Politics be damned, Chinese and Indian economies are closer than ever before

The run-up to this Diwali, India’s festival of lights, has witnessed an unusual social media campaign to boycott Chinese-made products. In the wake of China’s continued support for Pakistan, the campaign has also found support from some sections of India’s political establishment. While there is hardly any reliable data on the impact of this campaign on India’s actual imports from China, there is enough data to indicate that the fortunes of the two Asian giants are entwined far deeper than ever before.

A terror attack on an Indian army base last month by militants based in Pakistan has drawn China into the volatile politics of South Asia as China is seen as a steadfast ally of Pakistan.

A Mint analysis shows Indian stocks have increasingly begun moving in tandem with Chinese markets while India’s dependence on China for technology-heavy imports has been rising sharply.

It is certainly possible for India to reduce trade with its largest trading partner (even if that entails a steep price for the country) but the force of financial contagion is unlikely to spare India when Chinese markets tumble.

As the chart below illustrates, the Indian and Chinese stock markets have been increasingly moving in tandem in the wake of the financial crash of 2008. Since that year, the correlation between Indian stocks markets and their Chinese counterparts has increased.