June 17, 2020 / 4:09 AM / 2 months ago

Breakingviews - Economic arsenals intensify India and China clash

An Indian army convoy moves along Srinagar-Leh national highway, at Gagangeer, in east Kashmir's Ganderbal district, June 15, 2020. REUTERS/Danish Ismail

MUMBAI (Reuters Breakingviews) - Economic roads between India and China may prove as fraught as real ones running through the Himalayas. The first deadly clash between the nuclear powers in decades is even weightier given their deepening commercial links. Those were supposed to help maintain the peace, but instead it is looking like geopolitical and financial battles will feed on each other.

Trouble has flared up again recently with hundreds of troops deployed near the lengthy stretch of disputed border. One source of tension was India’s construction nearby of roads and airstrips as it seeks to catch up with its northern neighbour’s lead in infrastructure. Also at issue are China’s alleged incursions into areas patrolled by India. De-escalation efforts crumbled, leading to casualties on both sides this week. At least 20 Indian soldiers were killed.

Even if the military situation can be defused, strains will persist. Trade ties have deepened since India opened its economy in the 1990s. The relationship has grown lopsided, though. Indian imports into China, including machinery and equipment, comprise about 80% of the nearly $90 billion in annual bilateral trade. And with Chinese tech companies such as Alibaba and Tencent investing in their Indian peers, various concerns have emerged, including over the control of data.

Physical confrontations only will shore up domestic support for Prime Minister Narendra Modi to keep checks on China’s influence. New Delhi introduced rules in April that require approval for any direct investment from Chinese entities. But China’s size and manufacturing edge make it hard for India to impose measures that don’t hurt its own consumers, says Sadanand Dhume, resident fellow at the American Enterprise Institute.

Indeed, Chinese brands like Xiaomi lead in India’s mobile handset market and are pushing into white goods too. Huawei, the controversial telecom equipment titan, has been allowed to participate in India’s 5G trials. Indian companies, meanwhile, understandably grumble about a lack of access in the other direction. And things could get pricklier as India renews its pitch as a rival manufacturing centre while a global backlash against China gathers steam. A full blown military war would be devastating, and there is a danger that economic arsenals only intensify the situation.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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