Hindi Chini buy buy

Undoubtedly, the new century has been witness to the start of a degree of serious economic engagement across the Himalayas, coming in the wake of improved political ties. Bilateral trade has shot up from $5 billion in 2002 to an expected $12 billion by the end of this year. China has thus emerged as India’s number one trade partner in North East Asia, a position earlier held by Japan.

All the Indian IT heavyweights, including Satyam, Tata Consultancy Services, Infosys, Wipro and NIIT have installed themselves in China’s major cities. Pharmaceutical companies like Ranbaxy, Aurobindo Pharma, Dr Reddy’s Laboratories and Orchid Pharmaceuticals have also set up base here. Yet, Indian FDI into China this year was a measly $79 million, accounting for just over 0.1 per cent of total FDI in the mainland. This seeming lack of interest in China is in contrast to recent investment trends. According to the latest World Investment Report by Unctad, the UN trade body, India has emerged as one of the fastest growing sources of FDI among emerging economies. Total Indian outward FDI for 2003 stood at $5.1 billion, but only 0.9 per cent of this found its way to the Middle Kingdom.

One reason for this is that low costs of land and labour, the primary motivators attracting Western companies to China, do not hold the same appeal for India, where factors of production are similarly priced. Moreover, as Indian Ambassador to China Nalin Surie explains, ‘‘language problems, transparency issues, absence of an Investment Protection Agreement and a segmented market’’ also work against encouraging Indian investment in the mainland.

Car manufacturers like Tata Motors and Mahindra & Mahindra, for example, have been exploring the possibilities of penetrating the hot Chinese auto market to sell the Indica and Scorpio respectively. A new auto policy released by the Chinese government in June, however, has led to a long pause in these plans. According to the policy, a minimal investment of RMB 2 billion (US $240 million), of which RMB 800 million must be paid upfront, is required from anyone seeking to build a new car plant.

In a market like China’s where most industries remain heavily regulated or dominated by state-owned groups, it is often a struggle for foreign companies to expand. Orind Refractories have had operations in China’s Liaoning province since 1994 because the partnership between Chinese steel mills and their captive suppliers has proved impossible to break.

Even IT companies which benefit from an accepted brand value and positive image in China have not by and large been able to tap into the domestic market. Their China operations chiefly focus on servicing global multinational clients. Explains Prakash Menon, head of NIIT in China, ‘‘The domestic market is tough because the big orders go to American companies like IBM and HP or to domestic players the government wants to prop up.’’

Despite these hurdles the interest in China is slowly growing across the Himalayas. More than 100 commercial delegations have been exchanged so far between the two countries this year. According to the Indian Embassy, apart from IT and Pharma, Indian investments in tyre manufacturing, diamond jewellery and auto components are beginning to take off.

Auto components manufacturer Sundaram Fasteners became the first Indian manufacturing company to start operations in China, when it opened a plant with an initial investment of $5 million in Zhejiang province earlier this year. Over the next couple of years $12.5 million will be invested in the China plant. Suresh Krishna, Chairman and Managing Director of Sundaram Fasteners, is confident that despite the risks of being the first in waters hitherto unchartered by Indian manufacturing companies, the investments will pay off in the long term. ‘‘I am not nervous at all. Even if I lose, at least I would have tried. In any case, I won’t lose,’’ he smiles.

Says Surie, ‘‘The courtship (between India and China) has only just begun and economic ties must be viewed holistically rather than pegged to just one parameter like investment. Bilateral trade is growing rapidly and positively.’’

Indeed trade between India and China is galloping. The worry spot remains the composition of this trade. Ores, slag and ash comprise 57 per cent of Indian exports to China and much of the growth in trade figures is accounted for by Indian iron ore exports, which increased by 303 per cent in the last year. According to Surie the attempt to diversify India’s export basket is being taken seriously to ensure that the structure of trade is more sustainable than at present. He points out that apart from ore, exports of cotton yarn, chemicals and machinery to China have also shown good growth. Machinery exports for example grew by 122 per cent in the last year.

Sectors identified by the Embassy as potential growth areas include dairy products, machine tools, power and energy sector ancillaries and certain segments of apparel. The Made in India Show showcased products from some of these sectors. There was a fashion show with Indian models sashaying down a catwalk draped in Ritu Beri creations. Converting exhibitions and fashion shows into hard commercial deals however remains the real challenge for Indian industry.