Beijing delinks business from politics
Border tension won’t impact flow of Chinese investment in India, explains Subrata Majumder.
The Chinese media rang the warning bell to the Chinese investors in India over the recent tension on Sino-India border in the Sikkim-Bhutan-Tibet trijunction. Quoting the example in Vietnam in 2014, the Global Times – a Chinese daily – sent a precautionary alertness to the Chinese investors in India, augmenting the fear of anti-China protest in India. In 2014, several Chinese nationals were killed and more than 100 Chinese were injured in Vietnam in the protest when the media report revealed that China fired water cannon to a Vietnam vessel, which obstructed China's extraction of oil in the South China Sea.
Going further, the Chinese media sighted the example of Shiv Sena activists' protest against China's veto to India's membership in NSG, burning the Chinese flag last year. Taking a leaf from these anti-China protests, the Chinese media expressed apprehension over the new investment by China in India.
But, can the Vietnamese protest against China be replicated in India or the Shiv Sena's stir on China will mar Chinese investment, which is on the high growth trajectory? Border dispute has been a perennial issue since the India-China war in 1962. With the rapid growth in the Chinese economy, reflecting Chinese financial power in the global market and India's penchant for foreign investment to make India the global hub for manufacturing under the Make in India initiative, the threat of Chinese media is unlikely to mar the Chinese investment in India.
Saddled by glut in domestic investment, China is on the binge for overseas investment. From a paltry overseas investment of US $3 billion in 2005, Chinese overseas investment increased to US $90 billion in 2013 and China became the third biggest overseas investor in the world. Asia was the biggest receiver of Chinese investment. Chinese investment also made a surging growth in South East Asian countries including Myanmar, Indonesia, Malaysia, and Thailand.
Leaving aside the political bitterness, Modi-Xi Jinping hobnob made a twist in the relation in favour of a better economic engagement. For Prime Minster Narendra Modi, China is recognised as a friend and not a foe. For President Xi Jinping, India emerged as an opportunity to push forward his Go Out policy. Both have mellowed down to reinvent the relation from the perspectives of economic cooperation instead of hurling brickbats to each other on political ground.
For China, India emerged as a new horizon of big ticket investment destination. In 2015, Chinese investment in India leapfrogged eight times and became the eighth biggest foreign investor in India. The sudden spurt in Chinese investment affirms Chinese confidence in the growth cycle of India, fueled by low-cost manufacturing and high domestic demand.
Mr. Modi was never averse to China. His yearning for Chinese investment was not sudden and new. His relation with China was established well before he became Prime Minister. As Chief Minister of Gujarat, he first visited China in November 2011. His priority was to attract Chinese investment in Gujarat. Later, he harped on Chinese investment in India as Prime Minister.
China's President Xi-Jinping pitched for a new look towards India after USA under Obama administration became assertive to have a strong foothold in Asia through its Asia pivot policy, mainly to counter China. Feared by USA's consolidation of political power in Asia, China viewed India a perceptible tool to counter-balance USA's threat by enlarging economic engagement with India. Both India and China are in need of investment, however with a difference. While India yearns for foreign investment to support domestic investment, China looks for overseas investment, given the glut in domestic investment and loss of low-cost manufacturing competitiveness after the Chinese currency renminbi appreciated.
The green shoot was visible. The visit of President Pranab Mukherjee to China in May 2016 reaffirmed each other's eagerness for economic engagement. Indian President returned with big bang of Chinese investment proposals. Chinese biggest industrial park developer CFLD showed interest to set up 10 industrial parks in India. Shanghai Automobile Company, Chint Group for renewable energy, Sopo Group of chemical, Ding Shen and Shanghai Electric Company were keen for large investment in India.
During 2016, Chinese companies proposed US $2.3 billion worth of investment in the country. The proposals were acquisition of 86 percent stake, worth US $ 1.4 billion, by Shanghai Fosun Pharmaceutical Co in Hyderabad Grand Pharma Ltd, Beiiing Miteno Communication Technology's investment of US $900 million in Media.net, Jiangsu Longzhe's investment of US $125 million in Diamond Power Infrastructure, and Tidfore Equipment investment of US $150 million in Uttam Galva Metal Works.
China made a dent in mobile phone manufacturing in India. More than half a dozen Chinese mobile manufacturing companies are in India. Just before Chinese telecom giant, Huawei announced shifting of plant to India, Xiaomi had revealed plan to set up two manufacturing plants in the country. The upstart brands like Gionee, LeECo, Oppo, Vivo, Meizu, One Plus, and Coolpad have their facilities in India.
Currently, China Railway Corporation (CRC) is carrying out feasibility studies of high-speed trains between Chennai - New Delhi route. It will be no wonder if China can grab the construction deal of the longest route of high-speed train and can pose a major challenge to Japan's hegemony in high-speed trains. China has already proven its capability after winning Jakarta-Bandung 150 km high-speed rail project, against stiff competition from Japan.
Chinese investment has two benefits for India. First, Chinese investment will help in curbing the rising trade deficit with China. More than one-fourth of India's total trade deficit was spearheaded by cheap imports from China. Second, Chinese investment can be instrumental in normalising the political relation between the two countries. In September 2014 President Xi Jinping appointed Mr. Le Yucheng as the new Chinese Ambassador to India, who was at the rank of Vice Minister. China deputes ambassadors at Vice Minister rank only to those countries with which it has strategic importance. The countries like USA, Japan, Russia, North Korea, and Great Britain have Chinese ambassadors at the rank of Vice-Minister.
Besides investment, China can act as a major fund provider to India's infrastructure projects. With the setting of AIIB and BRICS's National Development Bank, which provide more flexibilities in conditionalities such as environment, China can play useful role in providing infrastructure funds to India. For example, AIIB funds are more preferable to India for its power projects. This is because funding by World Bank, IMF, and ADB were averse to the coal-based power generation, given the policy stand to promote clean energy in the world.
Chinese politics is guided by business interests to a great extent. China will not like to slow sown its investments to India just because of border tensions at the Sikkim. Hot words may be exchanged at the political level but the business between China and India will flow as usual unless India wants to give any check which is unlikely at the present moment.
(The views expressed are strictly personal.)