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July, 2013

  • Fiscal pressures have contributed to Beijing following New Delhi in contributing to freeing the economy and liberalize growth. Barely a week after India opened FDI in the telecom and defence sectors amongst others, China announced tax breaks for 6 million small businesses, reduced fees for cash strapped exporters and paved the way for the opening up of railway construction. At a time when banks in both nations are constricted for cash, governments have no choice but to release the economy through alternate means.

    Post a meeting by China’s state council, Beijing announced what is expected to be the first of a series or micro-measures to boost the economy whose purchasing managers index and growth rate slumped drastically. Forecasting a similar trend for the rest of the second quarter, China economy watchers expect the government to open additional sectors to FDI, thereby boosting growth. Unlike 2009 when the government gave banks the green signal to flood the economy and boost consumption, this time round the banks have little bite, leaving the onus of bailing the economy on both central governments.

    Pledging to keep the yuan’s exchange rate which has risen the most amongst Asian currencies, stable,  Beijing is also encouraging domestic private investments in specified sectors. With several local governments unable to propel the weight of the economy alone, President Xi has hinted that in order to achieve the Chinese dream, private players too will have to pay their part. Expect large ticket investments from private Chinese players, which will change the economic landscape of China which has until now heavily depended on state owned entreprises. The announcement of a tax fillip to Chinese SME’s is a step in this direction.

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  • When push came to shove, the Indian government did budge to salvage the economy from floundering. Let it also be noted, that just as Dr. Manmohan Singh released the clasps on the Indian economy in 1991 flooding her with western goods and services, a prudent reason to further open her markets has been sought. The rupee is on an all time low, investor confidence in the economy is dismal and India is much in need of financial resuscitation.

    New Delhi’s decision to open her telecom and defence sectors to Foreign Direct Investment will not only benefit International companies but also Chinese companies who have vigorously been trying to gain a strong foothold in one of the largest global telecom markets. While Chinese investments in the defence sector look bleak considering our sweet and sour neighbourly relations, telecom could be China’s golden goose.

    With Huawei and ZTE already firmly entrenched in India, the granted 100 percent FDI in the telecom space will propel several other allied telecom companies and their peripheral manufacturers to India. Similar to the automotive space, Chinese companies will now have a lot more room to play in the Indian market. While this is sure to widen the bilateral trade deficit between China and India, in the long run, looking at the development it might herald, this might be a good thing.

    Chinese companies are most likely expected to expand their role in the manufacturing and assembly of handsets in India. With the Indian ambassador to China, S Jaishankar already giving them the green light in February this year, the lure of increased investments will only broaden the scope of work for Chinese companies in India.

    Further, on a more softer note, the move could also augment relations between the two countries who have been vying for a larger share of each others markets over the last several years. Ultimately leading to stronger ties and better understandings.

  • As China and India play tug-of war in re-balancing their economies, Inchin Closer takes a look at the real growth engines in both countries — India’s Middle class and China’s Rural mass.

    Birds of Gold as dubbed by the Mckinsey Global Institute, for their ability to sway consumer companies, public opinion and pull the weight of the economy simultaneously, the bulk of our populations, do not only dictate domestic decrees but also international tet-a-te’s. While India’s middle class, also sways political opinion, China’s rural junta doesn’t have this privilege. Yet, this is where the real markets lie, the untapped potential that producers churn factories for and investors pump in money for in the hope that one day, these masses will will reap them rich dividends.

    An ambiguous title, India’s middle class is one that is defined on an income parameter which varies depending on which economic group you talk to, similarly, China’s rural masses too vary depending on which social analyst you speak with. Here at Inchin Closer we will look at their economic impact depending on their psychological position of being our real growth engines.

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  • Notwithstanding the ballooning trade deficit between India and China which swelled by 34 percent to reach US$12 billion in the first five months of this year, India is also heavily loosing out to China in acquiring oil assets internationally.

    Inchin Closer had earlier written about Chinese companies winning gas deals as both nations raced to acquire green energy assets. In light of recent reports, it is estimated that India has lost close to US$12.5 billion of oil deals to China in the past few years.

    Highlighting its loss after India’s ONGC lost the giant Kashagan oilfield to the Chinese CNPC earlier this weel, the Times of India notes that India lost to China earlier too. CNPC beat India’s ONGC by agreeing to pay US$4.18 billion in August 2005 for PetroKazakhstan, then China’s biggest overseas oil deal. A month later, CNPC outbid ONGC in buying assets of Encana Corp in Ecuador for US$1.42 billion. In March 2010, ONGC lost out on acquisition of oil Block 1 and 3A in Uganda oilfields to China’s Cnooc who offered as much as US$2.5 billion for the 50 per cent stake. In May 2011, ONGC again lost a bid to buy Exxon Mobil Corp’s 25 percent stake in an Angolan oil field. ONGC had offered about US$2 billion for the stake in Block 31 off Angola’s coast.

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