By barring Chinese equipment, is India stalling her own growth?
May 4, 2010

Indian sectors that depend on electrical, power and telecom machinery, iron and steel products, organic chemicals and fertilizers are all expected to be severely hit in the next few months as China retaliates to India’s trade barriers.

India recently embargoed telecom equipment from China on security grounds, they also raised the duty on iron ore and cotton – major exports to China.  Further, as business visa’s were not granted to skilled laborers, factories set up by the Chinese in India shut shop, as a result, Sino-India experts believe that China will retaliate, but in due course.

China controls a majority of Asian trade,  her diplomatic relations, infrastructural and financial support have raised her influence in the region strategically. Meanwhile, India suffers a widening trade deficit with China, most of her neighbors are unsatisfied with diplomatic relations, while others view India as an overbearing nation.  Keen China-India experts that have been watching this space feel that China will not immediately react to India’s embargoes and duties, but will definitely retaliate 2-3 months from now. Further, any move to squash trade by China will have drastic ramifications in India.

In order to keep the Indian economy chugging along, India needs quality power, electrical and telecom equipment to be set up fast. China has been known to offer India quality equipment support in a timely and cost-effective manner. Yet India citing security reasons has barred both equipment and labor from entering the country. By barring Chinese equipment manufacturers from operating in India, New Delhi seems to be performing hara kiri on an economy which desperately needs Chinese machinery.  Indian equipment manufacturers already find it difficult to meet local demand additionally, since India doesn’t have the speed to build machinery quick enough, projects are getting delayed and costs are rising.  With no unified Central government support, Indian machinery manufacturers are not expected to keep Chinese manufacturers out for long. The Chinese are after all India’s closest, cheapest and fastest manufactures – the sunlight that every growing economy needs.

Nonetheless, China cannot afford to retaliate drastically against India due to the nation’s diplomatic proximity to both the US and Japan. Also India is a large lucrative market that is difficult for China to let go. If China needs to expand overseas, India is yet their best bet. Since direct entry for Chinese companies is riddled in Indian bureaucracy,  Chinese companies are now more likely to enter India through a third foreign partner India is more affable to like Chinese automaker SAIC entered India through General Motors. With seats on the board of directors and  top management positions, SAIC is now in charge of GM’s strategy in India. This is expected not only give SAIC the power to sway the burgeoning Indian automobile industry, but will also allow it to bring in technology and labor as it pleases. A win-win situation for China it seems?

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