50% cut in Chinese FDI poses bleak prospect for Indian economy

By Chu Daye and Ma Jingjing Source:Global Times Published: 2020/6/30 19:43:40

A man walks past an advertisement of Chinese mobile phone maker VIVO, in Mumbai on June 22. Photo:AFP

Double blows from the COVID-19 pandemic and hostility of the Indian government may turn 2020 into a turning point for Chinese investment to India, according to a Global Times survey of experts on China-India economic and trade relations.

All experts surveyed by the Global Times predicted Chinese overseas direct investment (ODI) into India will drop "sharply" in 2020, with two experts forecasting a more than 50 percent cut. Globally, foreign direct investment is already expected to shrink by 40 percent in 2020, according to a UN report released in June.

Experts said the bleak prospect is a warning sign for the Indian government, which sees its economy running out of steam and could have counted on investment from China if Chinese investors' confidence had not been shattered. 

China has become a significant FDI source for India in recent years, with some estimates pointing to investments totaling $10 billion from 2017 to 2019.

Qian Feng, director of the research department of the National Strategy Institute at Tsinghua University in Beijing, said that while investment from China steadily increased in the past few years, 2020 will not only see a 50 percent decline in Chinese investment but a turning point in bilateral economic and trade relations.

"Bad feelings go both ways, and the chance for China-India relationship to pick up in short-term is slim. Chinese investors are on the edge with risk-aversion instinct kicking in," Qian told the Global Times.

Since the deadly clash between Chinese and Indian troops in the Galwan Valley on June 15, hyper-nationalism has risen in India where calls for boycotting Chinese products and footage of Indian citizens destroying TV sets have been seen on social media. India's new investment regulation in April, which some claim is a thinly veiled policy to thwart Chinese investment in India, has also worsened ties, experts said.

Dai Yonghong, director of Institute of Bay of Bengal Studies with Shenzhen University, declared that age-old economic populism, unconstrained and unchecked by India's elite class, has simply made India an unfit destination for additional investment from China.

A sudden contraction of Chinese investment will affect India, experts pointed out, in contrast with Indian media outlets downplaying the role of Chinese capital.

Declining investment from China would further add pressure to the Indian economy, which is facing heavy growth pressure amid a severe domestic COVID-19 outbreak, Lou Chunhao, deputy director of the Institute of South Asian Studies at the China Institutes of Contemporary International Relations, told the Global Times.

"Raising thresholds or rejecting investment from Chinese companies will drop the rock on India's own feet," he said.

As India risks becoming the next epicenter of the pandemic, with more than 540,000 confirmed cases as of Sunday, its value as a viable investment destination also vaporized, analysts said.

In the IMF's latest world economic outlook released last week, India's 2020 growth projection was revised down 6.4 percentage points, from positive growth of 1.9 percent to a negative growth of 4.5 percent. The world's fifth largest economy is heading toward its first recession since 1979.

The June forecast is in marked difference with that of April's, in which India was believed to have a slightly faster growth rate for the year than China.

Liu Xiaoxue, an associate research fellow at the Chinese Academy of Social Sciences' National Institute of International Strategy, said it is economic situations that ultimately determine the flow of investment and the sudden rise in uncertainty in India would have a decisive consequence.

"The impact on the inflows of new FDI in 2020 will be dependent on the Indian government's investment approval process and the criteria that will be used to make the decisions on whether to approve new investments," said Rajiv Biswas, APAC chief economist with IHS Markit.

A key risk factor is how long the Indian economy could be hit by the impact of the pandemic and whether India's economic growth rate may be sub-par over the next three or four years, Biswas said.

Posted in: IN-DEPTH

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