India–China ‘Decoupling’ Accelerates After Border Dispute, CCP Virus

Smartphone market a key battleground for India

Protesters display placards urging citizens to boycott Chinese goods during a demonstration in New Delhi, India, on June 18, 2020. Prakash Singh/AFP via Getty Images

News Analysis

The recent India–China border dispute and violence has accelerated calls within India to “decouple” economically from China, especially on the technology front.

For the uninitiated, bilateral India–China trade stood at around $93 billion at 2019, as India imports a significant amount of high technology, automotive supplies, pharmaceuticals, and industrial products from China.

Even prior to the Galwan Valley border dispute escalation earlier this month, the two major powers within Asia were already on a collision course. The outbreak of the CCP virus and the chain disruptions during the early stages of the pandemic exposed risks in India’s manufacturing and technology supply chains.

CCP virus-related lockdowns had a significant impact on India’s pharmaceutical and electronics supply chains, according to a recent report by the London-based India Inc. About 65 to 70 percent of India’s imported active pharmaceutical ingredients are imported from China, and for some key active ingredients, China was the sole supplier, the report found.

There also have been increasing calls to boycott Chinese goods and services, arising from both the CCP virus pandemic and the recent border clash.

On June 17, India’s intelligence agencies asked the Modi government to block or advise against the usage of 53 smartphone apps that are made by Chinese companies or linked to China.

The list of apps is exhaustive and includes popular platforms such as Zoom, TikTok, SHAREit, and apps made by smartphone maker Xiaomi. The intelligence authorities voiced “concerns that these weren’t safe and ended up extracting a large amount of data outside India,” according to Hindustan Times, citing people familiar with the discussions.

Some imports, such as pharmaceutical ingredients, will be very difficult to source from suppliers outside of China, especially given the required price points. But other areas, such as manufacturing and smartphone supply chains, may be lower-hanging fruit. It’s something Indian authorities have vowed to tackle with increased urgency.

Focus on Smartphones

A major battleground on this effort for India will be smartphones.

Currently, the smartphone market in India is dominated by China, with Chinese brands occupying four of the top five spots in the first quarter of 2020, according to research by Counterpoint. Xiaomi leads the market, with a 30 percent market share and 6 percent growth year-over-year, followed by Vivo, Samsung, Realme, and Oppo. Samsung is the only non-Chinese brand among the five.

While most of such smartphones sold in India are made in and imported from China, the Indian government is looking to change that dynamic. In early June, India announced a 500 billion rupee ($6.6 billion) program to incentivize manufacturers to set up facilities in India.

India announced it would offer qualified entities subsidies of up to 6 percent of the sales they manufacture within the country over five years, while offering rebates of up to 25 percent on capital expenditures that companies make in India, related to semiconductors and electronic components. The announcement is part of the Modi government’s effort to court international companies to set up a manufacturing base away from China.

One company looking to take advantage of the program is Indian phone manufacturer Micromax. The firm was the No. 1 smartphone brand in India about five years ago, before Chinese brands entered the Indian market by offering cheap phones and elbowed local brands from the top spots.

The deflationary effects of cheap phones made by Chinese manufacturers with scale had a devastating impact on domestic smartphone makers. Intex pivoted away from making phones and now focuses on other electronics, while another former top phone maker, Lava, still exists but is now focused on sales in smaller towns that the Chinese brands have overlooked.

Even Micromax today assembles most of its phones in China to save costs.

Micromax used its Twitter account to tell its followers on June 18 that the company is working on new smartphone devices to be assembled in India, with hashtags #MadeByIndian and #MadeForIndian. Micromax reportedly has seven new devices in the pipeline, a retail industry source told the Indian news site Indian Express.

Despite the anti-China sentiment in India, it will be difficult for consumers to pivot away from Chinese smartphones. Chinese brands comprise 75 percent of the market in India and dominate the important sub-$200 price segment.

“We don’t have anything,” Navkendar Singh, research director with IDC India, told Indian Express. “I don’t expect Micromax, Intex, and Lava to suddenly start making great devices and giving value across ecosystem products.”