India's Geopolitik Measures to Curb Chinese Dependence on Trade and Tech: Underpinnings

Updated: Aug 1

Vasu Sharma,

Junior Associate Analyst,

Internationalism

Introduction


With the advent of Globalization, non-traditional challenges to National Security marked a meteoric shift in the International Order. Since then, for around three decades human security, cybersecurity, economic security, environment security, the responsibility to protect, terrorism, etc have joined the paradigm of security along with politico-military threats. The outbreak of COVID-19 will surely change the perceptions of National Security in the International Order. However, Economic Security, Technological Sovereignty, and strategic self-reliance precisely would be avenues to contest upon in a post-COVID era. For India, post-pandemic huge opportunities lay in the realm of Geo-Economics to contend China. Many countries and MNCs are aiming to shift their production facilities from China. New Delhi needs to emerge as an opportunistic player to provide these companies and ventures an Indian pin code for its manufacturing facilities and emerge as an important player in global supply chains.


Understanding the importance of Trade and Technology


Trade, technology, and national security would acquire the most priority in the post-COVID era. However, in realms of geo-economics dominance of trade and technology was precedented. In February 2020, the European Union came up with a 'European Data Strategy' to ensure the leadership of the EU in a society empowered by data. Since 2014, the EU was focusing on data agile economy. Words of Ursula von der Leyen, amplify the dominance of technology and data in the International Order, “Today we are presenting our ambition to shape Europe's digital future. It covers everything from cybersecurity to critical infrastructures, digital education to skills, democracy to media. I want that digital Europe reflects the best of Europe – open, fair, diverse, democratic, and confident.” [1] Similarly convergence on technology and economy by China since 2015 preluded the situation of trade and technology war between the US and China. Sheer reason for insecurities regarding technological advancement between countries can be its induction with military hardware and equipment and how the role of data analytics comes in. Hence trade and technology had already acquired priority in the strategic realms of decision making. Post pandemic the importance the two would further amplify.


Decreasing dependence of Trade and Technology


China was observed conducting opportunistic takeovers and acquiring firms and businesses of strategic importance in March and April, followed by changes and amendments in the Foreign Direct Investment policy of countries across Europe as well as New Zealand, Australia, and India. Immediately, questions were being raised whether such actions are outcomes of prudence or protectionism? Observing investment of Chinese state-backed firms and entities in 18 of 30 Unicorns of India (start-up companies valued over one billion dollars)[2], scrutinizing any Foreign Direct Investment through Beijing was surely an act of prudence, not protectionism. [3]


However, in terms of electronic components, India is still dependent on China. This was crystal clear when reports suggested India airlifting electronic components and parts of smartphones from Guangzhou and Shanghai in March, anticipating further shutdown in China. [4] Although the dependence of electronics and IT hardware on China stands at a five-year low percentage [5], these imports from China constitute 37 per cent of total electronic and IT hardware that India imports. For Indian enterprises of this sector, the notification of the Ministry of Electronics and IT regarding three incentive-based schemes worth rupees 48,000 as push manufacturers of electronics and IT hardware came as a golden opportunity to decrease their dependence on China. Particularly this scheme would help Indian manufacturers to set up foundations for strong electronics and IT hardware industry in India. [6]


Providing companies an Indian PIN Code


Even though many MNCs are at the exit door in China, the Government of India needs to work in synergy with State Governments to lure the companies from China. A major role would be on part of State Governments on how much Industrial friendly their state is. From land acquisition schemes to development of infrastructure for industries and labour laws State Governments would have to formulate industry-friendly policies post-pandemic.


