China's investment in India
Investors find doing business with India safe and attractive
Strategically, China may appear to be India's No. 1 adversary, but Chinese investors look at India through totally different glasses. They see fast-growing democratic India, having a strong legal framework and independent judiciary, a very safe and attractive place to invest their millions for easy and quick returns. They seem to be less concerned about military build-ups from both sides across the 3,440-km long Line of Actual Control (LAC) from Ladakh to Arunachal Pradesh. India's growing economic friction with China on account of its massive trade deficit — to be close to $60 billion during this fiscal — and imposition of higher import duties in the 2018-19 budget, are a greater concern. The intelligent Chinese business community would rather invest and make in India to keep multiplying their income than be victim of China's diplomatic and trade tussle with India.
Chinese investors have started investing big in India, though more quietly than India's other major FDI partners to avoid political controversy. Many Chinese investors are using circuitous routes to pump in funds to India through their subsidiaries and associates in other countries. No investment is risk-free. However, Chinese investors do not envisage any risk in investment in India as they do not see any possibility of the currently strained China-India strategic relations escalating into a war anytime in the near future. They don't want to be left out of the excitement of being in India and becoming part of the world's fastest-growing economy to grow faster and richer themselves in the coming years.
Notably, India is quite aware of the positive investor sentiment from China. It is prepared to welcome such investments, except probably into strategic sectors. Invest India, the government's foreign investment promotion agency, is very actively promoting the country as the 'best investment destination.' And, it is said to be very happy that China's Sany Heavy Industry is heading a list of nearly 600 foreign companies that are planning to invest a total of $85 billion in India in the next five years. Invest India has targeted a list of 200 global companies, currently not present in India, to induce them to invest in the country. A good number of them are from China. Sany Heavy Industry, one of the world's leading engineering machinery manufacturers, is said to be ready to invest $9.8 billion in India. Several other Chinese companies, for example, Pacific Construction, China Fortune Land Development and Dalian Wanda, are each planning investments of more than $5 billion during this period. Most of the investment proposals listed are from China at 42 per cent, followed by the US at 24 per cent and the UK at 11 per cent .
Officially, Chinese direct investments into India was a paltry $1.6 billion till March, last year. But people in India who work closely with Chinese business houses estimate that investments could be at least five times greater than official figures. Many of these deals are under the radar because of their relatively small size or as they originate from Chinese-owned units with headquarters outside the mainland. "Chinese investments have doubled in the last two years. I have no reason to doubt that it will not continue as they have already tasted blood. If you are a Chinese company today with a limitless amount of capital and you look at the whole world and ask 'where is the big bet you can play?' the answer is India," Santosh Pai, a partner at well-known law firm Link India, is quoted to have said. For his firm, Chinese clients are the growth drivers, and since 2011 he has helped about 150 of them get a foothold in the Indian market. Typically, investments come in from Chinese-owned companies based in the U.S., Singapore, etc. and therefore cannot be classified as direct "Chinese" investments. Also, official data only tracks investments made by companies based in mainland China and not even those out of Hong Kong and Macau, experts say.
China is fast catching up in terms of investment in India. It was the 17th largest investor in India in 2016, up from 28th in 2014 and 35th in 2011, according to India's official ranking of FDI inflows. In 2017, Chinese business outfits invested an estimated $2,000 million, compared with $700 million in the previous year, thus tripling the investment in a single year. In the past three calendar years, Chinese and Chinese-origin investors have poured in about $3.7 billion into Indian start-ups, show VCCEdge and Tracxn data records. Major beneficiaries are around 25 start-ups, including Truebil, ixigo, Paytm, Flipkart and MakeMyTrip.
Chinese investors find Indian start-ups presenting a range of opportunities. Familiar and already tested business models and finance-based association work well for the companies. It is said that a potentially slowing Chinese economy and paucity of investment opportunities in their own country are bringing experienced Chinese investors to their neighbour's burgeoning start-up culture. Big spenders on start-ups such as Alibaba and Tencent have invested $1.2 billion and $650 million, respectively, in venture capital and private equity deals over the past two years says data from tracking firm Venture Intelligence. That influx of funds has had a notable result in the Indian start-up community.
Many feel that leveraging the Chinese ecosystem with the help of investors is turning out to be a game-changer in terms of knowledge sharing, not just sourcing capital. Others say that the Chinese exploring business opportunities in India are not all with deep pockets. Also, there are investors coming to India with small-size start-ups with funds as little as $1 million. The trend is interesting. This also provides another picture of China and its highly intelligent investors who trust India's political system and people.
(The views expressed are strictly personal)