India-China economic ties continue to strengthen

Chinese investments in India are broadening from sports sponsorship to infrastructure. Although political tensions over Pakistan and Tibet pose difficulties, overall exchange is beneficial to both.

Team Sunrisers Hyderabad’s cricketer Shikhar Dhawan during an Indian Premier League cricket match. Chinese phone maker Vivo is one of the tournament sponsors. Rajanish Kakade / AP Photo
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When Oppo, a Chinese smartphone maker, earlier this year took over the sponsorship of the Indian cricket team, many a light-hearted reference was made by observers to a Chinese “invasion”. Another Chinese brand, Vivo, is also the title sponsor of the glitzy Indian Premier League (IPL) tournament, ongoing at the moment.

China’s move to dominate the sports industry in the cricket-mad country is symbolic of the nation’s broader growing interest in India as a market to invest and expand in.

“China has invested a huge amount of money into the United States and now they’re moving towards India,” says Yogesh Bansal, an angel investor and entrepreneur based in Delhi.

“India being a major growth economy of the world and having amazing demographics with a young population and the mobile technology and a lot of internet penetration, it’s a huge market which needs to be captured.”

India’s major e-commerce marketplace Flipkart said last week it had raised US$1.4 billion from China’s Tencent, Microsoft and eBay.

Chinese internet company Alibaba in March agreed to invest $177 million into the Indian online technology company Paytm.

Chinese smartphone brands, including Huawei, Xiaomi, Vivo, and Oppo are all planning to launch manufacturing facilities in India.

However, the total figure for foreign direct investment (FDI) from the country is still relatively low. Last year, a record figure of more than $1bn of FDI flowed into India from China, according to figures from the Indian government. India’s prime minister, Narendra Modi, has actively been trying to boost economic ties with China and attract investment into areas such as infrastructure. He has talked about a “look East, link West” policy, as India tries to boost its role in the global economy, and attract more foreign investment to create more jobs for its population. During a three-day visit to China two years ago, the two countries signed $22bn of business deals in sectors ranging from telecoms to solar energy.

China has agreed to set up industrial parks in Gujarat and Maharashtra, and is getting involved in India’s railway development plans. Wanda Group, which is owned by the Chinese billionaire Wang Jianlin, last year revealed plans to develop a $10bn industrial zone in the state of Haryana in north India, called Wanda Industrial New City

China has also outlined plans to invest billions of dollars to help overhaul India’s creaking infrastructure.

But Mr Modi has described the relationship between the two countries as “complex”.

There are political tensions, for example, over borders in the north – something which has flared up in recent days because of a visit by Dalai Lama, the Tibetan Buddhist leader who is in exile in India, to a disputed territory in north east India, which China claims belongs to them. The relationship between India and China is also strained by the fact that China has been investing heavily in Pakistan.

China and Pakistan have created an economic corridor which passes through disputed territory in Kashmir, a move that has irked India.

Despite these political differences, business ties between India and China have continued to strengthen.

“While formal FDI and trade flows between India and China are certainly on the rise, there is a much higher level of cross-border collaboration happening in parallel across the venture and innovation ecosystem,” says Ajay Hattangdi, the group chief operating officer and chief executive India for InnoVen Capital, a venture lending platform.

“India is among the fastest growing global economies and driven largely by the domestic consumption story which the Chinese investors understand.”

While there are definite cultural and political differences between the two countries, they are also able to find significant common ground. They are both rapidly developing economies with large populations and growing wealth and consumer spending.

“The Chinese investors, mainly successful privately funded companies themselves, are attracted by the opportunities provided by the large Indian market which feels somewhat similar to their own markets in many ways,” says Mr Hattangdi. “We are witnessing the coalescing of a more closely knit pan-Asian innovation economy where the search for investor returns drive the flow of capital and entrepreneurial talent across boundaries.”

Nikhil Khandelwal, the managing director at brokerage Systematix Shares and Stocks, says Chinese FDI into India is primarily driven by their engagement in the Indian automotive sector, infrastructure sector, electronics, particularly mobile phones and consumer goods manufacturing, and Chinese companies and investors thronging the Indian e-commerce and technology industry.

“While the automotive industry has seen the maximum investment share over the past five years, the fast rise of electronics, e-commerce, technology and infrastructure sector investments are gaining at a much faster pace and are set to make China amongst the top ten FDI investors in India in the next three to four years,” Mr Khandelwal adds.

Notably, India has its own plans to transform itself into a manufacturing hub – following in the footsteps of China – under Mr Modi’s flagship Make in India programme, which is a move that could result in the two countries competing. As it stands, India-China bilateral trade reached close to $71bn last year, but India has a trade deficit with China of more than $46bn, with imports into India heavily outweighing its own exports to the Chinese market.

Fahad Khateeb runs a business in Mumbai that manufactures LED lights and source components and other products from China, so he travels to China several times a year for his operations.

“India of course has tremendous potential,” he says. “We’re a very price-sensitive market and the Chinese are the only ones in the world who have the capability to manufacture or to produce at all the different stages of production in terms of their pricing – they have different prices, different qualities.”

He explains that Indian manufacturers are still not advanced enough to compete with the Chinese in terms of volumes and pricing. China is way ahead of India when it comes to manufacturing and Chinese companies have the advantage of getting support from the government in terms of tax breaks, he points out.

India is an attractive market for China, despite the challenges that exist in the subcontinent because of poor infrastructure and bureaucractic procedures. India is frequently widely criticised for the complexity which domestic and foreign companies face when doing business in the country. But Mr Modi has promised to reduce bureaucracy and make it much easier to do business in India, as he strives to attract more foreign investment.

There are also valuable lessons that India can learn from China when it comes to its work ethic, Mr Khateeb explains and he hopes that this might rub off on Indians, as the Chinese continue to increase their presence in India.

“India can learn professionalism from China,” he says.

“Their unskilled workers do a job better than our skilled people in terms of the kind of finish they achieve on a product. Their factories open at 8 o’clock in the morning. In India, nothing happens until 10am, 10.30”

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