Need to monitor Chinas role in Indian ecosystem – The Tribune India

Sushma Ramachandran

Senior Financial Journalist

Every crisis has its silver lining. In Indias case, the Covid pandemic is likely to have several positive outcomes. One will be the upgrading of the creaky infrastructure in healthcare that has for decades lagged behind not just developed countries, but also other emerging economies. The second is the evolution of policies that could benefit the previously invisible migrant workers who fortunately are suddenly at the forefront of our consciousness. And the last is probably going to be a much greater sensitivity and awareness about the insidious entry of Chinese investors into large segments of the economy, especially the sunrise sectors. And this, in turn, could ensure that some barriers are raised to make sure that the Indian ecosystem is given adequate protection.

A first step was taken when the government issued a notification ensuring that foreign direct investment from China will not be allowed through the automatic route and will need specific approvals. Judging by media reports, a similar roadblock may be placed for foreign portfolio investments to ensure that Chinese entities do not go for this option to avoid seeking government approvals. Currently, the share prices of many corporates have fallen and there could potentially be attempts to take over some institutions. The question, of course, is whether such safeguards are really needed or is it merely a case of conspiracy theorists working overtime without any basis. It could be that there is an ultra sensitivity to China due to the animosity for that country engendered by the Covid-19 virus that has created havoc worldwide. To some extent, this is probably true.

At the same time, there are areas of concern such as the recent hike in investment from 0.8 to 1.01 per cent stake by the Peoples Bank of China in HDFC, the promoter of HDFC Bank. By itself, this should not have warranted much comment. But it did ring alarm bells, given the situation all over the world where Chinese companies have been investing aggressively in recent times.

To get a better sense of the scenario, one needs to review the entire gamut of Chinas investments in India and related issues. The first relates to inter-linkages with China in many sectors which created serious supply chain problems in the early days of the pandemic. The supply crisis was even more acute in nations that have closer supply chain ties with that country. A bit of decoupling is thus inevitable and essential to prevent economic distress in future for the Indian industry.

Secondly, fears have been rising about the increasing appetite of Chinese investors for acquiring controlling stakes in companies all over the world. So, Indias decision to put curbs on FDI flows from China is in line with the global trends. Spain, Germany, Italy, Australia and Japan are among the countries that have already clamped down on such investments, having clearly recognised that there is a potential threat.

As for Chinas presence here, data with industry chamber CII shows that it has invested $27 billion into this country over the past 13 years covering a wide range of industries, from auto components to consumer electronics. It is estimated that about 800 Chinese companies are registered here, though much less actually have manufacturing facilities. It is in the start-up sector, however, that China has the biggest role, with venture capital from that country supporting some of the most well-known Indian unicorns, including Paytm, Ola, Big Basket, Byjus and Swiggy, to name a few.

In this context, a recent study on Chinese investments in India by the think tank, Gateway House, is illuminating. It says 18 out of Indias 30 unicorns are funded by Chinese internet giants like Alibaba, Tencent, Fuson and Didi Chuxing. The rapid rise of Chinese investments in the Indian start-up space is corroborated by Tracxn, a global start-up tracking agency which estimates that these grew from $668 million in 2016 to $5.6 billion in 2018. This is a remarkable spurt over just a two-year period.

The Gateway House study also points out that the actual quantum of foreign direct investment by China is not very high, but is in high-tech areas that could have a serious impact on issues such as data control and privacy. Given that most large Chinese companies have their own ecosystems such as online markets and payment gateways, it argues that they could advise the start-up venture to use the pre-existing Chinese solutions for its tech requirements. This, in turn, could lead to loss of control over data and create privacy issues for Indians using these apps.

In other words, the threat posed by China to the Indian economy is not just a figment of imagination. It does not mean that existing trade and economic ties should be pared down. But it does mean that a more nuanced and watchful approach needs to be taken for both Chinese investments and trade. On the FDI side, it is not one of the bigger players as the total investment is reported to have touched $8 billion. However, it has entered into strategic and sensitive areas like artificial intelligence and the internet of things. Investments are also being made through companies based in Singapore, which technically are not considered Chinese investments. It is, thus, imperative to keep a close eye on such indirect inflows.

Similarly, bilateral trade needs to be placed under greater scrutiny. Several anti-dumping cases have already been lodged with the World Trade Organisation (WTO), though more aggressive measures need to be taken as overly cheap products are being supplied in many sectors. Quality issues also need to be red-flagged, given the recent controversy over PPE kits supplied to many countries as well as the reported ineffectiveness of antibody tests sent to this country.

Thus, it is clear that the role of China in the Indian ecosystem needs to be monitored on a regular basis. Like with any other country, India needs to ensure that the bilateral relationship is not skewed in favour of the other side. A little more caution is the need of the hour.

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Need to monitor Chinas role in Indian ecosystem - The Tribune India

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