India’s growing economic reliance on China may be tough to break

India’s economic ties with China runs deep, making the recent escalation in political and trade tensions between the two powerful neighbors all the more worrying for businesses.

Following a border clash in which several soldiers on both sides were killed, calls have been growing in India for a boycott of everything Chinese. Prime Minister Narendra Modi’s government this week banned the use of 59 Chinese apps. Goods purchased from China are being delayed at Indian ports, and authorities are planning to impose higher tariffs and stringent quality controls on shipments.

But trade links between the two countries are strong, as the following charts show, and reducing India’s reliance on China won’t be easy.

“A blanket ban on Chinese imports is not feasible,” said Harsh Pant, a professor of international relations at King’s College London. “It would be a self-defeating proposition.”

Trade Deficit

The U.S. pipped China to become India’s largest trade partner two years ago, but Beijing continues to remain New Delhi’s biggest source of imports. India’s purchases from China of everything from electronics to key drug ingredients to industrial machinery was just shy of $70 billion in 2019. The bilateral trade deficit of about $50 billion was far higher than with any other trading parter.

Beyond China, Modi has been trying to revive domestic manufacturing with a call for self reliance and a reduction in overall imports.

Hong Kong

China’s share of India’s imports has been declining since 2015, but that could be due to trade being diverted to Hong Kong, where shipments have climbed. The share of imports from the semi-autonomous city has more than doubled to 3.6% over the period. Those rising purchases are also now on the government’s radar, according to a report in the Economic Times.

Export Market

India has a goal to triple its annual exports to $1 trillion by 2025, and trade with China will play a key part in achieving that. China is now one of the top three buyers of Indian exports, accounting for 5.6% of outbound shipments last year. Key export items include gems and jewelery, agricultural products, textiles, and petrochemicals. Delays of these goods would have repercussions on dollar earnings for businesses, said Radhika Rao, India economist at DBS Group Holdings Ltd. in Singapore.

Rising Investment

The dependence on China goes beyond trade. Chinese businesses have invested in areas that touch the daily lives of Indian consumers, such as food delivery and ride-hailing apps, e-commerce platforms and digital payments. Alibaba Group Holding Ltd. and Tencent Holdings Ltd. have backed start-ups in India to cash in on a market of 1.3 billion people. Although China lags most major economies in terms of the amount of foreign direct investment put into India over the last two decades, the growth rate has been steadily rising from the mainland as well as Hong Kong in recent years.

Earlier this year, India imposed curbs on some foreign investments in local companies, in a move aimed at preventing opportunistic takeovers by Chinese investors.

Tourism Growth

Travel between the two nations has steadily increased over time. Since 2000, the number of Indian visitors to China has increased six-fold to almost 900,000 in 2018, according to the most recent data from China’s National Bureau of Statistics. In the same year, 300,000 Chinese visitors traveled to India, compared with just a few thousands at the turn of the century, according to the data from India’s Ministry of Tourism.