Will ‘Boy­cott China’ strat­egy re­ally help?

Such a move will hurt China by tak­ing away a small share of its over­all ex­port earn­ings. But it will also re­quire that In­dia finds al­ter­na­tive im­port sources, do­mes­ti­cally or in­ter­na­tion­ally

Hindustan Times (Jalandhar) - - HTSPOTLIGH­T - Roshan Kishore let­ters@hin­dus­tan­times.com

Sino-In­dian re­la­tions will not re­turn to nor­mal for a long time. Diplo­matic and mil­i­tary ef­forts to re­store sta­tus quo ante at the Line of Ac­tual Con­trol (LAC) will con­tinue. But there is a wide­spread con­sen­sus that Sino-In­dian ri­valry will ul­ti­mately be de­cided in the realm of eco­nomics.

China’s eco­nomic rise is as­so­ci­ated with its ex­port-led growth. This is why ev­ery time we have a con­flict with China; there are calls for a boy­cott of Chi­nese goods. Those cham­pi­oning such ideas be­lieve that our boy­cott will hurt China eco­nom­i­cally. Such views are, at best, half­baked. Eco­nomic com­pe­ti­tion be­tween coun­tries, es­pe­cially ones as big as In­dia and China, is far more nu­anced. It re­quires long-term strate­gic vi­sion. For­eign trade, at best, can only be one as­pect of it. Also, mil­i­tary and diplo­matic al­lies might not be will­ing to help when it comes to the econ­omy.

Any se­ri­ous dis­cus­sion on Sino-In­dian eco­nomic com­pe­ti­tion re­quires look­ing at the US-China gap and China-In­dia gap. The for­mer is what is driv­ing China’s larger am­bi­tions. The lat­ter mat­ters be­cause it tells us about our abil­ity to catch up.

China might over­take the US in terms of gross do­mes­tic prod­uct (GDP), but it will not achieve US liv­ing stan­dards.

China’s eco­nomic growth since the 1980s is un­par­al­leled. Be­tween 1960 and 1980, its share of global GDP in­creased from 1.1% to 1.2%. By 2018, China’s share of global GDP had in­creased to 13%. China’s GDP was just 5% of US GDP in 1980. This in­creased to more than 60% by 2018. In­dia’s gains have been more mod­est on this front.

The grow­ing con­ver­gence in Chi­nese and Amer­i­can GDP has not trans­lated it­self pro­por­tion­ately in terms of liv­ing stan­dards. Be­cause China’s pop­u­la­tion is sig­nif­i­cantly more than that of the US, Chi­nese per capita in­comes are much lower. Even though China is ranked sec­ond in terms of size of GDP, it is not even a high-in­come coun­try to­day. The World Bank clas­si­fies China as an Up­per Mid­dle In­come coun­try. High In­come coun­tries have a Gross Na­tional In­come (GNI) per capita of $12,376 or more. Up­per-Mid­dle In­come coun­tries have a GNI per capita be­tween $3,996 and $12,375. In­dia is among Lower Mid­dle In­come coun­tries, which have GNI per capita of be­tween $1,026 and $3,995. Of the 218 coun­tries for which this clas­si­fi­ca­tion is avail­able, 80 are in the High In­come Group. (See Chart 1 and 2)

De­mo­graphic shift will force China to re­cal­i­brate its eco­nomic strat­egy.

Un­like what is com­monly be­lieved in In­dia, high pop­u­la­tion need not be an un­mit­i­gated curse for eco­nomic growth. A large pop­u­la­tion can ac­tu­ally cre­ate tail-winds for eco­nomic ac­tiv­ity. This is be­cause it also brings more work­ing hands. Two fac­tors de­ter­mine whether this hap­pens or not. One is the age com­po­si­tion of the pop­u­la­tion. This de­ter­mines what share of it can ac­tu­ally work. The other is whether or not there are enough re­sources to work with.

China’s high-growth phase co­in­cides with a favourable age com­po­si­tion of its pop­u­la­tion. World Bank data shows that the share of pop­u­la­tion aged be­tween 15 and 64 years started ris­ing sharply in China af­ter the 1980s. This ra­tio was sig­nif­i­cantly higher than the US or In­dia. It stag­nated at very high lev­els in the last decade and has fi­nally started de­clin­ing now.

