China-India Brief #152

Guest Column

Indian industries should brace for coronavirus shock 

By Byron Chong    

Photo from Wikimedia Commons

Just as the economic outlook for 2020 began to brighten following the easing of trade tensions between China and the United States (US), a new threat has emerged in the form of a viral outbreak. From its epicenter in China’s Wuhan city, the deadly coronavirus has killed over 1,000 people and spread to at least 27 countries outside China, with over 44,000 cases. Wuhan, along with at least 15 other Chinese cities, have been placed on lockdown in an attempt to contain the spread, making it the largest quarantine effort in history. India has so far been spared the worst, with only three recorded cases in the country. Beyond the tragic human cost, a growing concern is the potential economic fallout which is likely to deal a major blow to India's domestic industries.

China is India’s biggest trade partner and accounts for the largest share of Indian imports. In 2018–2019, India imported USD 70.3 billion worth of goods from China, 13.7 percent of its total imports for the period. The majority of these imports consists of raw materials and components that Indian factories are heavily dependent on. Around 75 percent of the value of components in televisions and 85 percent of smartphones assembled in India come from China. These include critical components like LED chips, TV panels, printed circuit boards, and capacitors. Even compressors used in air-conditioning units and refrigerators are sourced from China. Other sectors like the auto and pharmaceutical industry too depend on imports from Chinese suppliers. Any disruption in Chinese imports could therefore mean production cuts and possible delays in India. While finding substitutes for Chinese imports is an option, it would be both time-consuming and expensive.

Even sectors not dependent on Chinese imports could be adversely affected. The aviation industry for instance, will likely see a drop in profits as Indian carriers Indigo and Air India have temporarily suspended flights to China and Hong Kong. It has been estimated that the suspension could cost Indian carriers around Rs 55–72 lakh (USD 77,000 to USD 100,000) per flight in lost revenue. Bollywood films could also see a slump in box-office takings as China has closed around 70,000 movie theaters due to the outbreak. The Indian movie industry has made inroads into China in recent years, with films like Three Idiots, PK, and Dangal becoming massive hits in the country. New releases however, will likely be negatively affected due to the virus. One industry that will not be hit as hard is the tourism sector. Unlike other regional economies which have come to depend heavily on Chinese tourists like Japan, Thailand, and Hong Kong, India has never been a popular destination. In 2019, travelers from China accounted for just 3.12 percent of total arrivals in India.

India’s low export numbers to China offers it some protection against reduced Chinese demand. In 2018–2019, Indian exports to China were valued at just USD 16.7 billion, or 5 percent of its total exports for the year. Some have suggested that the disruption of Chinese factories may provide an opportunity for Indian manufacturers to fill the gap. This would be challenging, however. India has never been a major exporter and lacks the capacity to quickly accelerate its production numbers. Moreover, given that its own factories are dependent on China for components and raw materials to run, India is unlikely to be in a position to exploit these new export opportunities.   

More concerning for India would be the wider economic implications of the outbreak. The SARS epidemic in 2002–2003, slowed China’s growth by 1–2 percentage points, and knocked 0.25–0.3 percentage points off the global economy. However, China’s economy at the time was less developed, and accounted for just 4.3 percent of the world’s gross domestic product (GDP). Since then however, China’s share has grown to 16.3 percent and has risen to become the second largest economy behind the US. China has become integral to nearly every sector of the global economy, being both the world’s largest manufacturer as well as importing more than any other country. Its factories have also become deeply integrated with global supply chains. In 2019, the country alone accounted for 39 percent of global economic expansion. In addition, SARS was far less contagious, infecting only 8,000 people globally, and did not result in the same country-wide lockdowns we have seen in China. Therefore, any fallout from the coronavirus epidemic will likely hit China, and the global economy, a lot harder.

The outbreak has also come at a difficult time. China was already experiencing its slowest economic growth since 1990 due to the combined strain of the trade war and sluggish demand at home. India is similarly dealing with its own economic downturn this year, expected to dip to a 10 year-low of 5 percent or less. Investors have already begun dumping Asian currencies and stocks and retreating to the traditional safe havens of the US dollar, Japanese yen, and gold. Oil prices have also plunged amidst speculation of lower Chinese demand.

