NEW DELHI :
Imports from Hong Kong are likely to draw greater scrutiny as China, under pressure to narrow its trade gap with India, is increasingly routing exports via Hong Kong, where Beijing has imposed a security law that undermines the city’s autonomy from Communist Party rule.
While India has been trying to narrow its trade gap with China, its trade balance with Hong Kong has swung from a surplus to a deficit for the first time in the year to March 2019, at $5 billion, and has further widened to $6 billion in the following year. Imports from the semi-autonomous region has nearly tripled in just four years.
Chinese imports and investments have been facing new scrutiny in India after a tense border standoff that left 20 Indian soldiers and an unspecified number of Chinese troops dead. India is aiming at dismantling trade links with China as part of policy to cut dependence on the country.
“When the government is thinking of putting restrictions, it is looking at products of only Chinese origin and the curbs do not apply to products coming from Hong Kong. Government should now extend such restrictions to Hong Kong as well,” said Biswajit Dhar, professor of economics and a trade expert at the Jawaharlal Nehru University.
Chinese exports routed via Hong Kong to India are mostly high-value electronic items. For instance, integrated digital circuits, the third most imported item from China, is now the second most imported item from Hong Kong, valued at $2.2 billion in FY20. While India’s import of lithium-ion batteries from China—commonly used to build rechargeable batteries—declined 14% to $668 million in FY20, import of the same item from Hong Kong shot up 31% to $349 million during the same year. Import of flash memory cards from Hong Kong now stands at $1.1 billion, while import of the same item from China is at a paltry $222 million.
Although India’s combined trade deficit with China and Hong Kong narrowed to $54.6 billion in the year to March from $58.6 billion in the previous year, its share in India’s total trade deficit climbed to 34% from 31.8%, respectively.
“We are aware of our rising trade deficit with Hong Kong even as our trade deficit with China is declining. We are keeping a close watch on the situation and will take all necessary steps in this regard at an appropriate time,” a senior government official said on condition of anonymity.
India has banned railway and road projects for Chinese companies and has barred 59 Chinese apps, including TikTok, on national security grounds. Prime Minister Narendra Modi on Friday said India needs to end its dependence on import of solar panels, which are mostly sourced from China. Earlier this month, power minister R.K. Singh announced India will not allow import of power equipment from China and Pakistan because of cybersecurity threats. The fate of such imports routed via Hong Kong remains unclear.
China uses Hong Kong as a transhipment hub for exporting goods to the rest of the world. Exports from Hong Kong often remain below the radar as it is a founding member of the World Trade Organization and thus recognized as a separate entity. Even after the 1997 transfer of its sovereignty from Britain to China, it has remained a member of WTO as guaranteed under the “one country, two systems” principle. However, the recent imposition of the national security law by China on Hong Kong under its One China policy is aimed at squelching civil liberties and other freedoms for residents of the city. The draconian law follows China’s attempt to quash pro-democracy protests that has become the biggest challenge to Chinese rule in the region.