India’s exports to China rose 30.4 per cent in 2018. India’s imports of spare parts for making mobile phones—its highest imports from China in value terms—contracted 34.1 per cent. Similarly, imports of LAN adaptor cards from China shrank 32 per cent. Imports of digital monolithic integrated circuits from China grew 358 per cent.

With instances of protests against China, including burning of Chinese products in India, China is shifting exports to India via Hong Kong to show a lower bilateral trade surplus with India. China is doing it by targeting only those products that attract zero duty, such as electronic items, because such products do not attract any scrutiny.

The disproportionate rise in the trade deficit with China, mainly due to rising imports of electronic items, has been threatening India’s trade balance and has remained a key trade policy challenge. China is under increasing pressure to reduce its surplus with trading partners. While calculating trade figures, China and Hong Kong should be considered as one country.

Hong Kong is a founding member of the World Trade Organization. In recent years, Hong Kong has been at loggerheads with mainland China to protect its democratic nature as China is seeking a greater say in its administrative processes.