For now, both China and India will just have to manage the fallout as best they can. China has recently announced interest rate cuts in an attempt to cushion the blow to its economy. India has kept its rates unchanged, likely due to fears of accelerating inflation, though it unveiled plans to cut income taxes and increase public spending. Yet, however devastating the repercussions to both economies, the effect will only be temporary. Given the huge international attention, Chinese scientists are already searching furiously for a cure. And with its command economy, Beijing would be able to pour unprecedented resources and manpower towards this goal. Just as China’s economy came roaring back after SARS, it will inevitably bounce back after this latest outbreak.

Byron Chong is a Research Associate at the Centre on Asia and Globalisation (CAG). He holds a Masters in Strategic Studies from the S. Rajaratnam School of International Studies. His research interests include China-India relations and international security.

The views expressed in the article are solely those of the author and do not necessarily reflect the position or policy of the Lee Kuan Yew School of Public Policy or the National University of Singapore.

News Reports

Bilateral relations

China thanks India for offering help to battle coronavirus
India Today, February 10

China on Monday (February 10) expressed appreciation over the letter written by Prime Minister Narendra Modi offering assistance to deal with the coronavirus outbreak. “We thank and appreciate India's support for China's fight against the NCP (Novel Coronavirus Pneumonia). India's acts of goodwill fully demonstrate its friendship with China”, said the Chinese Foreign Ministry spokesperson.

India lifts ban on export of personal protection gear to help China combat coronavirus
The Print, February 10

India has cleared some consignments of medical gear placed by China to combat the deadly coronavirus after setting aside export bans on all kinds of personal protection equipment, Indian Ambassador to China Vikram Misri said here Monday (February 10).

India temporarily suspends e-visa facility for Chinese and foreigners residing in China
The Economic Times, February 2

India on Sunday (February 2) temporarily suspended e-visa facility for Chinese travellers and foreigners residing in China in view of the coronavirus outbreak.

India fully confident in China's victory over coronavirus outbreak: FM
Xinhua, February 1

Indian Minister of External Affairs Subrahmanyam Jaishankar expressed full confidence that China will eventually win the battle against the novel coronavirus outbreak in a phone conversation with Chinese State Councillor and Foreign Minister Wang Yi on Friday (January 31).

News Reports

China and India in the Region

India readying $2.6 billion U.S. naval helicopter deal ahead of Trump trip
Reuters, February 10

India is set to give final approval to a $2.6 billion deal for military helicopters from U.S. defense firm Lockheed Martin ahead of a visit by U.S. President Donald Trump this month, defense and industry sources said.

Sri Lanka keen to maintain India, China balance in a shift of stance: Experts
The New Indian Express, February 8

Sri Lankan Prime Minister Mahinda Rajapaksa on Friday (February 7) landed in the capital months after his brother and Sri Lankan President Gotabaya Rajapaksa too chose India for his first foreign visit after assuming power.

Russia pulls India closer with oil and weapons
Nikkei Asian Review, February 7

Russia is bolstering cooperation with India in oil and defense, hoping to use its ties to the key Asian partner to its advantage in its rivalry with Washington.

India can consider evacuating Pakistani students from China's Hubei province if resources permit, says MEA
Firstpost, February 6

India can consider evacuating Pakistani students from the coronavirus-hit Hubei province “if such a situation arises” and resources are available, the Ministry of External Affairs said on Thursday (February 6), while making it clear that Pakistan had made no request for it till now.

India evacuates Maldivians, Bangladesh citizens from Wuhan as part of neighbourhood first policy
The Economic Times, February 3

Delhi, in keeping with neighbourhood first policy, has evacuated seven Maldivians along with 323 Indians from Wuhan during second Air India mission to Wuhan following outbreak of corona virus.

News Reports

Trade and Economy

US stops treating India, China as developing countries for trade benefits
The Print, February 11

The Trump administration is changing a key exemption to America’s trade-remedy laws to make it easier to penalize about two dozen so-called developing countries including China, India and South Africa.

Indian firms brace for China supply shock as shutdown extends
Livemint, February 9

Indian companies are bracing for a major supply shock as the rapid spread of the coronavirus infection in China has forced several factories there to extend a shutdown.

Indian automakers face parts shortage as China epidemic hits supply chain
Nikkei Asian Review, February 7

Indian automakers are bracing for a shortage of components as the coronavirus outbreak in China hinders supplies to an industry battling to come out of a prolonged slowdown.

India stays away from RCEP talks in Bali
Nikkei Asian Review, February 4

India stayed away from the latest talks on the Regional Comprehensive Economic Partnership, in a further sign that it may pull out of negotiations for the free trade agreement touted as largest in the world.

