India wary of China investing, trading through a third party

NEW DELHI: India suspects that China could be engaging in unfair trade practices by supplying goods and investments through a third party such as Hong Kong and Singapore, but may not bar legitimate Chinese trade and investments in India while scanning them from the perspective of national interest, people with knowledge of the matter said.

Data suggests significant indirect inflow of Chinese goods and investments through locations with which India has free trade agreements (FTAs), preferential trade agreements (PTAs) or other bilateral commercial arrangements. This is not only illegal but also injuring domestic industry, the people said, requesting anonymity.

The development comes a day after the Narendra Modi govenment announced ban on 59 mostly Chinese mobile applications citing concerns that these are “prejudicial to sovereignty , defence of India, security of state and public order.”

Data shows that total foreign direct investment (FDI) from China is minuscule, but many Indian firms have received Chinese investments. Similarly, imports from China have registered a minor decline recently, but at the same time imports from Hong Kong and Singapore have surged. These figures show that something is amiss and needs to be probed, one of the people cited above, who works in an economic ministry, said.

According to the Federation of Indian Export Organisations (FIEO), while India’s trade deficit with China narrowed by $6.05 billion to $51.25 billion in 2019, the gap with Hong Kong widened sharply by $5.8 billion in 2019, nullifying almost all the gains.

Similarly, India trade deficit with Singapore was $5.82 billion in the previous financial year, the person mentioned above said.

“The principal imports from Hong Kong, which have shown a significant increase, are electrical and electronic products where imports jumped from $1.3 billion to $8.6 billion between 2017 and 2019,” FIEO director general and chief executive officer Ajay Sahai said. The increase in imports is definitely a setback to domestic industry, he said. “If the goods made in China are re-routed through Hong Kong and Singapore, showing such origin of products, customs can always ask importers to provide the proof of adhering to the Rules of Origin,” he said.

A second person working in economic ministry said, “Even the Chinese FDI inflow also appears skewed.” The latest official data shows foreign direct investment from China between April 2000 and March 2020 was $2.378.71 billion, which is 0.51% of the total FDI inflow into the country in the two decades.

Email queries sent to ministries of finance and commerce did not elicit any response.

DATA SUGGESTS INDIRECT INFLOW OF CHINESE GOODS AND INVESTMENTS THROUGH LOCATIONS WITH WHICH INDIA HAS FREE TRADE AGREEMENTS