India has targeted Chinese trade and investment in the wake of the recent deadly border clash. On June 29th the government banned 59 Chinese mobile applications, including TikTok and WeChat.
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The bans were delivered on privacy and data security grounds, but also referenced the importance of defending the “sovereignty of Indian cyberspace”—a term that China has used to justify its own domestic internet censorship policies in recent years. The move comes amid a sustained Indian campaign against Chinese economic interests, which has increased scrutiny of China-India trade and investment contracts.
Reports indicate that India has ordered customs officials to hold all shipments from China for physical examination, ostensibly to guard against under-invoicing. These orders have reportedly been informal rather than in writing, probably to avoid China bringing a case against India with the World Trade Organisation. Indian exporters report that customs officials in China and Hong Kong have employed similar measures to delay clearance of Indian shipments in retaliation.
Indian ministries have drawn up plans to reduce import reliance on China in their respective sectors. Concerns about a major Chinese telecommunications equipment manufacturer, Huawei, have driven the Department of Telecommunications to require telecoms infrastructure providers to share their source code with the government for testing. Economic hostility towards China has also gained popular support, including calls to boycott Chinese goods; Xiaomi, a Chinese phone manufacturer, has requested retailers to hide its branding, reportedly over fears that their shops could be vandalised. However, the lack of serious alternatives to Chinese brands for many products, such as mobile phones and automotive parts, will restrain such boycotts.
Border tensions between the two countries remain high, and we do not expect official senior military talks to yield meaningful results. The close proximity of troop deployment creates a high risk of military escalation, although our core forecast continues to assume a fragile stalemate. In lieu of a security confrontation, we expect economic tensions to escalate, which will have consequences for Chinese firms: many Chinese technology companies, for example, see India as an important market for overseas expansion. The likelihood of China imposing formal, retaliatory restrictions on Indian goods and services has also grown significantly.
Impact on the forecast
The development affirms our forecast of increased economic hostilities between India and China. Border tensions will remain high in the coming months, with only a summit meeting likely to make progress towards de‑escalation.
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