Nobel Laureate Abhijit Banerjee pointed out that, even though companies are looking to dislocate from China, they may not be successful in India reason being if post-pandemic, China depreciates its currency, Chinese goods would be cheaper and preferable. [7] However, many more constraints lay ahead of India to successfully lure these MNCs. Maharashtra, which was the most attractive destination for FDI since 2015, has a handicapped Maharashtra Industrial Development Corporation. Setup in 1960 to transform Maharashtra into an industrial hub and industrial friendly state, MIDC has been observed not able to achieve its aims and objectives. Between 2006-2012 many Special Economic Zones which were supposed to be joint ventures between MIDC and various other companies such as Mahindra [8], Indiabulls, and Videocon [9] were scrapped due to faulty land acquisition policies and protests from farmers and locals in the areas of Western Maharashtra and Konkan Region. Furthermore, MIDC is characterized by sick industrial units and non-operational industrial plots. [9] This was just an instance of how the nodal agency of a State failed in terms of Industrial Development. States like Uttar Pradesh and Tamil Nadu have already initiated the process to attract huge investments from MNCs for industrial growth and state development. [10]


Conclusions


Since the Modi government has been in the second tenure, the country had been in full-fledged civil protests, riots, and internal disputes. Due to global economic slowdown and trade and technological war between the US and China, India was already facing problems in global markets. The global shutdown has resulted in disrupted global supply chains. India needs to strategically pose itself amidst difficulties to position itself as a promising stakeholder in supply chains.


China which has been a hostile neighbour for New Delhi is also an important trading partner for India. Keeping in mind the current skirmish in Eastern Ladakh between armies of India and China, New Delhi must prepare for a combined geopolitical and geo-economic response to China. [11] This implies not only challenging China on Indian borders and maritime space but also challenging the dominance and hegemony of Sino-sphere globally. If India can get entry within D-10, a club often leading democracies (G-7 plus South Korea, India and Australia) which focuses to address issues of 5G mobile communications and vulnerable supply chains [12], it would provide New Delhi to contend China in these two specific avenues, with stronger global backing. The reason behind focusing on 5G technology is insecurity towards Chinese 'Huawei' within the intelligence alliance 'Five Eyes' (USA, Canada, Australia, New Zealand, and the United Kingdom). Furthermore, the arrangement of 'Quad' a group of Japan, India, Australia and the United States of America or 'Quad + 3' (Quad plus - New Zealand, Vietnam, and South Korea) arrangement would be instrumental in not only transforming Indo-Pacific into major trade sphere but also would contend Chinese dominance in the region. [13]


Chinese aspirations to dominate trade, technology, and cyberspace are quite evident, thus increasing insecurities and apprehensions not only in the Transatlantic but also in Asia. Before the pandemic, New Delhi was apprehending the Belt and Road Initiative of China. Post-pandemic, with global resentment against Beijing and protests in Hong Kong, India would have an opportunity to challenge a not so mighty Red Dragon. However, a geo-strategic response to China would not only escalate India to high tables in the International Order but also would help India safeguard its economy from the consequences of the lockdown and a slowing economy.


References


1. Victor Ferguson, Henrique Choir Moraes, Anthea Roberts, Geoeconomics: the Chinese Strategy of Technological Advancement and Cybersecurity, Lawfare, December 3, 2018: https://www.lawfareblog.com/geoeconomics-chinese-strategy-technological-advancement-and-cybersecurity

2. Vivek Kaul, Easynomics: Why companies leaving China will not come to India, Bangalore Mirror, May 13, 2020: https://bangaloremirror.indiatimes.com/opinion/you/easynomics-why-companies-leaving-china-will-not-come-to-india/articleshow/75705236.cms

3. Francisco Betti, Per Kristian Hong, Coronavirus is disrupting global value chains. Here's how companies can respond, World Economic Forum, February 27, 2020: https://www.weforum.org/agenda/2020/02/how-coronavirus-disrupts-global-value-chains/

4. A European strategy for data, European Commission, February 19, 2020: https://ec.europa.eu/info/sites/info/files/communication-european-strategy-data-19feb2020_en.pdf

southasianjournal.org

©2020 by Internationalism™ C/O AbhiGlobal Legal Research & Media LLP.