Electrical machinery, parts boost India’s imports from Vietnam by 17% in January-July

According to a Crisil report, India turned a net importer of steel in FY24, with an overall steel trade deficit of 1.1 million tonnes, marking a shift from its status as a net exporter since fiscal 2017. The top exporters were China, South Korea, and Japan, but Vietnam has now become a new entrant to the list. In a sign that imports from Vietnam could continue to grow, trade data showed that imports in July almost doubled to $1 billion compared to $520 million in July 2021.

‘China setting up units in Vietnam’

“Indian Customs have flagged cases where a few ASEAN firms made minor changes to products mainly made in China and then exported them as ‘made in ASEAN’ to India, benefiting from zero-duty access under FTAs. Set-top boxes are one such product. Vietnamese firms use FTAs to enter markets in India, the US, and the EU. In many cases, Chinese companies have set up manufacturing to bypass tariffs imposed by the US and the EU on Chinese goods. In response, the US recently imposed high tariffs on solar panels made by Chinese firms in Cambodia, Malaysia, Thailand, and Vietnam. The same fate may await the goods produced by Chinese firms in India,” said Ajay Srivastava, former Indian Trade Service officer and head of the economic think tank Global Trade Research Initiative (GTRI).

Srivastava said that India must closely monitor such imports under the India-ASEAN FTA to ensure compliance, and effective monitoring requires clear tracking of production processes and trade linkages. “The presence of Chinese firms in ASEAN has also led to increased imports into ASEAN from China. For example, when Chinese electric vehicle (EV) companies started production in Thailand, local auto parts orders dropped by 40 percent, forcing many manufacturers to cut back. India, with similar EV policies, could face similar challenges when Chinese firms begin operations,” Srivastava said.

The possible re-routing of goods from Free Trade Agreement (FTA) nations comes amid efforts to check imports from China through Quality Control Orders (QCOs) on a range of products such as steel wires, aluminum and aluminum alloy products, household and similar electrical appliances, and ceiling fan regulators. Despite several efforts to curb imports and investments from China, the neighboring country continues to surge. Imports from China have already crossed $60 billion during the first seven months of 2024, which is 10 percent higher than the $55 billion recorded during the same period last year. Imports from China in FY24 exceeded $100 billion.

Decoupling from China challenging

The Economic Survey noted that decoupling from China is challenging for the world, as Beijing dominates the supply of several critical minerals used in the manufacturing industry, and its control over various product categories creates a risk of “economic coercion.”

“Research by the Bank for International Settlements (BIS) shows that despite its policies, the US remains reliant on Chinese inputs. In fact, the rise in trade through Mexico and Vietnam is a result of Chinese firms re-routing their supply through these countries (or by locating themselves in these countries),” the survey said.

The survey also pointed out that as Global Value Chains (GVCs) are designed to minimize costs, countries like Malaysia, Vietnam, and Taiwan have focused on lowering their trade costs over time. This is one reason why these countries are benefiting from the ‘China Plus One’ phenomenon. “Over 90 percent of manufacturers in North America surveyed by the Boston Consulting Group in 2023 moved some or all of their production to other countries like Mexico, Thailand, and Vietnam, suggesting a shift away from China,” the survey noted.

Vietnam benefiting from Chinese FDI

Vietnam’s goods exports surged by 14 percent to $190 billion during the first half of the year, and its trade surplus rose to $11.63 billion, according to Vietnam’s General Statistics Office (GSO). This follows the Economic Survey’s indication that Vietnam might be benefiting from Chinese FDI amid a reconfiguration in global trade patterns.

“Vietnam’s trade with China and the US has recently increased. US imports from Vietnam more than doubled from $46 billion in 2017 to $114 billion in 2023. During the same period, Vietnam’s imports from China rose from $58 billion to $111 billion,” the survey stated. Moreover, Vietnam is seeking closer trade ties with China, as Vietnam’s newly appointed President, To Lam, is on a visit to China seeking economic cooperation and rail links. According to reports, the two countries are discussing plans for constructing high-speed railway lines connecting China to Vietnam by 2030.

A query emailed to the Commerce and Industry Ministry remained unanswered until press time.