Sikkim standoff may derail business progress achieved in recent years

Doklam standoff: The investment exposure of Chinese companies in India over the last 17 years, which remains limited to a cumulative FDI inflow of $1.63 billion (Rs 10,094 crore) as on July 31, 2017, shows a notable rise in Chinese business interest over the last three years.

Written by Sandeep Singh , Sunny Verma | New Delhi | Updated: August 5, 2017 2:36 pm
doklam standoff, sikkim standoff, india china trade, india china relations, doklam standoff effect on trade, india china bilateral ties, business news, indian express news, indian express In terms of the number of Chinese companies entering India for business, the trend is positive.

Chinese business interests in India have seen sharp vacillations over the last five years, with FDI inflows from China continuing to be tepid even as investment into sector such as telecom hardware witnessed an uptick, alongside the rising trend of Chinese banks ramping up their exposure to Indian companies, particularly in the e-commerce sector. The recent escalation in the tension between India and China on the Sikkim border, however, could potentially derail whatever little momentum that is visible in the inbound investment trend.

The investment exposure of Chinese companies in India over the last 17 years, which remains limited to a cumulative FDI inflow of $1.63 billion (Rs 10,094 crore) as on July 31, 2017, shows a notable rise in Chinese business interest over the last three years.

The cumulative investment amount over the last three years has risen from a low of $410 million (Rs 2,242 crore) in May 2014 to $1.63 billion in end-July 2017, taking China up from being the 28th largest investor three years back to the 17th largest investor at the end of July 2017. Foreign tourist arrivals from China to India shows that the country has moved to number nine position in 2016 from number 11 in 2015, as the number of Chinese tourist arrivals grew 21.8 per cent year on year to a total of 2,51,313 in 2016. This also accounted for 2.85 per cent of the total foreign tourist arrival in the country.

In terms of the number of Chinese companies entering India for business, the trend is positive. While recent numbers are not available, data with Registrar of Companies shows that as of December 31, 2016 there were 53 Chinese companies registered with RoC and 47 of them were active. According to analysis company Tracxn, Chinese companies have invested about $2.37 billion dollars in Indian companies from 2016 till now, much of which has come from companies such as Alibaba, CTrip and Tencent into Indian online start-ups that include MakeMyTrip, Flipkart and Paytm.

The list of Chinese companies that have entered Indian market includes electronics and handset manufacturing companies such as ViVo, Oppo, Lenovo, Huawei Technologies and TCL. Earlier this year, Indian footwear firm Woodland tied up with China’s Aokang International to sell its products at the Chinese company’s multi-brand outlets. Under the arrangement, Woodland will offer Aokang shoes at its outlets in India and its online platform while Aokang, which has over 4,000 stores in China, will stock Woodland shoes at over 100 outlets.

On the trade side, the bilateral engagement is overwhelmingly weighed in favour of China, with India’s trade deficit standing at $51 billion in 2016-17, a marginal decline from the previous fiscal. Bilateral trade with China stands at $71.48 billion. A report prepared by CII indicates that the biggest import items from China to India are electrical items and machinery and they amount to $21.9 billion and $11.1 billion, respectively. On the other hand, the biggest export items from India to China are ores, slag and ash ($1.6 billion) and cotton ($1.34 billion).

Indian companies across IT and pharmaceutical sectors have been looking to expand their presence in India but face several challenges. The CII report points that the pharma companies face challenges on account of time consuming and expensive approval process and also on account of complex post-registration steps including pricing and provincial tendering. On the other hand the IT companies seek resolution on issues such as uniform approval process for opening representative offices across provinces, regulations to strictly deal with IP violations, totalisation agreement (to avoid double taxation) and they also want provision to grant visas for up to six months with multiple entry.

But China’s expansion has continued. Indian power and telecom companies have been buying equipment’s from Chinese manufacturers. Reliance Power and Reliance Communication were one of the first companies to go for Chinese funding. While RCom took a Rs 8,700-crore ($1.93 billion at the time) loan from China Development Bank in 2011 towards refinancing of spectrum fee and equipment import from Chinese vendors, in 2012, Chinese state banks agreed to lend $1.18 billion to Reliance Communications to repay overseas convertible bonds due for redemption in March 2012.

In 2012, Reliance Power also secured $1.1 billion financing from three Chinese banks for the Sasan ultra mega power projects. Lanco Infratech, also entered into an agreement with CDB for $2 billion of debt in 2012, for two power projects totaling 2,640 MW. In 2014, Indigo had entered into an agreement with ICBC for a $2.6 billion funding to finance purchase of over 30 aircraft.

Arvind Yelery, associate fellow, Institute of Chinese Studies said that China has changed its approach and strategy towards India several times over the last 15 years since they opened up in 2001. “While the overall engagement with India has increased over the last two decades, the principles of economic engagement have not been consistent. China first looked at India purely as a market for trade and dumped their products and then they started to invest in India between 2008 and 2012-13. Now, there has been a shift and with growing international trade ambitions they are looking for India’s support for their OBOR project,” said Yelery.

He, however, said that the Doklam issue should not be a big concern for Indian businesses. “It is the Chinese who should be worried. While Chinese are looking for mega projects in India (railways, power etc), they should know that if they do not have a consistent policy with India, other countries such as Japan, Korea and European countries will benefit,” said Yelery.

He further added that India has levied anti-dumping duty on 167 Chinese products — the highest in the world. The US, the EU and Brazil come at 2nd, 3rd and 4th spot, respectively, when it comes to levying anti dumping duty on Chinese products. “Two countries among the top four are members of BRICS and it shows the lack of trust on China even in a small group,” he said.

At the ground level, Indian businesses however, continue to buy cost-competitive Chinese machines and products. The tension at India-China border notwithstanding, Huaxia Amusement Co, that is setting up a three-storeyed ride in Omaxe Connaught Place Mall in Greater Noida, sent two workers to install the structure in the mall just three weeks ago and they will be in India for a maximum of 42 days. However, there seems to be some slowdown in the trade related development since the calls for boycotting Chinese products gained momentum around Diwali last year.

The mall, which had leased out 2 lakh sq ft area to Chinese traders to set up ‘Dragon Mart’ with around 110 shops in the mall, has seen slow progress on that front. While Omaxe and the Chinese traders entered into an in-principle agreement for the leased area, almost two years ago, there has been no visible progress on the ground. Even as an Omaxe executive claimed that things are “on track” and the company has recently signed the final agreement with the traders, a mall coordinator said that he hasn’t seen any activity over the last six months in the area leased by Chinese businesses.

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