Monday, 28 November, 2022
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Chinese private companies’ investment in India has grown since 2014 — with little scrutiny

From $1.6 billion, investment from China — mostly by state-controlled private firms now — has likely crossed $26 billion. What does it mean for India’s trade strategy and security?

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The entry of the Chinese private sector at a large scale in India since 2014 and the subsequent influx of Chinese capital has changed the nature of China Inc’s engagement with India. What is striking about this change — which raised the stakes of Chinese companies in the Indian market — is that it largely happened without the involvement of Narendra Modi and Xi Jinping governments, and was led by the private sector in both countries. 

This new engagement presents both opportunities and challenges for India in pursuing its strategic and commercial goals with regard to China. The Chinese investment and acquisitions in the tech sector hold immense implications for India’s diplomacy, trade strategy, and security. 

Until 2014, the net Chinese investment in India was US$1.6 billion, according to official figures. Most of the investment was in the infrastructure space, involving major Chinese players in this sector, predominantly state-owned enterprises.

In the next three years, total investment increased five-fold to at least US$8 billion, according to data from the Ministry of Commerce in Beijing, with a noticeable shift from state-driven to market-driven investment from the Chinese private sector.

It is possible to estimate that the total investment from China exceeds official figures by at least 25 per cent. When announced projects and planned investments are included, the total current and planned investment is three times the current figure, crossing at least US$26 billion. In greenfield investments and capital invested in acquiring or expanding existing facilities in India, Chinese companies have invested at least US$4.4 billion. Chinese companies have also invested in acquiring stakes in Indian companies, mostly in the pharmaceutical and technology sectors, and participated in numerous funding rounds of Indian startups in the tech space. Another US$15 billion approximately is pledged by Chinese companies in investment plans or in bids for major infrastructure projects that are as yet unapproved.

These figures are likely an underestimation as there are several limitations in the exercise of mapping Chinese investments in India. For one, there is no exhaustive list or record of Chinese companies operating in India or their investments with either the Indian or Chinese governments. One reason is the routing of investments through different countries. For instance, a US$504 million (Rs 3500 crore) investment from the Singapore subsidiary of the mobile and telecom firm Xiaomi would not figure in official statistics because of how investments are measured.

A second limitation is the different routes of foreign direct investment (FDI) into India, as a result of which complete FDI statistics are not available with a single government agency. Chinese ministries, on the other hand, may have more accurate country-wise data but tend to be less forthcoming in sharing it. Complicating the picture are investments from funds whose links to Chinese entities are difficult to ascertain. Another limitation is the inability to confirm whether stated investments by Chinese companies have materialised to the fullest extent.

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Implications of rising Chinese investment for India 

While there are benefits in pursuing investment from China, the challenges need to be considered as well. So far, the focus of capital-hungry Indian startups and a foreign investment-seeking government has understandably been on attracting investment as well as know-how from China in helping them scale up. This has, however, arguably led to inadequate attention on the specific challenges of regulating investments from China.

Chinese companies have escaped the kind of scrutiny in India that their investments have attracted in the West, despite several high-profile investments and acquisitions. Another likely reason is the assumption that investments from the Chinese private sector are entirely different from state-led investments.

But the separation between the Chinese state and private business is blurry. Within China, the Chinese private sector, and particularly tech firms, work closely with the government and the Communist Party in pursuing many of its goals at home. This is especially true of the technology sector, which is widely seen as playing a key role in the party’s enforcement of digital authoritarianism at home, from surveillance to censorship.

In the West, there has been considerable debate on whether a clear distinction should be made between Chinese state-owned enterprises and the private sector. The private sector’s relationship is now under the lens in many Western countries. As of September 2019, the US, Australia, and Japan were among countries that have blocked Huawei, a private sector giant with close state ties, from their 5G plans, while India has not taken a final call, although it has allowed Huawei to participate in initial 5G trials.

For India, the emergence of the Chinese private sector as a key stakeholder presents its own unique opportunities and challenges. The influx of Chinese capital has certainly been beneficial to both countries, and to the broader relationship as well, emerging as a potential factor of stability. For Indian tech companies, the infusion of capital has allowed them to scale up, as well as benefit from the experience and technological know-how of Chinese companies that have achieved a bigger scale and success in their own home market in similar verticals.

The investments and acquisitions by the Chinese private sector in India have largely been driven by market compulsions. Moreover, Chinese companies are unlikely to take any action that adversely impacts either their market share or the hundreds of millions that comprise their user base. At the same time, users of apps need to be made aware of the context and implications of these acquisitions. Safeguarding access to private data that could be potentially sensitive is another challenge that has not received adequate attention.

Neither has the expanding footprint of Chinese stakes in new areas, such as news and entertainment apps. For example, ByteDance has a $25 million investment in Indian news aggregator Dailyhunt. In China, the company plays a key role in ensuring the party’s censorship mandates are followed strictly. Regulators will need to consider the implications of having India’s most valuable startups — in potentially sensitive newly emerging sectors such as fin-tech services — ceding controlling stakes to Chinese firms.

