Another China syndrome

Permission for Apple's suppliers raises questions

The news that 14 of Apple Inc’s 17 key Chinese suppliers have received clearance from key Indian ministries to set up operations in India, but only via domestic partnerships, should be considered an encouraging development when set against the state of play in manufacturing growth and foreign direct investment in India. Those who have got the approval include AirPods and iPhone assembler Luxshare Precision Industry, lens maker Sunny Optical, and laser-equipment manufacturer Han’s Laser Technology. Most of these are global leaders in high-tech electronic-component supply and stalwarts of Chinese national industry. Their presence underlines the promise of India’s emergence as an alternative factory to the world as global majors seek to diversify from Covid- and slowdown-hit China.

Under the production-linked incentive scheme, the government’s signature programme to boost manufacturing, Apple claims to be supplying 85 per cent of its India sales through its three Taiwanese contract manufacturers, Foxconn, Pegatron, and Wistron, creating 50,000 jobs and exporting a record $1 billion worth of iPhones in December 2022 alone. Beside all this happy news, however, the approval bonanza for Apple’s Chinese suppliers raises some critical geopolitical questions. In mid-2020, following a clash on the India-China border in Ladakh, which left 20 Indian soldiers dead, the government had retaliated by banning Chinese investment in India and followed it up by proscribing a slew of Chinese apps, including ByteDance, owner of the popular video-sharing app TikTok. It also stipulated that any Chinese investment would require government approval. This ban was accompanied by a frenzied popular mobilisation to boycott Chinese goods. At the same time, low-end mobile-phone maker Xiaomi was investigated by the authorities for alleged violations in foreign exchange transaction rules.

Since this diktat, China has made some minor retreats from parts of the territory on which it had reportedly encroached along the Line of Actual Control (LAC). But in late 2022, it raised incursionary threats along the north-eastern border with Arunachal Pradesh, which it has long claimed to be de facto Chinese territory. Therefore, it is fair to say the nature of the border conflict has not changed significantly since 2020. Nevertheless, in 2023, the Indian government appears to have overcome its aversion to some Chinese companies. Given the nature of the Chinese political economy, it is well known that large corporations rarely make significant moves without the government’s explicit approval. By extension, this suggests that New Delhi and Beijing have some sort of understanding on the green signal to 14 of Apple’s 17 Chinese suppliers.

If this is the case, it behoves the government to explain to the Indian people the nature of the agreement and its implications for border hostilities and India-China relations. Have the two governments agreed to revert to an earlier position under which the border dispute will be dealt with separately from broader economic and political ties? Why has Apple been singled out for such privileges? Will more such companies diversifying from China be allowed to set up their base in India? Though the “case-by-case” approach is a characteristic of India, it cannot be considered a viable approach to a longer-term investment policy. Greater transparency is vital not just for national interest. It would also have a positive impact on the investment environment.