Putting the blocks on China

The government has issued rules to screen foreign direct investments (FDI) from neighbouring nations. This is a too-clever-by-half way of blocking Chinese investments, but even so, action was timely and well-intentioned. There is need to protect the fire sales of corporate assets in the wake of the coronavirus outbreak. But focusing on China was not a good idea. After all, what difference does it make if a predatory investor is German, American, Chinese or Singaporean?

Restricting investment in strategically important areas is already established policy. It covers things like defence, railways, atomic energy, space, broadcasting, and so on. In 2010, BSNL barred Chinese companies from bidding in its tenders covering the northern and eastern zones. Subsequently, rules were put in place for security clearance for equipment originating in China. Earlier this year, the DoT got the right to bar Chinese firms from government telecom tenders.

But a great deal of Chinese investment in India is not in strategic sectors but in autos, pharmaceuticals and even companies like Ola and Paytm. The irony is that Chinese FDI has been coming into India in ever larger volumes ever since PM Modi came to power. According to a paper by Ananth Krishnan for Brookings, till that point, total Chinese investment was of the order of $1.6 billion. By 2017, this had risen to $8 billion, not accounting for investment coming in through entities in Singapore.

Chinese companies had earlier been investing in infrastructure, including railway equipment and steel, and power. Indeed, Krishnan points out that from a one-way dependency on China for telecom equipment, semiconductor devices, antibiotics and active pharmaceutical ingredients, the pattern of Chinese trade and investment has been changing.

The post-2014 investment has been in tech startups, pharma, renewables, like solar and wind energy, and consumer goods. Another major area has been automobiles, where the Chinese company SAIC, with its MG motors brand, has invested big and has bigger plans to focus on electrical vehicles as well.

Chinese giants Alibaba and Tencent have been active in 2016-17. The former took minority stakes in Paytm, Snapdeal and Big Basket. Tencent took even bigger stakes in transport, food delivery, education and health sectors, and put down serious money in Ola, Flipkart, learning app Byju’s, and healthcare startup Practo. The Chinese have been dominant players in the mobile phone market, with Xiaomi taking the lead. The company has also spread its money on more than a hundred startups.

Clearly, what Krishnan reveals is that there is a huge space between investments that can affect Indian security, and those that can enhance Indian well-being, through investments, jobs and consumer products.

The problem in a lot of commentary that we see in the Indian media on China is tinged by Sinophobia. China is a neighbouring country with whom we have a disputed border and which uses our estrangement with Pakistan against us. But we also have a cooperative relationship with the country, marked by our membership of BRICS, the SCO and the Asia Infrastructure Development Bank (AIIB), and so on. In recent years, PM Modi has cultivated a special relationship with China’s President Xi Jinping, marked by the informal summits at Wuhan and Mamallapuram, that the leaders have now institutionalised.

Currently, an anti-China mood has gripped the US, which is in considerable measure itself to blame for it. Between 1980 and 2010, it convinced itself that China was on its way to becoming an open, and even democratic society. Ties with China hugely enriched its multinationals, but did not trickle down to society. But their own missteps—the hugely expensive wars of the last two decades, and a refusal to invest in education, healthcare and basic research has now come to haunt them.

The US has shifted its approach to China, but it is not something which has any lessons for us. Our problems with China have a dynamic of their own, and we have the ability to deal with them.

More important, our national aim is different from theirs: The US seeks to preserve its global primacy, while China wants to shake it. We are not in that league. At present, we can have only one national goal—to end the impoverishment and deprivation of hundreds of millions of our citizens.

For this, we need investment and investment, along with trade, trade and more trade. Yes, we need a secure periphery, but though we have our difficulties with China and Pakistan, neither is an existential threat to us.

Even so, the government is right to ring-fence sectors which it deems important for security. But that still leaves a vast area in which Chinese FDI can aid our project of national transformation. This should not be a matter of ego. India and China are no longer competitors in the economic field. Unlike the situation in 1980, China’s GDP and its trade volume today is several times ours.

Take FDI. Despite poor relations with the US, China still managed to get $204 billion in 2019 as compared to $ 42 billion that we got. China sent out FDI worth $97 billion in 2018, not counting the $ 75 billion that went out from Hong Kong. As a manufacturing superpower and as a trading nation, China has a vast pool of experience which can benefit us.

Chinese companies will profit from their investments, but don’t forget, in investing in India, they are the ones who are risking serious money. We still retain sovereign control over on what and how it is spent.

Tribune April 28, 2020

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