India-China two-way business connect, investments key

It was at a conference session on ‘India China economic relations’ just the other day that one MP used this interesting phrase (Know China, Go China) to describe how a confident India should develop its economic relationship with our northern neighbour. That this conference was organised at the College of Defence Management itself speaks volumes of the new horizons that we as a country need to explore and benefit from.

For most Indians, China continues to be an enigma. We all know of China as the country from where goods are overflowing our markets as they are in other economies across the globe. However, there are both cultural and political concerns that remain.

To understand China, one must take a brief look at its history. We have all heard of the ‘Middle Kingdom’, as a reference to the Chinese Kingdom in the middle ages right up to modern times. This centralised insular kingdom transformed post-Communist revolution and under the leadership of Deng Xiao Ping into a strong China. 

Over the last decade, the country has significantly opened up to the world with the strategy to ensure centre stage for China. China’s global strategy is aimed at ensuring economic strength and even economic hegemony. With the bipolar world gone with the collapse of the Soviet Union, China has sought to compete with the US and yet integrate itself with the global economy by opening its economic frontiers. 

A historical analysis shows that while China ranked 11th in real GDP terms in 1981 as well as 1991, it is today the second largest economy and of course the largest in PPP terms. This phenomenal rise is matched with very large FDI inflows to China over the last two decades, constituting almost 8-10 per cent of global FDI inflows. 

Since the entry of China into WTO in 2001, China’s share in global exports has risen from less than 4 to more than 12 per cent by 2014. Today, China’s forex reserves stand at about US$ 3,900 billion as compared to $300-plus each in Brazil, India and Russia – the other BRICS economies.

Chinese missions are driven largely by commercial interests and at times take precedence over other political considerations. Besides being the largest exporting nation, China is also the second largest importer after the US. To sustain growth, China needs to de-risk itself by sourcing raw materials from countries around the world, ensure a strong domestic market, and adopt a measured move from manufacturing to services as the economy matures. 

So what should be the Indian strategy in this context? To understand this, we must first note that trade between India and China now overshadows all other facets of our relationship as of course a very high trade imbalance for India. The only real way to handle this imbalance is to ensure greater Chinese investment in India with Indian companies becoming part of the global supply chains of Chinese manufacturing. 

Chinese investments to India have been extremely low with just about US$ 890 million over the last 15 years but a noticeable spike has been observed in the investment over the last year with giants investing (or promising to invest) in India. In fact, of the total FDI equity inflows received from China in last 15 years, almost 55 per cent was received in 2014-15 itself.

Economic cooperationChinese President Xi Jinping who had visited India last year committed to an investment of $20 billion over the next five years and the desire to establish two dedicated industrial parks, one in Gujarat and one in Maharashtra. It is this economic cooperation that we have to pursue. 

In doing so, New Delhi must demand a better playing field for its exporters to overcome non-tariff barriers and legal and regulatory obstacles to ensure that Indian exports to China also grow along with the increasing Chinese goods entering India.  

It is in this context, that our negotiations on Regional Comprehensive Economic Partnership (RCEP) that includes Indian and China, too become important. This regional trade agreement that we have decided to be a part of is a response to the US led Trans Pacific Partnership (TPP) which has recently being agreed upon and which excludes both China and India. 

The RCEP is important to India to tap global markets and become part of global value chains. Despite recent hiccups in the Chinese growth story, with a dip in their exports despite devaluation of the Renminbi, it is probable that there will be major changes in the economic scenario but China will continue to be an important global player. 

China will continue to push its global initiatives of One Belt One Road as well as the Asian Infrastructure Investment Bank. India needs to see what benefits it can get in this strategy for greater economic connectivity including the proposed Bangladesh-China-India-Myanmar (BCIM) corridor. We also need to evaluate how to link our other connectivity initiatives, such as with Iran and Central Asia, with China’s proposed initiatives in the region.

Indian strategy must be mostly global as we are already on the world stage. It must, however, be both regional and bilateral simultaneously to promote business.

For this, India needs to diversify its export markets and push ‘Make in India’ – for the world, besides the Make in India – for India. India and China also have a lot of common issues to take coordinated stands on globally. Several sectors such as education, health and tourism on the one hand and energy, manufacturing and infrastructure on the other hand offer great potential for collaboration. 

China can play an important role in India in the sphere of infrastructure development particularly railways. Likewise, China can gain a lot from cooperation with India in manufacturing sectors like pharmaceutical and services like IT. The two-way business connect with added emphasis on investments will be the key driver of Indo-China co-operation and to do so we must ‘Know China – Go China’!

(The writer is Secretary General, Federation of Indian Chamber of Commerce and Industry, New Delhi)