As India and China squabble over Beijing squashing Delhi’s move at the UN to ban Azhar Mazoor, the alleged mastermind behind northern India terrorist attacks, and New Delhi retaliates by threatening to stonewall the entry of Chinese companies into the country, the ground reality paints a far less acrimonious picture.
Away from the geopolitical rancor, India continues to be more than welcoming to Chinese companies keen to do business with it. Asia’s third largest economy is also fast emerging as an attractive locale for Chinese corporations battling labor woes, rising wages and saturated markets back home.
For years, Chinese investment in India had remained a trickle — US$1.2 billion between 2000 and September 2015 – due to political wrangling and national security concerns. There are still formidable roadblocks including shambolic infrastructure, corruption and a strangling bureaucracy that has hampered Prime Minister Narendra Modi’s Make in India campaign.
However, China, one of the largest global investors, is keen to leverage the potential of India’s skilled workforce and rising labor supply to partially relocate production to counter its shrinking and ageing work force. Two thirds of India’s population is under 35, and in the next decade, India will have more people of working age than anywhere else in the world.
Currently more than 300 Chinese companies including Huawei, TBEA, ZTE, Sany, LiuGong Machinery and Haier Group have established flourishing businesses across Indian states with plans to expand footprints in sectors like textile, food processing and automobile. This year Wanda, China’s largest commercial real estate developer, announced investment worth $10 billion in the northern state of Haryana. SAIC Motor, China’s largest carmaker, has proposed taking over the US carmaker General Motors’ facility in the western state of Gujarat while about 100 small and medium Chinese enterprises have promised investments worth US$1 billion.
The Chinese are also eyeing India’s fast-growing start-up sector. Chinese online travel company Ctrip picked up a strategic stake in Makemytrip while Baidu is contemplating investments in several Indian internet startups. Alibaba substantial investments in India’s Snapdeal and Paytm last year. Hillhouse Capital, one of the largest China-based investment funds, also picked up a stake in online classifieds player Cardekho last year.
Major Chinese mobile handset makers see an Indian mobile handset market that is soon projected to overtake the US and emerge as the second-biggest smartphone market behind only China. Huawei, China’s biggest telecom devices company, says India is one of the key markets where it wants to grow. Companies such as Xiaomi, Oppo and Vivo have expressed similar sentiments.
In the flurry of Chinese investments and takeovers, analysts are also observing new patterns emerging.
“While earlier, Chinese companies would focus primarily on mega infrastructure projects like power, ports, transport, they are now far more open to newer and smaller sectors, even startups, which is quite refreshing,” said Ajay Raheja, a consultant with industry body Federation of Indian Chambers of Commerce and Industry. “This is a win-win for both parties as smaller Indian companies can benefit from the Chinese cash infusions while the latter get to park their surplus money in innovative Indian businesses.”
China Small and Medium Enterprises Investment Group has also signed an MoU for an industrial park in Gujarat with a total investment plan of US$1billion. SMEs from China are also planning to invest US$1 billion across sectors ranging from telecommunications to electrical equipment to appliance manufacturing and machinery as part of President Xi Jinping’s announcement in 2014 of investing US$20 billion in India over five years. Modi has also assigned officials to specifically deal with Chinese investments.
“The entry of new Chinese companies into India is in sync with the Chinese strategy to shift the focus of its economy from investments and exports to consumption and services,” said Probir Sen, former economist at the World Economic Forum.
It’s not unrequited love. With 2016 designated as “Visit China year in India,” Indian companies, especially in service sectors like IT, are also making substantial forays into China to tap the full potential of the Chinese markets.
India is also emerging as a solid manufacturing base alternative. China is planning to invest US$6.8 billion in two industrial parks in Gujarat and Maharashtra. Chinese companies like Huaqin, Tinno, Windtech, Sprocomm, Vsun and Chino-e have also evinced keen interest in setting up manufacturing facilities in India.
“Chinese companies are quite enthusiastic about setting up manufacturing bases in India either on their own or in partnership with Indian companies,” Mobile World (Shoujibao) Wu said at the China-India Mobile Phone & Component Manufacturing Summit earlier this year.
In rural Andhra Pradesh, in southern India, more than 100 foreign businesses in the Sri City Industrial hub – many of them Chinese – are capitalizing on the Make in India campaign. Launched by Prime Minister Narendra Modi in 2014, the campaign aims to turn the country into a global manufacturing hub by luring foreign companies to manufacture in India.
“A lot of Chinese entities, which traditionally used to export their products to India, are now coming to India to establish manufacturing facilities here,” a manager at Sri City Industrial told AS. In the past year, Xiaomi, OnePlus, Lenovo, Gionee and Asus have all announced that they are planning to Make In India. Manufacturing firm Xi’an LONGi Silicon Materials Corporation has promised to invest an initial $250 million in building a factory in Andhra Pradesh.
Such is the level of interest among the Chinese for manufacturing in India that when Taiwanese firm Foxconn decided to invest US$5 billion last year for its production base, it created a major flutter in China. The move had marked the first by a top international firm to opt for India over a decelerating Chinese economy.
Policy makers say the entry of Chinese entities bolstering two-way trade would also be a great relationship lubricant while also whittling down the trade deficit. Though India-China trade has gone up ten-fold from US$5 billion to US$72 billion in the past 10 years, the growth has been lopsided with India’s trade deficit with China peaking at US$48 billion last year.
While the activity augurs well for bilateral bonhomie, analysts emphasize that a lot more needs to be done to keep the Chinese engaged and interested. The Make in India campaign promised to reduce bureaucracy and improve infrastructure to lure big multinationals and other foreign investors.
However, progress has been tardy in improving the country’s inadequate roads, rail lines and ports while corruption remains all-pervasive. Modi’s attempts to rewrite labor and land laws and to overhaul state taxes have also been scuppered in Parliament by a recalcitrant opposition. As Arun Jaitley, India’s finance minister, put it: “Ease of doing business is still a work in progress in India.”
Neeta Lal is a senior journalist and a regular contributor to Asia Sentinel.