growing trade. Smaller enterprises are also increasingly looking towards India as a potential overseas destination for their products.
“The Indian market has huge potential, especially in the procurement of motors, equipment, parts, and machinery,” said a representative of Dongguan Tianrui Electronics Co. Ltd. in comments to Pandaily. The firm of over 100 staff members, based in China’s southern province of Guangdong, specializes in the manufacturing and exporting of electronic components used to assemble a wide variety of products. “This makes us more confident in developing the Indian market for our operations,” the company added.
The increasing number of Chinese entrepreneurs looking to India has contributed to the success of ventures like XTransfer, which assists local small and medium-sized enterprises (SMEs) – including Tianrui Electronics – in managing cross-border payments, which have swelled in recent years.
An Uneasy Marriage
Skyrocketing Indian imports of Chinese products have also been the subject of criticism. Prime Minister Modi, whose supporters have frequently made public demonstrations against a perceived tidal wave of Chinese goods, has been pursuing a flagship “Make in India” policy, “devised to transform India into a global design and manufacturing hub.”
Excessive dependency on imports from China could come to represent a political liability for Indian policymakers, who are keen to secure the economic benefits brought about by trade with its neighbor, while also appearing to stand firm amid rising geopolitical tensions in the region.
Many leading Chinese smartphone manufacturers that currently hold a significant market share in India have faced increasing pressure from Indian authorities in recent years. The offices of Xiaomi, OPPO, OnePlus and other Chinese firms were raided last December by India’s Income Tax Department under allegations of suspected financial misconduct.
Following the debacle, top Xiaomi India executive Manu Kumar Jain relocated to Dubai, and the firm has launched a court case alleging that its high-level staff members faced threats of “physical violence,” according to a May 7 report by Reuters.
Last week, news emerged that the Indian divisions of Chinese tech firms ZTE and vivo have undergone similar probes by authorities, with the latter accused of “significant irregularities in ownership and financial reporting.”
At times, disputes that arise from this awkward economic relationship spill into the diplomatic arena. Following the most recent wave of probes, Indian authorities earned a rebuke from China’s Foreign Ministry Spokesperson Zhao Lijian, who said: “The Indian side should act in accordance with laws and regulations and provide a fair, just and non-discriminatory business environment for Chinese companies investing and operating in India.”
Investment Still on the Rise
Despite these concerns, Chinese investor confidence in India has been rising steadily for several years. A 2020 study by Brookings outlines a crucial shift away from Chinese state investment in India in favor of more market-driven capital flows. The changes have been taking place across a wide range of industries, especially technology.
Tianrui Electronics, the Guangdong-based SME, has noticed this shift. Founded in 2010, the firm says it “has taken a more positive attitude towards the Indian market, and there are more and more of our customers there.”
“In recent years, the Indian market has gradually opened up, and tariff policies have gradually been reduced, which is conducive to accelerating the entry of foreign products,” said the firm, adding that “foreign investment is encouraged, and foreign businesspeople are given joint ventures with Indian manufacturers.”
The growth of private sector economic ties between the countries will likely make any efforts to decouple extremely challenging, as reflected by the US-China economic relationship in recent years.
With a laundry list of challenges now facing the global economy, such as recurring COVID-19 lockdowns in China, supply chain problems, and a widespread computer chip shortage, many businesses are looking to recalibrate their approaches to production and investment.
Apple, for one, appears to be taking such steps. The US tech giant announced in early April that it had started manufacturing iPhone 13s in India, as part of an apparent bid to reduce its dependence on China.
In a recent Chinese article entitled “Will India really become the ‘savior’ of the global industrial chain in the post-pandemic era?” the author makes the case that with slowing growth and the insufficient scale of alternatives such as Vietnam and Singapore, only India has the potential to “become the next China.”