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Easing Indochina tensions may set stage for more stable trade and investment flows, experts say

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Easing Indochina tensions may set stage for more stable trade and investment flows, experts say

The thawing of political tensions between India and China, four years after relations soured following the standoff in the Galwan Valley, may set the stage for more stable trade with fewer disruptions. According to sources, this development could benefit India’s largest import source and crucial investment partner.

However, some experts warn that India’s low exports and heavy reliance on Chinese imports, especially in industrial sectors, are structural issues that will require long-term policy efforts, as lowering barriers to investment Chinese may not lead to technology transfer.

Ensuring stability

Stable relations can give a boost to several key industries in India that are heavily dependent on Chinese imports, such as telecom, electronics, pharmaceuticals, chemicals, plastics, solar energy and the automobile sector, Ajay said Sahai, Director General, Federation of Export Organizations of India. .

“Improving relationships can reduce uncertainties and ensure a stable supply of components and raw materials, avoiding costly disruptions,” he said.

In 2023-24, India’s bilateral trade with China stood at $118.39 billion, of which China’s imports were a whopping $101.73 billion, while exports were $16.66 billion. dollars

With the improvement of bilateral relations, many Chinese companies will be keen to invest in the PLI (Production Linked Investment Scheme Beneficiary) sectors, Sahai noted. “With local content criteria, it can lead to robust growth of our MSMEs as auxiliaries in a focus and talk model. The potential of these investments can boost job creation and industrial growth. In the long term, it can address the trade deficit problem with both China and the overall trade deficit,” he added.

While Chinese investments may target labor-intensive industries such as clothing or footwear, where local manufacturing could be further undermined, in high-tech sectors such as electronics and electric vehicles , Chinese companies can focus on assembling products in India, with up to 90 percent. of components that are still imported from China, said Ajay Srivastava, founder of the Global Trade and Research Initiative.

“It is unrealistic to expect an increase in Chinese investments, even if restrictions (imposed by India on countries that share a land border with it) are eased. Historically, China has shown limited interest in making substantial investments to India, especially in sectors requiring technology transfer or strategic collaboration.Even before the conflict, China was reluctant to share technology in sectors critical to India’s industrial growth, such as electronics and electric vehicles,” Srivastava said. Long-term policy interventions would be needed to address the problems of high dependence on Chinese imports, he added

Exporters hope that better ties could lead to better market access for Indian exports in sectors such as beef, agri-food and processed, pharmaceutical and IT sectors.

“China is putting in place non-tariff barriers to Indian exports in sectors like agriculture, pharmaceuticals and IT exports. With improved relations, there could be better communication between the two countries to resolve the issue,” said a Delhi-based exporter.

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