Beijing should put pressure on New Delhi to promote free trade, lower investment risks

By Hu Weijia Source:Global Times Published: 2017/2/17 0:13:39

In 2016, China's direct investment to India was six times higher than the year before, according to recent media reports. China may need to adjust its speed and rhythm to avoid overheating the country's outbound investment to the South Asian country.

India has intensified efforts to make itself a more attractive investment destination by easing inbound investment rules and reforming its tax structures. The measures enacted by the government have helped boost foreign investment, but some efforts should be watched amid concerns that new forms of protectionism are taking root.

With the Make in India campaign initiated by the Modi administration, India has been ramping up efforts to boost its homegrown industries and reduce its reliance on imports. Anti-dumping duties issued by the government have triggered protests from other countries, while India's measures related to local procurement rates have also become a controversial topic. For instance, the WTO found last year that India's solar Domestic Content Requirement policy was inconsistent with its treaty obligations under the global trading regime.

Relevant countermeasures should be in place if India adopts forced localization measures as a means to attract foreign investment, because boosting exports is as important as encouraging outbound investment for China. Beijing should put more pressure on New Delhi to promote free trade while continuing to adopt an open attitude toward overseas investment.

Another factor to consider is that investment risks exist despite India's sustained economic growth momentum and cheap labor costs. Calls for boycotting of Chinese goods in India have hurt the interests of many Chinese companies in the country and such risks deserve serious attention. Additionally, Chinese firms have to contend with the risk that no bilateral investment treaty has been signed between the two countries - an agreement that would protect the interest of Chinese businesses.

As Chinese firms are showing an increasing interest in India's burgeoning market there have also been instances of investment failures. First and foremost, Chinese investors should be more patient in acquainting themselves with the local market and regulations on foreign investment. At the least, more time is needed for some companies to adapt to the local business culture to better handle labor rights issues which are one of the most intractable challenges they face.

The author is a reporter with the Global Times.


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