As the Indian side stood up to it, China began a backdoor entry into the Indian market through what seemed like the first salvo of potential ‘hostile take-overs’. This boomeranged on Beijing. China’s latest, ill-advised move to gradually increase its stakes in one of the largest financial institutions of India, the Housing Development Finance Corporation, was met with stiff Indian opposition last week.
The nearly two decades of China’s pressure to bend India have failed. Invoking the 1988 “pathbreaking” visit by the then Prime Minister Rajiv Gandhi to Beijing that led to putting the territorial dispute on the backburner and expanding bilateral relations in other fields, including in the economic, China intended to influence India.
To an extent, it was successful in the trade surpluses. Bilateral trade increased from $200 million in the early 1990s to last year’s $92 billion. The devil, however, is in the detail. In the last decade, while trade increased, bilateral accumulated trade deficit increased to an unsustainable $650 billion in favour of China. The trade deficit in favour of Beijing in 2019 alone was $56 billion. New Delhi’s suggestions for course correction fell on deaf ears in Beijing.
To overcome the trade deficits, since 2010, India has suggested that China should import more from the Indian market; it should open up its market for Indian goods and services following World Trade Organisation regulations; cut down non-tariff barriers on Indian products; invest in the Indian market and make efforts jointly to re-export to third markets. China ignored all these warnings and continued to build trade surpluses, not just with India but with other countries as well. China’s intransigence in addressing this led to the 17-month debilitating trade war with the United States.
Not only did China not open up its market to Indian pharmaceutical and software companies, it began putting up restrictions. While the Indian government laid out a roadmap for infrastructure development worth over a trillion dollars and expanding the manufacturing sector’s share of GDP from 14% to 29%, China’s response was lukewarm.
During President Xi Jinping’s visit to India in September 2014, it was stated that China would be involved in two manufacturing zones in Ahmedabad and Pune, besides investing about $20 billion in India in the next five years. Prime Minister Modi’s visit next year to Beijing and Shanghai yielded commitments from China of over $32 billion in investment. None of this came about, even as the trade deficit mounted.
China’s total investments in India so far is stated to be $8.2 billion, for a country that is rising with growth rates between 6-8% a year. On the other hand, China made $62 billion in commitments in the turbulent and economically weak Pakistan as a part of the China-Pakistan Economic Corridor passing through Indian-claimed Kashmir.
Clearly, things are boiling between India and China and even the two “informal summit meetings” could not change China’s obstinate position. On the other hand, China began exerting pressure on India to open up the market through a decade-long proposal for a free trade agreement, regional trade agreement and the recent Regional Comprehensive Economic Partnership agreement. India refused as it received no reciprocal gestures from Beijing.
The recent Ministry of Commerce and Industry’s decision to block any “opportunistic takeover” of Indian firms was triggered in the general backdrop of the above assessments but also to the recent perceptible increases in “hot money” pouring in from Beijing in India’s start-ups and fin-tech companies. Fresh from the Doklam crisis in 2017, India clearly is taking defensive measures to protect itself from China’s onslaught globally and regionally. The recent German decision to curb China’s hostile takeover of its companies citing the worldwide economic uncertainty is a pointer to the future global responses to an assertive China.