China challenges Japanese investors
Speculations are rife over the impending new era of Sino-India economic relations. Political and economic relations, which were intertwined hitherto, moved diagonally opposite to each other. Despite the border standoff intensifying at the Sikkim, Bhutan and Tibet tri-junction, Chinese investment initiatives are unlikely to be debilitated. Border tension is not new. Earlier, whenever the border tension erupted, it had a drag on Chinese trade and investment in India. India would restrict Chinese investment with a plea for security concern. This time, no such move was made by India. Similarly, in a paradox, Chinese investors continued their overdrive to invest in India, nudging out Chinese warning for anti-China protests and ripples of India's resistance to Chinese OBOR, which means Chinese outreach for globalisation. Chinese investors were swayed by India's growth story and market dynamism.
Currently, India accounts a paltry share of Chinese overseas investment, against the backdrop of China being the third biggest investor in the world. But, this does not shed complete light on reality. The recent trend of Chinese investment in India and its growth trajectory foretells a new era of Chinese investment in India. Till 2015, the cumulative Chinese investment in India was US $1.3 billion. Between June and August 2016, China bid for US $2.3 billion investment.
Pinning hope in the Make in India initiative, Chinese private investors are gung-ho to strengthen their footprints in India through investing in a digital ecosystem. A big chunk of recent Chinese investment flowed in the fields of Start-up business in India. Nearly US $2.5 billion was committed for investment in Start-up during 2015 and 2016. The major investments were Beijing Mitene Communication Technology's investment of US $900 million in Media.net and Alibaba, investment of US $680 million in Paytm and US $500 million in Snapdeal.
China has already made a dent in the Indian mobile market investment. Chinese brands now account for over 51 per cent of the smart phones sales in India. The massive penetration of top Chinese brands of smartphones, like Xiaomi, Oppo, One-plus, Gionee, Vivo, Huwai are the cases to be in focus. In corollary, India emerged as a potential turf for Chinese companies to reap the windfall of the vast Indian market.
India contributes over 67 per cent to Xiaomi's global market. Global market accounts for about 30 per cent of Xiaomi's smart phones. For Vivo, 73 per cent of its global market comes from India. Global market accounts for one-fourth of its smart phones. Similarly, India accounts for 48 per cent of Oppo's global market and one-fourth of Gionee's global market. Thus, Chinese dependence on Indian market ensures the Chinese smart phone makers' survival. Given the significance of the Indian market, Chinese investors are unlikely to dilute their initiative to invest in India on just a border issue, which is a temporary phenomenon.
In 2016, Japan was the third largest foreign direct investor in India. China was the seventieth investor in India. Even though Chinese investment was one-fifteenth of Japanese investment, days are not far when China will catch up with the Japanese for a place in the great Indian race.
The challenges the Chinese investors pose are a low-cost advantage and their investment pattern which are in tune with the Make in India initiative. India has a robust IT industry, that operates at cheaper costs in India than in China. By investing in digital start-ups, China is in a unique position to give a challenging shape to its investment in India. India is on the threshold of building 100 smart cities by 2020 with an investment of US $15 billion.
Gujarat has become a hotspot for challenges between Chinese and Japanese investors in India. Modi's charisma and his leadership for development became the magnet for the Chinese to invest in Gujarat. During Modi's trip to China in 2015, China Association of Small & Medium Enterprises (CASME) and China based Golden Concord Holdings Ltd (GCL), pledged to set up industrial parks in Gujarat. In addition, the governments of both countries agreed to set up Skill Development in Gujarat. Similarly, setting up Maruti became the trigger for Japanese investment in Gujarat. Around 60 Japanese companies are currently operating in Gujarat.
There was a turnaround in the Japanese interest to invest in India. Japanese investors changed their perspective towards India. The Lehman crisis and rise in Chinese currency Yuan, which dented the Chinese low-cost manufacturing competitiveness, drifted Japanese investors to India and other South-East Asian countries. The green shoots are visible. The Japanese investment soared five times in between 2013 and 2016 - from US $ 1.4 billion in 2013 to US$ 5.8 billion in 2016.
According to a survey, seventy per cent of Japanese investors in India are geared up to revamp their operations in the next few years. The Japanese business expansion plan in India is the largest among the Japanese investors in Asia and Oceania. A sustainable growth in the Indian economy, continuous flow of deregulations and increase in sales, all attributed to the turnaround in the nature of Japanese investment in India.
Until now, the Chinese and Japanese investment in India did not wade in a row under the realm of competition. China peers in Start-up and mobile phones, while Japan concentrated in automobiles, HSR (High-Speed Railway) projects, such as Mumbai-Ahmedabad Shinkansen railway project and infrastructure ventures such as DMIC (Delhi Mumbai Industrial Corridor).
But, the growing presence of Chinese investment demonstrates a new look and ushers in a borderless investment in India. China has developed its own technologies in various fields during its modernisation programme, which are challengeable to the Japanese technology. The bullet train, power plants, solar panel manufacturing are some of the cases in point.
China has proved its technological competence in the bullet train after winning Jakarta – Bandung 150km high-speed rail project. This was against stiff competition from Japan. Currently, China Railway Corporation (CRC) is carrying out feasibility studies of high-speed trains between the Chennai-New Delhi route. It will be no wonder if the Indonesia case is replicated in India since China has an edge in cost competitiveness and AIIB can act as a prime donor to this project, where China and India are the prime stakeholders.
Given the Chinese bent to invest in India irrespective of border standoff, Chinese investment is posing a major challenge to Japanese investors in India. IPA
(The views are strictly personal.)