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Recommendations for India’s trade and investment strategy 

1. Engaging new actors

An immediate challenge is engaging the new actors with stakes in the relationship. India and China have established a wide range of at least 30 dialogue mechanisms, covering engagement between various government ministries. While the Ministry of External Affairs (MEA) in India and the Ministry of Foreign Affairs (MFA) in China are the most important points of contact, a number of new dialogues have been set up in recent years to deal with the growing commercial engagement. These include a Joint Group on Economic Relations, Science and Technology (JEG) that was set up in 1988. It has, however, only met 11 times since.

The JEG has also set up three working groups on Economic and Trade Planning Cooperation (ETPC), Trade Statistical Analysis (TSA) and Service Trade Promotion. In addition, a Strategic Economic Dialogue (SED) was established in 2010; however, only five meetings have been held as of 2018. The SED, led by the vice chairman of the NITI Aayog and the chairman of China’s National Development and Reform Commission (NDRC), has six working groups: on infrastructure, environment, energy, technology, policy coordination and pharmaceuticals.

Despite the impressive list, the outcomes have been modest for several reasons. For one, the JEGs tend to meet infrequently. Secondly, there is no rigorous system of following up on agreements.

2. State-to-province engagement 

One obvious gap is in engaging two of the most influential new actors in the commercial relationship: Chinese provinces and the private sector, both of which do not fall into the scope of existing dialogue mechanisms. A decision to set up a state leaders’ forum was announced when Prime Minister Narendra Modi visited China in 2015, but the only meeting of the forum was held during that visit.

Establishing relationships between Indian states and Chinese provinces is another untapped avenue of engagement. Most of the hurdles faced by Chinese investors are at the state level — as we saw in the Wanda and Beiqi Foton investments — where they are often surprised to find that assurances from the Centre do not carry as much weight as they do in their own country. Visits by Indian chief ministers to China, which require MEA facilitation, are infrequent. Giving states more autonomy to pursue their own engagement with Chinese provinces could help address this gap.

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3. Outreach to the private sector 

There is a lack of a reliable platform to engage the Chinese private sector. Unlike most countries, India does not have a chamber of commerce in Beijing. The only industry body present in China is a Confederation of Indian Industry (CII) branch in Shanghai, which is staffed with only one permanent representative. Its primary concern is dealing with the issues faced by Indian companies in China. Hence, most outreach to the Chinese private sector as well as Indian companies based in China is left to the commercial wing of the Indian embassy in Beijing, besides consulates in Shanghai and Guangzhou. The wing, which is staffed by only three officials, lacks the resources to facilitate both potential Chinese investors in India or Indian companies based in China.

To fill this void, the Department for Promotion of Industry and Internal Trade (DPIIIT) has set up a dedicated China desk in Delhi to handle issues faced by Chinese investors, such as queries over regulation and investment.

4. Rethinking trade strategy 

The absence of a coherent strategy in engaging China on trade and investment has led to a piecemeal approach where different actors pursue different interests. If New Delhi wants to better leverage its market in pursuing its goals with China, both on the investment and market access fronts, this will need to change.

Chinese investment also has the potential to rebalance an extremely lopsided trading relationship, which has been driven by Indian dependence on Chinese goods in various sectors. In addition to their stakes in Indian companies, India has also emerged among the key overseas markets for several Chinese companies with hundreds of millions of dollars in revenues at stake. Whether this can be better leveraged by India’s trade strategy, which has so far failed to balance the trading relationship or secure market access for Indian firms in China, needs to be explored.

5. A transparent and effective regulatory regime 

Regulation should certainly not single out Chinese investment, which would be self-defeating as well as derail what has undoubtedly been a welcome trend for the relationship. Neither should alarmism on the security concerns dictate policy or overstate the security risks. At the same time, this flush of investment from China has only served to underline the need for a transparent, credible and predictable regulatory framework — aimed at all overseas investment — that strikes a better balance between creating a friendly, open and predictable investment environment on one hand, and safeguarding longer-term considerations of security and privacy on the other.

Doing so would better harness the benefits of greater Chinese investment into India, which have already given some of China’s biggest and most influential companies a long-term stake in the success of India’s economy a welcome shift. After all, the billion-dollar-plus portfolios acquired by companies such as Alibaba and Tencent are not only long-term bets on the Indian economy, but also the biggest bets that have been placed yet on the future of India’s relations with China.

Ananth Krishnan was a Visiting Fellow at Brookings India until 2019. Views are personal.

This article is an edited excerpt from the author’s new Brookings India research study ‘Following the Money: China Inc’s Growing Stake in India-China Relations. Read the full paper here.

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  1. The whole thing looks a fiasco to an unbiased observer.

    Bhakths are ranting and trolling everything related to China!

    Let’s ignore them.
    On the whole the government of India it self appeared balanced.
    But looks like the balance is lost.

    The west, USA, Japan, Australia and New Zealand have been for ages trying to keep India under leash and bonded to them.

    The never before settled India China boundary question, the obstacles always put in for settlement of Kashmir dispute between India and Pakistan and people of Kashmir for 70 long years is almost a joke but for the serious consequences and affects associated with those two questions.

