The COVID-19 pandemic, whose first case was registered in China in December 2019, seems to have delivered another blow to already-strained ties between Washington and Beijing.
With six months to go before the Presidential election, US President Donald Trump has sharpened his attack against Democratic candidate and former vice President Joe Biden, with the Trump campaign team releasing an ad saying: “Biden stands up for China while China cripples America.”
Santosh Pai, Partner, Link Legal India Law Services, an Indian law firm which advises Chinese companies in India, said the US-China decoupling which started two years ago is likely to gain more traction now and will benefit various Indian sectors.
Pai has revealed that sectors such as “auto, machinery, textiles and pharmaceuticals have been India’s strengths in product exports and these will see rapid gains. In other areas India will need to build a strong manufacturing base to increase its export potential.”
The US import bill for machinery including computers was worth around $379 billion in 2019, accounting for 14.8 percent of total imports with China and East Asian countries dominating the market.
In a LinkedIn blog post on 19 April, Prime Minister Narendra Modi mentioned the opportunities India is looking for.
“Every crisis brings with it an opportunity. COVID-19 is no different… India, with the right blend of the physical and the virtual can emerge as the global nerve centre of complex modern multinational supply chains in the post COVID-19 world,” Modi wrote to the countrymen.
Nevertheless, the Indian government will have to keep in mind that even amid a trade war, the US remains the biggest export market for China – America comprises nearly 16.8 percent of China’s total exports. At the same time, US is China’s largest trade partner.
Opportunities Vs Capabilities
When asked if India has the apparatus and manufacturing capacities to fully fill any trade gap, Santosh replied in the affirmative but stated that the process will take time. “…it will not happen overnight. We need to demonstrate a strong investor friendly environment with certainty and clarity of policies to attract significant FDI,” he explained.
US government data suggests that Chinese imports were declined to $452 billion in 2019 in comparison with $540 billion in 2018. However, in the same period, India’s exports to the US witnessed a minor increase of around $3 billion to $57.6 billion in comparison to $54.3 billion in 2018.
Curb on Chinese Money and Its Impact
China has invested heavily in sectors like e-commerce, tech, retail, automotive and manufacturing, becoming India’s fastest-growing source of FDI in the past five years.
However, as China went into "aggressive" mode to acquire foreign companies as market valuations of firms across the world fell at a record level, India tightened its foreign investment norms to prevent “opportunistic takeovers”.
New Delhi stated that any entity that is based in or tied to a country that shares a border with India would have to secure the Indian government’s approval before making investment in any Indian company.
The development came after China’s central bank raised its stake in HDFC - India’s largest non-banking mortgage provider.
India’s Minister of Medium and Small Scale Enterprises and Road Transport Nitin Gadkari on Friday urged industries to tie up with US and UK firms operating in China and set up manufacturing units in India. The minister hoped the country's manufacturing sector could see an investment of over $300 billion.
US Secretary of State Mike Pompeo told journalists last week that India and the US “want to mesh the supply chains … that are important for our national security.”
“Our revenue collections will not see any upward movement in the near future due to the crisis triggered by the pandemic,” one official said on condition of anonymity.
Meanwhile, under pressure from the US, India may tweak its policies related to foreign direct investment and trade in a manner that may be slightly harmful to China.
Could this lead to border tensions?
“I don’t think FDI policy changes will create border tensions. There is sufficient maturity in India-China ties to avoid this,” Santosh concluded.