The Economic Times, January 31

The Economic Survey 2019-20, tabled by FM Nirmala Sitharaman in Parliament today (January 31), cites the example of China to underline how India can become a trade super power by way of exports. During the period 2001–2006, labour-intensive exports helped China generate 70 million jobs for workers with primary education.

China virus causes scare for India's smartphone makers
Reuters, January 30

The coronavirus outbreak in China could start to disrupt India’s production of smartphones if it continues to spread in February, as it could delay component shipments, industry executives said.

News Reports

Energy and Environment

As China suspends fuel contracts, Indian firms go bargain hunting
Livemint, February 10

Indian firms are on a hunt for bargains on diverted cargoes of crude oil and liquefied natural gas (LNG), with Chinese energy majors declaring force majeure to avoid taking delivery of some cargoes, said several people aware of the development.

Coronavirus casts a shadow on solar projects
Livemint, February 6

Chinese firms supply about 80% of solar cells and modules used in India because of their competitive pricing. Chinese vendors of solar modules have alerted Indian firms about supply disruptions due to the coronavirus epidemic.

China energy executives braced for 25% fall in domestic oil demand
Financial Times, February 6

Chinese energy executives are projecting that the country’s oil consumption will plunge by 25 per cent this month as the deadly coronavirus outbreak paralyses travel and shuts down industrial activity in the world’s second-biggest economy.

India Allocates 1.2 Gigawatts In World’s Largest Renewable Energy Storage Tender
Clean Technica, February 1

The Solar Energy Corporation of India (SECI) has successfully concluded world’s largest renewable energy-cum-storage tender. The agency allocated 1.2 gigawatts of renewable energy capacity among two of India’s leading developers.

India's air pollution crisis spurs clean energy investment
Nikkei Asian Review, January 28

Indian companies from startups to the sprawling Tata group are investing more in wind and solar power, emboldened by government efforts to improve urban air-quality levels that are among the world's worst.

Analyses

Unlike India, China built its economy & military before calling itself a world power
The Print, February 6

By Aparna Pande, Research Fellow and Director, India Initiative at the Washington DC-based Hudson Institute.

While most world capitals have been waiting for significant economic reforms since Prime Minister Narendra Modi’s election to office in 2014, his government has prioritised social reengineering over economic growth in India.

The quest for regional connectivity
Hindustan Times, February 5

By Constantino Xavier, Fellow, Brookings India, New Delhi

Connectivity has become the new consensus across the Indian government, and is making unprecedented progress, beyond just political summits, statements and slogans. But keeping this momentum will not be easy, with a variety of challenges on the horizon.

ASEAN members start standing up to China's maritime aggression
Nikkei Asian Review, February 3

By Richard Heydarian, academic, columnist and author

For decades, Beijing has sought to co-opt and lure its Southeast Asian neighbors into acquiescence with its maritime expansion through a package of economic incentives, military intimidation and a diplomatic charm offensive.

Is China getting real with its grandiose visions for the belt and road?
South China Morning Post, February 3

By Raffaello Pantucci, Senior Associate Fellow, Royal United Services Institute (RUSI) in London; and Senior Visiting Fellow, S. Rajaratnam School of International Studies (RSIS) in Singapore.

Beijing is toning down its rhetoric for the grand plan and rethinking its massive international infrastructure programme. Signs of a more modest approach from Xi Jinping’s trip to Myanmar when there was little official mention of an economic corridor involving the two countries.

China has a major soft power problem in Asia
The Business Times, January 29

By Malcolm Cook, Senior Fellow, ISEAS-Yusof Ishak Institute

Three recent opinion polls on Asian views of China as a major power show China's growing difficulty in translating its growing economic and strategic weight (hard power) into trust of China as a leading power (soft power). All three polls show very low levels of trust in China as a major power and sharp declines in this vital component of soft power from 2018 to 2019.

Books and Journals

The reputational bases of India’s China policy: the forward policy and beyond
India Review, Vol. 18, Issue 5 (2019): 520-533

By Mahesh Shankar, Associate Professor and Director, International Affairs Program, Skidmore University

This paper analyzes instances of the Indian leadership’s choice of an escalatory approach in its border dispute with China, first in the adoption of the Forward Policy in the lead up to the 1962 war, and more briefly the more recent decision in 2017 to take escalatory action in response to Chinese activity in the Doklam area in the trijunction of the India-China-Bhutan border region. In doing so, the paper demonstrates how a focus on reputation as an explanatory factor may allow us to make better sense of how Indian leaders have in the past and continue to in the present make decisions on key issues of national security concern.