China-India border clash and the wider impact on the CNY/INR

(Swastik Gupta)


Since the late 1940s India and China have been involved in a series of disputes, clashes and stand-offs over border territory around the mountainous Himalayan areas. In the last few years (2013-) and especially the last couple of months this tension over territory has escalated resulting in frequent face-offs between the respective armies. There were several conflicts in May of this year when peace talks regarding the border broke down. The tension culminated in the fatal June 15th, 2020 clash at the Himalayan Galwan Valley, in the Aksai Chin area of China in which 20 Indian soldiers were killed by Chinese forces.  

This clash has really strained international relations between the Chinese and Indian government due to India’s sentiment over the loss of soldiers. Furthermore, China’s close relationship with Pakistan, who India have a strained relationship means we have a real political pincer move being made by China against India which will likely exacerbate tensions.  

The Indian government’s significant response has been the boycotting of several Chinese goods, services, technology, and investment. India announced on June 29th that it would ban 59 apps and services, including ByteDance’s TikTok, Alibaba Group’s UC Browser and UC News, and Tencent’s WeChat over national security concerns. This manoeuvre will not be without its effects on the foreign exchange rate between the two currencies. 

Technical and Macroeconomic analysis CNY / INR: 

If we were to analyse the Chinese Yuan / Indian Rupee (CNY/INR) for the last month there is a lot of key information we can see. Using the following graphic taken from trading view, we can begin to interpret the data. 

Text Box

The chart of the exchange rate between the 14th of June and July 9th, reveals some interesting facts. The yellow box period, which between June 15th and June 23rd, is an area I have identified to be the resistance area. Here, the rate is initially increasing and peaking at a value of around 10.794 INR to the CNY, which is a depreciation of the INR relative to the CNY. Then at the major resistance level this retraces back to 10.708 INR to CNY because of the market correcting itself.  

This market movement is due to the fact that the attack on the 15th in which Indian soldiers were killed, investors were likely to have responded by shorting the INR, since information revealed that Indian soldiers had wrongly crossed onto Chinese land, lowering confidence in the Indian economy since they acted first in this particular conflict. Nevertheless, the revelation that only Indian soldiers were killed caused the markets to respond and short the Yuan instead as it was the Chinese that acted violently against India, lowering trust and confidence in China and hence its currency. 

Another noteworthy period is from 1st July till 9th July, which constitutes the INR falling sharply to 10.55 CNY and then bouncing back slightly slower after a trading day. The INR falls to around 10.55 to the CNY which shows a strengthening of the Rupee relative to the Yuan and this is likely to be a consequence of Indian announcement to boycott various Chinese goods and services. The reason it strengthened initially is likely to be a rise in investor confidence that India may be able to successfully break away from China, reduce their $58 billion trade deficit and as a whole develop domestic industries, while China miss out export revenue from one of their biggest importers.  

However, this confidence in Indian Rupee was short lived as we see a bounce back from the major support level back towards a monthly average of around 10.708 INR to CNY. This is because India are dependent on China for exports. As their second biggest trade partners following the US, India’s ability to survive and meet the demands of its citizens without Chinese exports is questionable given their industries at this point cannot compete with the Chinese firms from which they import. Hence the outlook of the Rupee is negative again after July 6th since confidence in the ability of India to successfully boycott Chinese products is limited.  


It is likely that in the short-term the rate will go up i.e. the INR will weaken relative to the Yuan. Experts believe this will be due to a huge negative impact on the Indian stock market. This is unsurprising as in India there will be lower exports from increased tariffs on China as well as India own struggle to improve domestic industries to replace the Chinese companies which ruled in India. This, no doubt will result in INR depreciating relative to CNY, as the Indian economy will be weaker as it suffers from this change in trade. 

However, in the long-term the outlook could be very different with the rate going up i.e the Rupee strengthening. This could be a result of Trump, due to his ongoing trade war and political battle with China, likely coming and supporting India. He could offer large opportunities for investment, which could bolster the Indian economy. Furthermore, the Indian backlash could result in huge long-term benefits as domestic companies could develop and capture significant market share from China nationally and then internationally too. This could be immensely positive for India’s economy, strengthening the Rupee.  


Major resistance level – the price level where rising prices stop, change direction, and begin to fall hence acting as a “ceiling” and preventing prices from rising higher. 

Major Support level – the price level when falling prices stop, change direction, and begin to rise. Support is often viewed as a “floor” which is preventing prices from falling lower.  

Retracing/retraction – temporary price reversals that take place within a larger trend. 

Shorting – a trading strategy in which an investor sells a security/currency with plans to buy it later because the investor anticipates the price of the security/currency will fall in the short term. 

Depreciation – a fall in the value of a currency i.e. more of the currency is needed to buy other currencies 

Appreciation – a rise in the value of a currency i.e. less of the currency is needed to buy other currencies 

Market Share – essentially what percentage of the total sales in an industry is generated by a particular company. This is calculated by taking the company’s sales over the period and dividing it by the total sales of the industry over the same period. 


Investopedia. 2020. Financial Terms Dictionary. [online] Available at: <; [Accessed 10 July 2020]. 

HowMuch. 2020. Mapping China’s Biggest Trading Partners – Is Your Country One Of Them?. [online] Available at: <; [Accessed 10 July 2020]. 2020. Techcrunch Is Now A Part Of Verizon Media. [online] Available at: <; [Accessed 10 July 2020]. 2020. TIMELINE – Clashes, Standoffs Between Chinese And Indian Armies. [online] Available at: <; [Accessed 10 July 2020]. 

TradingView. 2020. CNYINR Chart, Rate And Analysis — Tradingview — UK. [online] Available at: <; [Accessed 10 July 2020]. 

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