New era for Sino-Indian relations


With China’s Premier Li Keqiang calling up India’s new Prime Minister Narendra Modi last week to discuss China’s keen desire to establish a “robust partnership” with India, there is a new buzz among analysts and experts that India’s policy think tanks could concentrate on China for investments.

Modi, who has referred to China as “reform-minded”, responded by saying that India is keen to work even more closely with China. The telephone conversation was Modi’s first with a foreign head of government since he was sworn in as prime minister on May 26.

Li was reportedly impressed by Modi telling him how the 7th century Chinese scholar Hiuen Tsang once visited his hometown of Vadnagar in Gujarat, India’s westernmost state, where Modi spent 13 years as chief minister before becoming prime minister.

“Modi mentioned Hiuen’s visit to his village to emphasize the importance he attached to ties with China. He told Li China would be a priority country for him,” wrote The Times of India.

Already India is preparing to receive Chinese Foreign Minister Wang Yi, who will begin a two-day India visit on June 8.

According to a Chinese Foreign Ministry official, Wang is visiting India as a “Special Representative of President Xi Jinping”.

All these serve as indications for analysts, who not only foresee a new era of Sino-Indian relationships but also a chance for Chinese companies to seize opportunities in India and reap dividends.

Their logic is simple. While China, with reserves worth over $3.8 trillion, has enough means to meet India’s capital needs, Modi needs capital to deliver on his pre-election promises to set up new industries, build strong infrastructure and create 12 million new jobs a year.

Moreover, China’s expressed desire to finance $300 billion of India’s infrastructure projects has raised optimism. If approved by the new Indian government, the investment would be the largest by any single country in India in infrastructure projects.

“It is roughly 30 percent of what India has planned to invest in infrastructure projects till 2017. Clearly, the Chinese can see huge opportunities,” says Mohammed Saqib, secretary general of the India China Economic and Cultural Council (ICEC), an organization set up with the primary goal of giving “more muscle” to China-India relationships.

In Saqib’s view, China has the potential to be the most enduring partner in Modi’s quest for and promise of rapid development.

“As India needs to build strong infrastructure, China could be the best bet,” he explains. “They have the experience, they have money, and they are the cheapest.”

His views echo those of Binod Singh, an assistant professor at the Center for South Asian Studies at Peking University. In a recent commentary in China Daily, Singh wrote: “Modi cannot create a miracle to revive the economy as he did to win the election, but there is one country that can help him convert his promises into reality — and that country is China”.

Saqib agrees with this assessment.

“I am confident that there will soon be rapid inflow of FDIs in India, which was not the case earlier. Good days are ahead,” he says, referring to foreign direct investments.

“Time is just right for Chinese companies to get involved in India’s rail, road, power and telecom infrastructure.”

However, he points out that most of these infrastructure projects are set to be executed in the regions. “Since the provinces do not have money, they would want the projects to be undertaken on a BOT (build, operate and transfer) basis. That means a long gestation period (20 to 30 years) on return on capital. Although Chinese companies are very keen to execute these projects, they do not want long-term engagement under BOT,” Saqib says.

In his view, an India-China infrastructure fund created by both private and government institutions and companies from both countries could be a solution.

“This fund can support many infrastructure projects in India,” Saqib says. “The company that gets the projects gets full money after completing the project from the fund. The return on such investments can range between 18 to 25 percent.”

Steve Crandall, vice president and general manager of Technomic Asia, a Shanghai-based market strategy firm, is also hopeful. He says it is inevitable that the relationship between China and India will grow.

“It is just a matter of how fast and how friendly,” Crandall says. “The two countries have invested and grown in very different ways and so I do think that there are several industries which have greater potential.”

He also speaks of the need for playing on each other’s strengths. China’s strength in medical devices and auto components can be complemented by India’s power in medical analytics and design, and auto design and engineering.

A platform where entrepreneurs and businesses can flourish is important too, he says. “They (governments) should remove the barriers to trade and investment. If India can create the opportunities where Chinese companies can invest, see returns and evaluate and control risks, then it will happen.”

Crandall suggests that these opportunities could lie within the convertibility of currency and exchange rate tools, easier and quicker travel documentation (visa approvals), clear and streamlined company registration and reporting, e-filing for customs and the encouragement of trade associations.

“Each side should provide a clear road map for which industries it plans to allow participation from foreign investors and at what level. Complete free access is not always necessary — predictability is,” he says.

Saqib of ICEC strikes a note of caution, saying that Chinese companies keen to do business in India must understand India and must know how to do business there.

“The problem with Chinese companies is that they do not want to take the help of others,” he says. “They do not believe in hiring consultants. So, they often get bogged down. But if they want to do business in India, they need consultants who can guide them properly.”

Srikanth Kondapalli, a professor of Chinese Studies at Jawaharlal Nehru University in New Delhi, says bilateral investments still have some way to go, no matter how many Chinese companies have opened offices in India and Indian companies in China.

Cumulatively, China’s direct investment is around $460 million in India over a decade.

“The fact is, that except for a few regions such as Gujarat and Maharashtra in the west, Delhi in the north and Tamil Nadu in the south, the flow of foreign direct investment in other parts of India is not very encouraging,” says Kondapalli.

However, in the current scenario, he says, China can see unprecedented opportunities in India’s infrastructure and manufacturing. “These are the two pillars on which the new Indian economy needs to be rebuilt. And we all know about China’s incredible capacity to build infrastructure at a frenetic pace.”

China’s graduation from low to high-grade technology is fascinating for many, including Kondapalli.

“They have reached a stage where they can compete with the best in business — Japan, South Korea, Singapore — the countries that assisted China in building world-class infrastructure in the early phase of development,” he says. “Now, China is in a position to demonstrate its excellence and help build world-class infrastructure in India.”

Source: China Daily Asia

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