This ra­tio fol­lowed sim­i­lar tra­jec­tory for China and In­dia un­til the 1970s. It was only af­ter China an­nounced the One Child Pol­icy in 1980 that the share of pop­u­la­tion be­low 15 years started fall­ing and that of the 15-64 age group started ris­ing. The strat­egy brought gains to China in the past. It had more work­ers and fewer de­pen­dents in its pop­u­la­tion. But it will ex­tract a cost now. Thanks to the One Child Pol­icy, the Chi­nese econ­omy has been adding fewer young work­ers to its econ­omy. This means that there will be more de­pen­dents and fewer work­ers go­ing for­ward. Be­cause In­dia did not con­trol its birth rates, it has a larger share of young work­ers and will con­tinue to see a rise in the share of work­ing pop­u­la­tion ra­tio. De­vel­oped coun­tries like the US have a sta­ble ra­tio be­cause they are char­ac­ter­ized by low birth and low death rates. (See Chart 3)

A fall­ing share of work­ing pop­u­la­tion means that China will have to keep in­creas­ing its value added per worker in or­der to main­tain growth and im­prove liv­ing stan­dards. This will re­quire a move to­wards more skill-ori­ented jobs. For ex­am­ple, as­sem­bling car parts will en­tail a lower value added per worker than mak­ing a car en­gine. Where does China stand vis-a-vis the US and In­dia on this count? World Bank gives data on sec­tor-wise value added per worker. Even un­til 2000, value added per worker in China and In­dia, when com­pared to the US, was al­most sim­i­lar. China has made rapid ad­vances in man­u­fac­tur­ing since then and surged ahead of In­dia. (See Chart 4)

The sharp rise in China’s value added per worker in man­u­fac­tur­ing is the big­gest ev­i­dence of its grow­ing tech­no­log­i­cal prow­ess. Not all of this has come from scrupu­lous means. In­tel­lec­tual Prop­erty Right and tech­nol­ogy theft-re­lated dis­putes have emerged as one of the big­gest sources of con­flict be­tween China and the US to­day. If China man­ages to catch up with the in­no­va­tion curve of the US and other high in­come coun­tries, it can make rapid eco­nomic and strate­gic ad­vances.

What ex­plains China’s abil­ity to am­bush de­vel­oped coun­tries such as the US on the tech­nol­ogy fron­tier? It has built a ro­bust re­search and devel­op­ment ecosys­tem within its coun­try. This can be seen in the sharp rise of patent ap­pli­ca­tions filed in China, which are not only way more than In­dia, but also the US. As can be seen, In­dia is in no po­si­tion to in­flu­ence this com­pe­ti­tion at the mo­ment. Any sig­nif­i­cant ad­vance on this count will re­quire a big boost to ed­u­ca­tion spend­ing in In­dia. (See Chart 5) Will ‘Boy­cott China’ help? Any strat­egy to even partly se­vere trade ties with China must care­fully eval­u­ate the pros and cons. Such a move will hurt China by tak­ing away a small share of its ex­port earn­ings. But it will also re­quire find­ing al­ter­na­tive sources of such im­ports, ei­ther do­mes­ti­cally or in­ter­na­tion­ally. An HT anal­y­sis by Vi­neet Sachdev us­ing World Bank data shows that more than 50% of In­dia’s im­ports from China are ei­ther cap­i­tal or in­ter­me­di­ate goods. Con­sumer goods, which are more likely to bear a Made in China la­bel, have a share of less than 20%. While pub­lic opin­ion might be driven by the idea of boy­cotting con­sumer goods, any knee-jerk re­ac­tion can end up dis­rupt­ing cap­i­tal goods and in­ter­me­di­ate goods sup­plies and there­fore do­mes­tic value chains. To be sure, this does not mean that In­dia should not strive for re­duc­ing its im­port de­pen­dence on China. How­ever, any such pol­icy should work via a si­mul­ta­ne­ous devel­op­ment of do­mes­tic ca­pa­bil­i­ties which can sat­isfy the im­port de­mand. This will re­quire ac­cess to funds, tech­nol­ogy as well as ex­port mar­kets.

Can In­dia hope to get the sup­port of the anti-China bloc in such en­deav­ours? Let us take the ex­am­ple of the US. The Indo-US strate­gic al­liance is stronger than ever to­day. Con­cerns about China’s grow­ing power have been an im­por­tant driver of this al­liance. This strate­gic con­cur­rence, how­ever, has not led to a con­ver­gence on eco­nomic mat­ters. The big­gest proof of this is the con­tin­u­ing im­passe over an Indo-US trade agree­ment.

In­dia’s counter-strate­gis­ing against China will only suc­ceed if we make sure that our bi­lat­eral and mul­ti­lat­eral re­ac­tions to the re­cent de­vel­op­ments max­imise our gains while min­imis­ing any con­ces­sions we make for strate­gic sup­port. In­dia is a democ­racy un­like China. Do­mes­tic political pres­sures of achiev­ing quick and rad­i­cal gains will only com­pli­cate the pur­suit of this ob­jec­tive.

PUB­LIC OPIN­ION MIGHT BE DRIVEN BY THE IDEA OF BOY­COTTING CON­SUMER GOODS, BUT A KNEE-JERK RE­AC­TION CAN DIS­RUPT CAP­I­TAL AND IN­TER­ME­DI­ATE GOODS SUP­PLIES, AND HURT VALUE CHAINS

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