India Blocking Some Chinese Imports, Car Plant Deal Halted Amid Border Tensions

The Indian government has increased its scrutiny of Chinese imports and investment deals as it tries to reduce the economy's dependence on China in the wake of the deadly clash between troops of the two Asian economic giants along their shared Himalayan border earlier this month.

The local government in the western Indian state of Maharashtra ordered a halt to a $500 million investment by China’s Great Wall Motor for a car plant, saying they were waiting for clarification from the central government. The central government itself has cancelled several such contracts in the last few days.

Indian warned Beijing on Thursday that not pulling backs troops from a disputed area near the border will impact bilateral relationships, putting the ball squarely in the court of Chinese President Xi Jinping.

The move, although a difficult choice since Indian companies are heavily dependent on their supply chains in China, still shows the determination of the Indian government to move toward a decoupling following the deteriorating border situation.

China is the biggest exporter to India, accounting for 14% of Indian imports, while China accounted for just 5% of Indian exports. Chinese foreign direct investments to India was about $4 billion in 2019, data shows. India's trade deficit with China was $57.4 billion in 2019. While the figure pales in comparison to the massive $419.2 billion trade deficit the U.S. had versus China in 2018, any loss of trade can hurt a manufacturing-dependent economy like China's in the slowing global economy.

News reports say Indian customs is now subjecting shipments from China to extra scrutiny at certain ports, leading to delays in the movement of parts and raw materials that Indian companies import from China. Among those heavily affected are auto companies and pharma companies that use the Chennai port in southern India for imports.

A spokesperson from Ford India said a shipment of auto components parts meant for its plant in south has been held at the Chennai port. He said, “We are working with the authorities and supporting them with necessary documents and details requested by them.” Foreign companies in India, like Apple, that import finished goods or components from China could be spared the complete check on shipments, the Economic Times reported quoting sources.

Reuters reported that pharma companies have already been told by Indian customs that their imports will undergo stricter scrutiny. The Chennai Customs Brokers’ Association, a trade body for logistics companies, has warned its members that there will be some delays as it had received internal instructions from the customs department to keep all consignments originating from China on hold, according to the sources quoted in the report.

The commerce ministry’s Department for Promotion of Industry and Internal Trade has directed online retailers to display ‘country of origin’ on labels of all goods sold in India. The order affects, among others, Amazon and Walmart's Flipkart.

The Indian government, already trying to boost manufacturing, has asked companies to purchase only those products that meet the 50% local content criteria, according to a statement Tuesday. All products bought from the government's e-Marketplace – the Indian government’s online portal that clocked up sales worth $5.3 billion in the last financial year -- will now have to carry information on their country of origin. New entrants as well as those already registered on the website have to adhere to the new requirement or risk being removed.

Popular sentiment has also turned against China, with calls to boycott Chinese products filling social media. India's finance minister asked importers to avoid unnecessary imports from China, offering an example of the cheap idols of the Hindu god Ganesha that come from China. "Can’t we make a Ganesha idol from clay?” asked Nirmala Sitharamam, reported the Times of India.

The push to source locally is expected to negatively impact the market for Chinese goods in the subcontinent. Products likely to be the worst hit are smartphones, electronic accessories, home appliances and garments.

However, Chinese smartphone maker Xiaomi’s India head Manu Kumar Jain claimed Thursday that the company has not been impacted by the backlash against Chinese products. Xiaomi commands about 30% of the smartphone market, according to data from Counterpoint Research.