    But for those two issues, India could have had a hunkey doree symbiotic progress and development relationship with China and Pakistan.

    But for these two issues, there are simply no other issues between these two countries.

    There are almost 50 countries in Europe and around!

    They had grave boundary disputes.

    World War Two raged between them engulfing the whole world.

    Yet all of them have settled all disputes and set up European Union and are progressing together.

    USA joined hands with them in trade and commerce and military alliance NATO.

    USA also has trade and commerce bonds and military bonds with Canada, Australia, Japan, Newzealand and a host of bases etc all over.

    If India and China and Pakistan and Bangladesh were together like USA Europe and the Pacific rim countries above, all of us could have prospered and become strong.

    Learning from us Africa and Latin America too would have forged regional alliances and prospered together.

    Europe , USA and the other Pacific rim countries have been conspiring together and keeping all of us fighting on petty issues, most of them actually created by powers in Europe, USA and the rest of Pacific rim.

    The entire civil service and military and para military forces and their philosophy and culture of India and Pakistan have come from the British.

    These were mercenary organs of British.

    When transfer of power happened, we have been made to believe we got independence.

    But the same fellows ruling India and Pakistan under British continued to rule us.

    These mercenaries worked in every manner against the interests of their countries and in favour of the west, USA and Pacific rim.

    No other two countries fight like India and Pakistan in the most stupid way, sacrificing all progress.

    No two countries in the world have had a never styled boundary dispute after becoming independent of colonial powers like China and India.

    For China it was a revolution and throwing away colonialism and foreign hegemony and foreign puppet regime of Chiang Ki Shaik.

    For India, Pakistan (including then East Pakistan)
    It was mere transfer of power.

    The west, USA, Israel, are merchants of death creating conflicts and selling arms, exploiting raw materials, benefitting from trade and even our mercenary manpower.

    The gulf too is firmly in the hands of USA and UK and EU along with all the oil.

    The gulf almost entirely depends on manpower from India and Pakistan and now Bangladesh.we are all slaves there!

    The interests of gulf are entwined the rogue countries above.

    They all have thus been keeping us on leash striking many a alliance with our rulers and selling us huge arms and defence purchases.

    India is largest importer of arms in the world.

    Which means the largest looser.

    Defence imports invariably involve corruption.

    The great congress and the great bjp and their respective allies have all unanimously affirmed, agreed and alleged against each other and in different inter-say ways about each other’s corruption in defence purchases and corruption about crony capitalism!

    And meanwhile China has land boundaries with 12 countries including India and Our tiny Lilliputian brother Bhutan.

    Except old USSR, all other countries are small and weak and insignificant in size, military or commerce.

    Yet China settled the similar never before settled boundaries with all those countries, demarcated them on the ground with modern tools and almost with everyone has cross border trade, travel, road travel and connectivity etc.

    though all these were small countries, all of them are happy about their boundary settlements with China, as China was considerate towards the smaller countries, gave more and took less in the five and take principle bargain!

    Only India and under our tutelage and dependence Bhutan have not yet settled the never before settled boundaries with China.

    now even the belt and road mega concept is integrating them so much closer!

    While so India does not have such settlements even with one country around us!

    Except Nepal, we have no connectivity with any of our Nieghbours!

    Despite all our Ramayan stories, we don’t even have a ferry to Srilanka, leave alone building a rail and road bridge!

    China is running goods trains to Iran, Germany, Italy, United Kingdom and France apart from so many central Asian countries and Russia!

    That is progress based on cooperation.

    Now the funny thing is China raised it’s stake by market equity purchase in HDFC , Housing Development Finance Corporation Ltd from existing 0.8% to just above 1%!

    What a joke!

    We have so many companies from these rogue nations of Europe, USA, Canada, Japan and Australia and Newzealand which have anything from 10% to 100% of equity stake!

    All that is normal!

    EUROPE and USA and Canada are all benefitting from huge Chinese investments.

    But they create fears in India for raise of Chinese investment in shares in one housing finance company from 0.8% to 1%!

    How strange is it?

    How stupid is it for us to react. ?

    Does it not show how weak is our great supreme leader and his party acting at the behest of these guys?

    Look at the comments of Andh and moodh bhakths raising war cries against China about this!

    India is in an abyss created by these evil ex colonial ex imperialist and currently neo-colonial and neo-imperialist forces.

    Unless we indians become informed ourselves about this western/USA and company conspiracies and un-shackle ourselves, impress upon our leaders and parties to sort out the stupid Kashmir dispute with Pakistan and Kashmir , and boundary dispute with China, our future is very bleak!

    We are simply playing into the hands of these evil forces who are completely responsible for these two problems and who have been constantly and continuously benefiting from us and Pakistan because of keeping these problems alive.

    Ultimately people of India and Pakistan have to solve their own problems. Or they may not choose to solve any problems and continue to play into the hands of EUROPE,UK and USA and company and keep buying arms from them and serve their economic and political interests!

    The choice always is of the people.

    We can only reap what we sow!

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