Doklam: The real reasons
Business interests seem to have swamped political ambitions, causing the Chinese to withdraw from Doklam.
30 Aug 2017 3:51 PM GMT
For the first time, India ramped up its military presence on the other side of the LAC after having learnt many bitter lessons from the repeated Chinese rampage with an eye to reshape the border. It is also the first time that the Chinese strategy for cowing India ended unsuccessfully. Chinese publication Global Times was puzzled by the ending, which failed to cow down India on the fear of China's military might. At one point, it was sarcastic as China taunted saying "New Delhi did not draw lessons from the 1962 border war." There was considerable war mongering, such as 'India's provocation will trigger all-out confrontation on LAC' and 'India has most to lose in border spats.' While at the beginning of the standoff, China applauded India's growth potential, it stated: "As low-cost manufacturing is gradually moving away from China, it is now critical for India, whether it can replace China as the next world's factory." This exemplifies China's bewilderment, unlike on the previous border disputes
What forced the Chinese volte-face? Presumably, two reasons prompted China to reverse its anti-India protests, ending in disengagement from the stand-off in Doklam, which falls within Bhutan territory, after 72 days. First, the growing Chinese investment in Indian manufacturing as well as in various infrastructure projects and secondly, Trump's re-look into the Asia-Pacific policy, where India is likely to regain its role as linchpin, as was entrusted during the Obama administration
India-China economic relation grew manifold during the Modi administration. Unlike his predecessors, Modi tried to woo Chinese investment with two main goals. First, to increase Chinese investment as FDI since India requires a huge cash flow to uptick its Make in India programme and generate employment, as well as use Chinese investments to reduce the wide trade deficit by curbing cheap Chinese exports, instead of using anti-dumping measures. Modi administration's forward outlook to Chinese investment seemed to have encouraged Chinese investors to bury the hatchet of security threat.
Eventually, these yielded results. Chinese companies, which were losing business in their domestic market, were attracted by India's higher growth trajectory, a large pool of middle class and youth population. Six top brand Chinese smartphone makers (Xiaomi, Oppo, Oneplus, Gionee, Vivo, and Huawei) have established their manufacturing facilities in India.
India has become the new turf for these Chinese companies to achieve their global ambition. India accounted for 60 to 70 per cent of the global sales of these Chinese companies. Global sales account for 30 to 35 per cent of the total sales of these companies. In a way, India acted as an engine for the global presence of these companies. For Xiaomi's smartphones, India accounts for 67 per cent of its global sales; for Vivo, it is 73 per cent, Oppo 48 per cent, and for Gionee, it is one-fourth.
Besides, China has become the fourth company to manufacture metro coaches in India as part of India's drive for import substitution. Gung-ho Chinese investment woke up the Indian authorities to perceive the Chinese muscle for investment especially in the wake of the Make in India programme. India has mulled a relaxation of visa rules and considered withdrawing China from the list of PRC (Prior Referral Category).
With Modi-Xi Jinping relations entering the horizon of hobnob, Chinese investors plunged into mega investment proposals in India. During 2016, Chinese companies proposed US $2.3 billion worth of investments in India. These included acquisition of 86 per cent stake, worth US $1.4 billion, by Shanghai Fosun Pharmaceutical Co in Hyderabad Grand Pharma Ltd, BeiiingMiteno Communication Technology's investment of US$ 900 million in Media.net, Jiangsu Longzhe's investment of US$ 125 million in Diamond Power Infrastructure and Tidfore Equipment's investment of US$ 150 million in Uttam Galva Metal Works.
Responding to the Chinese reinvention of India as an important investment destination, Indian think tank NITI Aayog renewed its interest in attracting Chinese investments, despite the security concern. Underpinning the concern over a large trade deficit, close to US $53 billion — which alone accounts for almost half of India's global trade deficit — Indian honchos assert that India cannot forever remain a Chinese market without broader economic ties. Both NITI Aayog and the National and Reform Commission of China entered into several agreements of economic cooperation in November 2016, embracing energy, urban development, Digital India, Internet Plus, as well as greater access to Indian IT firms in China.
Against this backdrop of big Chinese successes in the Indian economy, the Doklam stand-off caused setbacks to the Chinese companies. The big Chinese companies – Oppo and Vivo – saw Indian sales plunge. More than 400 Chinese expats returned home after sharp falls in sales in July and August.
China Railway Corporation (CRC) is carrying out feasibility studies of high-speed trains on the Chennai - New Delhi route. It will be no wonder if China can grab the construction deal for the longest route of high-speed trains and potentially pose a major challenge to Japanese hegemony in the high-speed train sector. China has already proven its capability after winning the Jakarta-Bandung 150 km high-speed rail project against stiff competition from Japan. Both China and Japan carried out comprehensive studies of the project.
Given the Chinese penchant to invest in India, Sino-India relations have made a strategic shift from being merely political to also encompass business relations. After losing the low-cost manufacturing competitiveness in the wake of the Chinese currency Yuan appreciation, China went to vie for overseas investment for survival. Given India's sustainable growth and vast domestic market, China cannot afford to lose the attraction of Indian market. Chinese investment should warrant a wake-up call to China's aggressive policies for political outreach.
(The views expressed are strictly personal.)
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