Competition, cooperation exemplify China-India ties

By Mao Keji Source:Global Times Published: 2017/11/6 23:33:39

Illustration: Peter C. Espina/GT


As the two fastest-growing major economies in the world, China and India are always in the spotlight of global markets. As they both compete and cooperate, the outlook for their economic and trade relationship is also getting much attention.

Since Indian Prime Minister Narendra Modi took office in 2014, the government has rolled out a series of reform measures under the "Make in India" and "Digital India" initiatives. In spite of a slowdown in global economic growth, the Indian economy - with its late-mover advantage, broad market, low labor costs and Modi's reform dividend - grew 7.5 percent, 8 percent and 7.1 percent in the fiscal years of 2014-15, 2015-16 and 2016-17, respectively, overtaking China as the fastest-growing major economy in the world for three consecutive years.

While some experts doubt that India's GDP data is overstated under the adjusted statistical methodology, the booming investment market has, to a certain extent, proved that economic growth is robust. India's unique growth prospects have made it one of the most attractive investment destinations in the global capital markets. According to data from the Indian Ministry of Commerce and Industry, foreign direct investment (FDI) inflows hit a record of $60.1 billion in 2016-17, up from $55.6 billion in the 2015-16 fiscal year. Amid global liquidity contraction and overall capital outflows from emerging markets, FDI inflows into India have maintained steady growth, reflecting global investors' confidence.

Even though foreign investment inflows accelerated, India's exports were weak during the same period, falling 1.29 percent in 2014-15 and 15.48 percent in 2015-16 and rising just 4.7 percent in 2016-17. This was partly due to a slowdown in global demand, but it also showed that industrialization still has a long way to go in India, and it will take time to achieve the ambitions of "Make in India" by using foreign investment.

Since Modi took office, the Sino-India economic and trade relationship has largely been a microcosm of India's overall economic performance. China's investment in India has increased rapidly, but India's exports have remained sluggish, and the country still has a large trade deficit with China. In 2016, bilateral trade amounted to $70.8 billion, a decline of 2.1 percent from the previous year. Meanwhile, India's trade deficit with China continued to rise, reaching a whopping $46.56 billion in 2016. After India curbed exporting raw materials like iron ore to China in 2012, it failed to find other export products suitable for the Chinese market, leading to further trade deficits. If India cannot adjust its industrial structure in a timely manner, then the closer its trade relationship with China becomes, the bigger the trade deficit with China will be, and that can easily be used as an excuse for promoting extreme nationalism by some political forces in India.

Compared with trade, investment is the biggest bright spot in Sino-India economic and trade relations in recent years.

Official statistics show that China is India's fastest-growing source of foreign capital, with a ranking jumping from 35 in 2011 to 28 in 2014 and 17 in 2016. The annual investment flow also increased from $102 million in 2011 to $1 billion in 2016. The data only covers investment moving directly from the Chinese mainland; in reality, a large amount of Chinese capital may flow into India through Hong Kong, Singapore, Mauritius and other offshore financial centers. Some investment experts estimate that the true size of Chinese investment in India may be three times the official figures.

But although Chinese investment in India has grown rapidly by value, it only accounted for just 0.5 percent of total foreign capital inflows into that country in 2016.

Interestingly, despite the limited proportion of Chinese investment in India, the exposure and impact of Chinese investment is much bigger. That is mainly because most Chinese-funded projects in India are involved in the smartphone, home appliance, mobile app, e-commerce, high-end real estate and other fields that are involved with daily living needs and that heavily use technology.

For instance, in order to meet the requirement for parts localization, Haier, Midea, TCL, Xiaomi and Huawei have all built production lines in India. According to data from IDC in May, Chinese smartphone makers shipped 51.4 percent of all smartphones shipped in India during the first quarter of 2017. Xiaomi, Vivo, Lenovo and Oppo held the second, third, fourth and fifth positions in terms of market share. Samsung occupied the top position.

The risks of investing in India should not be underestimated. In addition to the obvious risks of the business climate and industrial environment, Chinese companies should be aware of lurking dangers in overheating sectors, like consumer electronics and e-commerce, which may lead to homogenous competition. Moreover, changes in Sino-India relations may also have an impact on investment prospects.

The author is a researcher with the Pangoal Institution.


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