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Insights into Editorial: Control, not delete: On China apps ban

perspectives

 

Context:

The Indian government announced it would block 59 widely used apps (such as Tik Tok, ShareIt, Cam scanner etc.), most linked to Chinese companies.

The Ministry of Electronics and Information Technology (MeitY), invoked Information Technology (IT) Act, 2000 to cite the concerns regarding both data security and national sovereignty associated with these apps.

Though the government has proposed this ban from the perspective of data security and privacy, the action seems to form a part of the retaliatory strategy against Chinese incursions in Ladakh.

Blocking Apps due to “the emergent nature of threats” posed by the apps:

  1. Citing concerns to both data security and national sovereignty, the Indian government on June 29 announced it would block 59 widely used apps, most linked to Chinese companies.
  2. These include the popular video-sharing social networking app TikTok, a mobile browser called UC Browser, and a file-sharing app called SHAREit.
  3. What is common to all three is their wide user base in India, with each claiming more than 100 million monthly active users, and their origins in China.
  4. Explaining the ban, the Ministry of Electronics and Information Technology cited “the emergent nature of threats” posed by the apps and “information available” that they are engaged in activities “prejudicial to sovereignty and integrity of India, defence of India, security of state and public order”.
  5. The apps, according to the Ministry, had been reported for “stealing and surreptitiously transmitting users’ data in an unauthorized manner to servers which have locations outside India”, which “impinges upon the sovereignty and integrity of India”.
  6. From the perspective of data security and privacy, there is indeed a strong case to be made to more strictly regulate apps that handle vast amounts of user data. Such a move was surely long overdue.
  7. But the government might have done the right thing for the wrong reasons. The timing of the move, coupled with the fact that it has chosen to block the apps outright, rather than ensure they were complying with the law, suggests the ban is less motivated by privacy concerns than about sending a message to China amid the tensions along the border.
  8. After all, privacy and data security concerns are not limited only to Chinese apps. Concerns about many of these apps are hardly new, and the move to block them comes after these apps had already amassed hundreds of millions of users in India.
  9. If sending a message about China is the motivation, the ban is more signalling than substance.
  10. It may help the government show the public it is taking China on, even if it will have no impact on deterring Chinese behaviour on the border, which will require a tough diplomatic and military response.

Personal Data Protection Bill 2019:

  1. The Personal Data Protection (PDP) Bill, 2019 is the India’s first attempt to domestically legislate on the issue of data protection.
  2. The physical attributes of data where data is stored, where it is sent, where it is turned into something useful are called data flows.
  3. Data localisation arguments are premised on the idea that data flows determine who has access to the data, who profits off it, who taxes and who “owns” it.
  4. The Bill also requires social media companies, which are deemed significant data fiduciaries based on factors such as volume and sensitivity of data, to develop their own user verification mechanism.
  5. This intends to decrease the anonymity of users and prevent trolling.
  6. Data localisation can help law-enforcement agencies access data for investigations and enforcement.
  7. As of now, much of cross-border data transfer is governed by individual bilateral “mutual legal assistance treaties”. Accessing data through this route is a cumbersome process.
  8. In this context, the government policy on data protection must not deter framing any policy for the growth of the digital economy, to the extent that it doesn’t impinge on personal data privacy.

The Digital India story is globally tracked. Baidu, Alibaba and Tencent are part of the digital ‘Silk Route’ of China. The ban of the 59 Chinese Apps in India, will negatively impact the valuations of these apps and their respective promoters.

Case in point – the upcoming IPO of TikTok – 30% user base comes from India. This will impact the TikTok valuations negatively.

If Trade Ban happens: Will hurt the Indian poor the most:

More often than not, the poorest consumers are the worst-hit in a trade ban of this kind because they are the most price-sensitive.

For instance, if Chinese ACs were replaced by either costlier Japanese ACs or less efficient Indian ones, richer Indians may still survive this ban by buying the costlier option but a number of poor, who could have otherwise afforded an AC, would either have to forgo buying one because it is now too costly (say a Japanese or European firm) or suffer (as a consumer) by buying a less efficient Indian one.

Similarly, the Chinese products that are in India are already paid for. By banning their sale or avoiding them, Indians will be hurting fellow Indian retailers.

Again, this hit would be proportionately more on the poorest retailers because of their relative inability to cope with the unexpected losses.

Will barely hurt China:

Still, some may argue that we want to single out China because it has killed our soldiers at the border and we will now punish it through trade.

Then the question is: Will banning trade hurt China?

  1. The truth is the exact opposite. It will hurt India and Indian far more than it will hurt China.
  2. Let’s look at the facts again. While China accounts for 5% of India’s exports and 14% of India’s imports — in US$ value terms India’s imports from China (that is, China’s exports) are just 3% of China’s total exports. More importantly, China’s imports from India are less than 1% of its total imports.
  3. The point is that if India and China stop trading then on the face of it China would lose only 3% of its exports and less than 1% of its imports, while India will lose 5% of its exports and 14% of its imports.
  4. Moreover, if one takes the notion of not letting China profit from the Indian purchasing power strictly, then Indians should also avoid buying all products that use Chinese goods and labour.
  5. So, forget the several obvious Chinese brands and products, Indian consumers would have to go about figuring out if China gains any money from, say, the iPhones that are sold in India. Or if the steel used in a European gadget is Chinese or not.
  6. On the whole, it is much easier for China to replace India than for India to replace China.

Raising tariffs is mutually assured destruction:

It has also been argued that India should just slap higher import duties on Chinese goods. Others have suggested that India can allow primary and intermediate goods from China at zero duty, but apply prohibitive tariffs on final goods.

Even leaving aside the rules of the World Trade Organization that India would be violating, this is a poor strategy since others not just China can and most likely will reciprocate in the same way.

What will also go against India here is its relatively insignificant presence in global trade and value chains.

In other words, it is relatively easy for the world to bypass India and carry on trading if India doesn’t play by the rules.

Conclusion:

Given that India’s digital economy is one of the largest markets in the world, such a ban will certainly have an impact on the valuations of Chinese companies.

However, such a move is likely to have an impact on the India-China border dispute.

The tensions on the border, as well as the COVID-19 pandemic, have ignited a much-needed debate on India’s economic dependencies on China.

India remains reliant on Chinese products in several critical and strategically sensitive sectors, from semiconductors and active pharmaceutical ingredients to the telecom sector, where Chinese vendors are involved not only in India’s 4G network but in on-going 5G trials as well.

India faces tough choices going forward in dealing with its deep economic embrace of China. Hitting the delete button on social media and gaming apps barely scratches the surface of the problem.