India raises the wall

We saw last week that Indian and Chinese soldiers clashed along the border in the Galwan Valley in Ladakh. Predictably, this has led to backlash against China and Chinese products (of which there are many) in India.

There are calls to boycott Chinese made goods, and for labelling products on e-commerce websites by country of origin.

Domestic traders' body CAIT has demanded making it mandatory for e-commerce firms to mention the 'country of origin' on each product sold on their platforms. 

CAIT secretary general Praveen Khandelwal claimed that most e-commerce platforms are selling Chinese goods and consumer are not well aware of this fact. 

The confederation has launched a campaign to boycott Chinese goods. 

(In 2000, India and China traded goods and services worth $3 billion. In 2019, the number had gone up to $95 billion, with India running a $60 billion current account deficit on account of China. In other words, India exported stuff worth approximately $17 billion to China in 2019, and imported stuff worth $77 billion)

However, boycotting Chinese products will be easier said than done. At least 75% of smartphones sold in India in the Jan-March quarter this year were by Chinese brands, according to Counterpoint Research.

(Realme, Oppo, Vivo and OnePlus are all brands owned by BBK Electronics, a Chinese electronics manufacturer)

To be fair, not all these phones are made in China - Xiaomi, for example, has a large manufacturing base in India, a fact that the company has lost no time in advertising.

And as if to illustrate that the anti-China sentiment is nothing more than sentiment, OnePlus 8 Pro, a new premium smartphone launched by BBK’s OnePlus, sold out within minutes of launch on Amazon.

However, while a consumer boycott of Chinese products may not be feasible, various governments in India are trying to do their bit in hurting Chinese industry.

The Maharashtra government has, for instance, put on hold foreign direct investments worth more than  ₹5,000 crore from Chinese firms within a week after signing agreements with them. The investments will now be subject to a central government review, the state said on Monday.

[…]

 In the past week, the Indian government has cancelled key projects and contracts given to Chinese companies. Among the decisions are barring of Chinese firms from supplying telecom equipment to state-owned Bharat Sanchar Nigam Ltd. Telecom operators are also unlikely to order 5G equipment from Chinese gear makers given rising tensions between both countries, several industry executives said on condition of anonymity.

Maharashtra’s decision has put in jeopardy automaker Great Wall Motors’s plan to set up a factory in Maharashtra at an estimated cost of more than ₹3,000 crore.

Then, imports from China are now being subjected to “100% customs inspection”, from the normal practice of random inspection.

Three senior industry executives said supplies will be impacted for brands such as Apple, Xiaomi, Oppo, Vivo, OnePlus, RealMe, Lenovo and several online focused brands, as consignments for most of them are currently stuck at customs. Most of these brands work on extremely lean inventory levels.

They said while some consignments were cleared on Wednesday, after the checks started on Monday evening, the pace of clearance is extremely slow since customs authorities are opening each and every consignment and matching invoice value, unlike earlier when clearances were fast-tracked.

China is already not happy about it. Even some Indian companies are not happy.

Alarmed at the development, various industry associations such as Ficci, handset lobby ICEA, and MAIT, which represents IT hardware manufacturers, are reaching out to the government, including the finance and commerce ministries. Their contention is that the move to subject shipments from China to 100% manual examination will disrupt supply chains. Expensive components and mission-critical imports from China could be damaged, making things more difficult for the already stressed industry, they say.

It is not just Chinese brands that are getting held up at customs - all containers coming from China are. This means that Apple, Cisco and Dell, all of which have substantial manufacturing setups in China, are getting affected as well. What is “interesting” is that there has been no formal government communication about opening all containers coming from China.

(Matt Levine, who runs an excellent financial markets newsletter, has an ongoing theme in his newsletter of “don’t put it in writing”.

One important lesson from the last few years of bank scandals is: Don't put it in writing. A lot of people got that wrong. Fine. But the really surprising thing is the number of people who came so close to getting it right, but for one small mistake. They knew not to put it in writing, and they told their colleagues not to put it in writing. Their mistake -- it is a subtle one -- is that they told their colleagues not to put it in writing in writing.

It seems like someone high up in the Indian customs department has read this?)

Meanwhile, it is unlikely that the current anti-Chinese sentiment is going to work in favour of domestic mobile manufacturers, people who run these companies say.

So China loses, Indian companies (both domestic and importers) lose. Indian customers lose (longer delays, decreased choices and maybe higher prices). So why is the Indian government taking up these lose-lose measures?

From a game theoretic perspective, lose-lose measures represent a credible signal from the Indian government that it is not happy with what is happening along the border. “We disapprove of your actions along the border so much that we are willing to hurt our own companies and people in order to hurt you”.

As Game Theory gurus Avinash Dixit and Barry Nalebuff put it,

To convey information, use an action that is a credible “signal,” something that would not be desirable if the circumstances were otherwise. 

Also, if you think about it, war is also a lose-lose proposition, from the point of lives and economies lost.

We can’t stop talking about telecom operators

The anti-China sentiment is not restricted to consumer mobile devices alone. Mobile telephony operators are also facing the heat. Vodafone-Idea (who we wrote about on Tuesday) and Airtel have ongoing equipment contracts with Chinese suppliers Huawei and ZTE, and if they are asked to cancel those contracts, it might come at a significant financial cost.

Both Airtel and Vodafone have maintained though that there has been no communication so far from the government to stop their business with ZTE and Huawei. According to reports, Vodafone owes Huawei around $450 million and owes ZTE around $150-$200 million. Airtel owes Huawei approximately $300 million for network gear.

Airtel and Vodafone might also face penalties for cancelling existing managed services and asset maintenance contacts (AMC) with both Huawei and ZTE with “international arbitration a possible option”. 

Their competitor Reliance Jio is sitting pretty on this account, having no Chinese equipment in its network. This has earned it rather high praise from Mike Pompeo, US Secretary of State.

Secretary Pompeo @SecPompeo

The tide is turning toward trusted 5G vendors and away from Huawei. The world’s leading telecom companies—Telefonica, Orange, Jio, Telstra, and many more—are becoming “Clean Telcos.” They are rejecting doing business with tools of the CCP surveillance state, like Huawei.