Block Huawei's 5G? India could end up shooting itself in the foot instead

On 1 July, Indian and Chinese military commanders completed a third round of talks on de-escalating tensions at the Line of Actual Control. While there have been reports of both sides continuing to send troops to the border in case the conflict worsens, there has not been a repeat of the skirmish on 15 June, and there are signs of the situation easing.

At the same time, there has been no letup on India's resistance to China in other areas. Chinese companies are not allowed to participate in India's highway projects, while Chinese cannot invest in India's small and medium enterprises. The Indian government has also banned 59 Chinese apps on grounds of national security, while Indian Prime Minister Narendra Modi has deleted his Weibo account.

Now, according to Indian media reports, India intends to follow the US and other countries in stopping Huawei's 5G products from entering the Indian market, in a proposed move that has drawn international attention. Should India completely block Huawei, especially in terms of 5G? How much would the economic loss be to India? This is worth careful consideration by the Indian government.

Since the Trump administration claimed that Huawei was a threat to US security and encouraged its allies to boycott it, India has been in a dilemma. On the one hand, India wants to bring in Huawei's advanced technology to complement and improve its technology standards, or even to overtake China. On the other hand, Huawei's entry into the market might impact India's local industries; besides, India hopes to be a source of equilibrium between China and the US, and would not want to offend the US.

Furthermore, when Chinese and Indian officials met in 2019, there was also pressure from China, which said that if India blocked Huawei because of Washington, China would take countermeasures against Indian companies.

Given all these factors, early this year India finally allowed Huawei to carry out 5G testing in India, just like any other operators, but it has not allowed Huawei's 5G network to go live in India. And with the clash in June, The Times of India has reported that the Indian government has started to carefully consider the impact of its decision to shut Huawei out of the Indian market, and the outlook for Huawei in India does not look good.

In the context of this uncertainty between China and India, the impact of Huawei - and even the whole of China - on India's economy has become a key consideration for the Indian government., and an important factor in whether Huawei will continue to survive in India.

First, Huawei's strength in 5G and its advanced technology are what India wants. In 2018, Huawei submitted over 5,400 patent applications to the World Intellectual Property Organization, the highest number in the world. Also, Huawei owns about 40% of the global 5G infrastructure, putting it ahead of its competitors in terms of 5G development and technological applications.

For India, its largest telecommunication operator Reliance Jio uses Samsung's 4G network. Other than that, the suppliers for the other two major operators Bharti Airtel and Vodafone include Huawei, which provides one-third and 40% of their networks respectively.

The Global Times also reported that Huawei and its related companies in India have created jobs by recruiting over 8,000 workers. Huawei's closure in India would indirectly cause these workers to lose their jobs. We can see some of the impacts on India's communications industry if Huawei pulls out.

Second, if India is determined to expel Huawei from its market, whether in terms of the services and facilities it previously provided, or the technical support from its 5G equipment, these gaps will have to be filled by other companies. Given India's own technology, it is not able to build 5G equipment. And if it uses substitutes for Huawei (such as Nokia or Ericsson), that will create enormous financial pressure for India's telecommunications operators. India's market focuses a lot on costs, and the last thing it wants is to have to buy more expensive equipment for 5G operations.

The reality is that compared to other 5G operators, Huawei's 5G equipment and products cost less, but work better. According to figures, Chinese factories serve about 25% of India's telecommunications equipment market. Blocking Huawei and other China companies from entering the India market would lead to at least a 15% to 20% increase in purchasing costs for India's own companies, because the products provided by China suppliers are usually about 30% cheaper than those from European suppliers, which gives buyers an edge in negotiating prices.

If China suppliers leave, the buyers' market will become a sellers' market. European suppliers such as Ericsson and Nokia will become India's only choice, which will give European suppliers an opportunity to raise prices. The buyers will lose their edge in negotiating prices, and the costs of buying 5G equipment will go up.

In the end, if India ejects Huawei's 5G equipment from its market, that would also have some impact on China-India trade. For China, Huawei is a symbol and a matter of "face", and India's suppression of Huawei would lead to some countermeasures from China.

Although China and India have tussled over the border issue for a long time, exchanges in trade and cooperation have grown. China has long been India's top trading partner, while India is China's largest trading partner in Asia. Some industries in India are highly dependent on components and raw materials from China.

According to a BBC report, in 2018, China only imported about US$18.8 billion worth of goods from India, or 1% of its total imports for the whole year. And out of China's US$2 trillion worth of exports in 2018, about US$76.8 billion worth went to India, just 3% of its total exports. From India's perspective, exports to China were 5.1% of India's total exports, while imports from China made up 14.4% of total imports.

These figures show that India is more economically dependent on China than vice versa. China's economic countermeasures against India would have a significant impact on India's economy. It remains to be seen whether India will sacrifice some economic interests in exchange for keeping Huawei's 5G down.

Related: China-India border clash: Will India's misperceptions of China's strength lead to war? | Uneasy Dance between an elephant and a dragon: 70 years of diplomatic relations between India and China | What is behind the UK's decisive stance on Huawei? | Cut-throat competition for world-class chips: The end of Huawei?