covid-19: Importers of Chinese goods face supply constraints, unable to pay via hawala routes

MUMBAI: Brijesh Doshi, a trader based in Mumbai who deals in electronic false ceiling lights, was supposed to fly to Hong Kong this week on a purchase trip. He buys products manufactured in China in bulk and distributes them to smaller retailers in India.

“Every quarter I fly to Hong Kong, where I make some payments to the sellers and also select new products that we will import,” said Doshi, who couldn’t go because of the travel ban on account of Covid-19. His current stock will last until the end of March and it doesn’t include the newest products, which tend to be the most profitable.

Indian traders like Doshi who buy Chinese goods for sale in India have been laid low by the Covid-19 outbreak as transport links have been cut. This has also meant that the critical hawala payment route has stopped functioning, said people with knowledge of the matter.

Goods that come in from China include commodities such as chemicals and retail items like toys and electronic goods. Under-invoicing is rampant, with just 10-20% of the actual price being declared. “The remaining money is normally settled every month through hawala when the goods are sold in India and we recover the money from smaller retailers,” said a large dealer of Chinese toys based in New Delhi.

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“It’s a double whammy for us,” said an importer of chemicals used to manufacture pharmaceutical products and owner of two units in the Vatva area in Ahmedabad. “The (Chinese) factories from where we import our specialised chemicals are shut and so there is a supply constraint,” he said. “The sellers are now demanding premiums on that. This, combined with the fact that we are unable to make payments due to almost a shutdown in informal channels, means we too will have to shut our factories within the next few weeks.”

Hawala channels are dependent on the movement of people carrying currency. With flights cancelled and other modes of transport to China and Hong Kong curbed, hawala payments have got stuck, said people with knowledge of the matter. Bilateral trade between China and India is pegged at around $90 billion with a trade deficit of about $60 billion in China’s favour. Actual trade, said experts, could be even more skewed in China’s favour.

The virus is likely to keep factories and other industrial hubs in China closed beyond February 17. The Chinese authorities could ask workers not to report for work until the disease has been brought under control, potentially leading to extensive production losses, as per a report by ICICI Securities. “India exports only 5% of its total export basket to China. Some export commodities like organic chemicals and cotton could face headwinds as they export a sizable share to China,” said ICCI Securities research analyst Anagha Deodhar.