Indian Finance Minister Arun Jaitley is on a five day tour of China to pitch for Chinese investments from the slowing Chinese economy. India which is on a growth trajectory is aiming for 7.5 to 8 percent GDP growth at a time when China’s GDP has decelerated to 7 percent. While the Chinese are interested in investing in India – a neighbour and a large market most investors are yet skeptical on her policies. Mr. Mochilas Kanken España Jaitley’s aim is to convince Chinese bankers and wealth fund managers to invest in India. The finance minister is not alone. His visit was proceeded by the Chief Minister of several Indian states, the last being Mr. Shivraj Singh Chouhan, the CM of India’s central and second largest state Madhya Pradesh who was in Beijing, Shanghai and Guangzhou last week with a 20+ member business delegation to pump investments into his state. Madhya Pradesh has already allotted land at Pithampur towards Chinese investments in automobiles, pharmaceuticals and technology and has promised massive discounts in land, taxes and electricity. Read more
Neighbours, trade titans and sweet and sour siblings, China and India have upped the number of bilateral meetings in the recent past. Following the high level trade delegation led by Premier Li Keqiang earlier this year, foreign secretaries of the two nations have also been meeting to iron out both bilateral and multilateral issues.
During the first week in August, India and China met in Beijing for their first ever dialogue on Central Asia. Today (August 20), Indian foreign secretary Sujatha Singh will meet her counterpart, Chinese vice foreign minister Liu Zhen Min, in New Delhi to hold the fifth high-level strategic dialogue since November, 2010. Later this month, a high level Indian military delegation will travel to China to work out details of joint naval and air force exercises. The move is part of a larger effort to quell tensions over disputed territories. All these meetings will culminate in Indian Prime Minister Dr. Manmohan Singh’s visit to Beijing in October.
As Indian national elections are due in 2014, Dr. Singh’s Beijing visit might be one of his last foreign trips as prime minister of India, a significant sign off to Chinese Premier Li Keqiang’s first trip as Chinese premier to India.
The increasing frequency of meetings is proof that both nations are attempting to quell differences between the neighbours. With China taking a more aggressive resolution to smooth over relations, India might be encouraged to dampen disagreements considering the Indian economy is floundering and support from her largest trading partner can protect her.
Chinese companies high on softly wooing the booming Indian telecom and technology space are finding a profitable niche for themselves. In 2002 it was handset maker Huawei that stormed the Indian telecom space, more recently instant messenger service Wechat broke ground by introducing India to voice chats – a league above the popular incumbent whatsapp and now, Chinese mobile browser UC Browser claims to have powered 29.9 percent or every 1 in 3 of total Internet traffic on phones.
While the Indian government remains apprehensive and often takes a stand against such software’s surreptitiously entering the Indian marketspace, UCWeb has big plans for India. In addition to hiring local talent, the Chinese browser which is available on most Nokia Symbian and Google Android devices is also looking at tying up with local Indian handset makers to increase its presence. Further, its increased market share (60 times growth within India alone in the last three years) is also due to the company extending its global partnership with Samsung and LG to the Indian market.
India continues to remain one of the worlds fastest growing telecom markets, which makes her an attractive playing ground for many mobile software and hardware producers. Additionally, with both neighbours facing similar last mile issues, technologies developed for specific problems in both economies tend to excel. Analysts assuage UC Browsers success in India to its features as a modern, easy to user interface. Especially, its ability to cach video for offline viewing, This they say is itself is a great feature in India, as not all mobile users have access to fast downloads, either because of their network, data plan, or device itself.
The time for Indian manufacturing to bask in the sunlight has come, however shrouded in archaic laws and regulations, dimmed by a weakening economy and lack of government support, manufacturing in India might remain away from the limelight.
Explaining how India could have been a China by exploiting her comparative advantage, Shankar Acharya, former economic adviser to the Indian government told the Financial Times “Over the past four decades, India, like China before, should have become a big producer and exporter of clothing, shoes and toys. Instead, highly restrictive and old-fashioned labour laws have undermined the advantages of India’s low nominal wage costs and discouraged formal employment, driving employers to hire casual labour and keep their firms as small as possible.
Add to that a recent survey conducted by PwC and FICCI titled — “India Manufacturing Barometer”, which finds that the major growth barriers to Indian manufacturing are higher interest rates, lack of domestic demand and other concerns like pressure for increased wages, legislative or regulatory pressures, decreasing profitability and increased competition from foreign markets.
Compound this with India’s notorious bureaucracy, poor transport and electricity infrastructure, and the occasional imposition of retrospective taxes and you have a recipe for driving away both Indian and foreign prospective investors.
Yet, what persuades companies to set up factories in India?
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.
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.
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.
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.
As gold prices slump, the Chinese stock exchange plunges and Indian rupee falls to new lows, monetary policy analysts are revisiting the competitiveness of China – India bilateral trade. A report by India’s apex bank – the Reserve Bank of India notes that exports from China into India are gradually becoming uncompetitive against other developing nations in the region. The report entitled ‘India China Bilateral Trade Relationship’, authored by Prof S K Mohanty of Research and Information System for Developing Countries also shows the impact on Indian exports due to the fluctuation in the Chinese yuan.
An economic research paper, this report it outlines four major sectors wherein India imports what the report considers goods that are available for cheaper in neighboring competitive nations. The four sectors mentioned include chemicals, textiles, base metals and machinery. It also mentions imports of minerals, plastics, gems & jewelleries, and automobile parts from China have also turned out to be uncompetitive. The combined share of these eight sectors exceeded 93 percent of total uncompetitive imports during 2007-09.
Unsupported by a will to aggressively bid for energy projects, Indian public sector power companies are loosing out heavily to Chinese companies in securing energy assets internationally. At a time when countries are increasingly going green on gas and de-nuclearising their energy stores, the competition to acquire LNG assets internationally is heating up.
In its latest endeavor, according to the Hindu, China National Petroleum Corporation signed an agreement with Russia’s largest private gas producer Novatek to acquire a 20 percent stake in the latter’s LNG project in Yamal Peninsular in the Arctic region of northeast Siberia, and to secure long-term LNG supplies from the plant to be built in 2018. The same day, another Chinese company, Sinopec, also signed a contract with Russia’s State-owned Rosneft for the supply of 365 million tonnes of crude over the next 25 years at a cost of US$270 billion.