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India Emerges As Battleground For Chinese And Japanese Investment – Analysis


China is emerging in the new horizon of big ticket investors in India, albeit security concerns. In 2015, Chinese investment in India leapfrogged eight times and became the eighth biggest foreign investor in India. The sudden spurt in Chinese investment affirms Chinese confidence in the growth cycle of India, fueled by low cost and high domestic demand. According to the CEO of CITI group of India, “ India is among the top five markets for many MNCs”.

Japanese investment has already made inroads in India. In 2015, Japan was the fifth biggest foreign investor in India. The gung-ho Chinese investment in India portends to be  a future driver of foreign investment. In 2015, China reached half  of that of Japanese investment in India, as compared to six times lower in 2014. The Chinese investment binge has woken up Indian Government to perceive the Chinese muscle of investment and prodded to balance between investment flow and the security concerns, since FDI turns instrumental to Make in India. India has mulled a relaxation of visa rules and considered withdrawing China from the list of PRC ( Prior Referral Category).

With Modi-Xi Jinping relations entering into hobnob realm, Chinese investors plunged in India with mega investment proposals. During 2016, Chinese companies proposed US $2.3 billion worth of investment in the country. The proposals included the acquisition of an 86 percent stake, worth US $1.4 billion, by Shanghai Fosun Pharmaceutical Co in Hyderabad Grand Pharma Ltd, Beiiing Miteno Communication Technology ‘s investment of US$900 million in, Jiangsu Longzhe’s investment of US$125 million in Diamond Power Infrastructure and Tidfore Equipment’s investment of US$150 million in Uttam Galva Metal Works.

In mobile manufacturing, China has already made a strong footprint in India. More than half a dozen mobile manufacturing companies are from China. Just before Chinese telecom giant Huawai’s announcement of shifting its plant to India, Xiami revealed a plan to set up two manufacturing plants in the country. Upstart brands like Goinee, LeECo, Oppo, Vivo, Meizu, One Plus and Coolpad have also announced their facilities in the country.

Given the Chinese investment binge and it being an active member of BRICS, China is projected as a major foreign investor in India. The upswing in the Chinese rank in the investment may pose a challenge to the Japanese investors.

India’s potency snowballed after China lost its vigor as the low cost workshop of the world. According to FDI Intelligence, an outfit of Financial Times UK, India replaced China as the leading recipient of FDI in Greenfield projects in 2015. FDI in India increased by 37 percent in 2015 and surged further by 18 percent in 2016, bringing cumulative growth of over 50 percent. This revealed India’s strength in attracting FDI amidst global currency turmoil and withering of trade blocks, with Brexit in the offing.

In 2015, Chinese direct investment in India soared to US$869 million, a six time growth compared to 2014 and double the accumulated investment in the past 15 years. According to Vice-Director of International Studies of Zhongnam University of Economics and Law, Mr Luo Xuan, a number of Chinese companies plan to invest in India. It has become a trend for Chinese investors to travel to India in groups to explore investment possibilities, according to the Vice Director.

Responding to the Chinese reinvention of India as an important investment destination, Indian think tank NITI Aayug renewed interests in attracting Chinese investment, despite the security concern prevails. Underpinning the concern over a large trade deficit, close to US $53 billion — which alone accounts for almost half of India’s global trade deficit — Indian honchos assert that India cannot forever remain a Chinese market without broader economic ties. Both NITI Aayug and the National and Reform Commission of China entered several agreements of economic cooperation in November 2016, embracing energy, urban development, Digital India, Internet Plus, as well as greater access to Indian IT firms in China.

On the Japanese side, there was a turnaround in the Japanese zeal to invest in India. Nullifying the previous sullied image, Japanese investors underwent a new look towards India. The green shoots are visible. Japanese investment soared five times in 2016 – from US $1.7 billion in 2015 to US$5.8 billion in 2016.

Seventy percent of Japanese investors, who opened their shops in India are expected to expand their operations in next few years, according to a survey by JETRO ( JETRO Survey on Business of Japanese Companies in Asia and Oceana). The ratio of Japanese business expansion plan in India is the highest among the Japanese investors in Asia and Oceania.

The sustainable growth in the Indian economy, a continuous flow of deregulations and an increase in sales attributed to the turnaround in the Japanese interest to invest in India. A cross analysis of Japanese and Chinese investment in India reveals that both are on the same planks in terms of areas of investment and the factors attributing to their overseas investment. During 2000 to 2015, the biggest investment by Japanese was in drugs and pharmaceuticals, followed by automobile. Nearly 23 percent of Japanese investment were flowed into drugs and pharmaceuticals and 18 percent in automobiles. However, while the investment in drugs and pharmaceutical was mainly due to a mega investment by one company, Daiichi Sankyo Co, Japan, investment in the automobile sector was widespread.

If Shanghai Fosun Pharmaceutical Co’s mega acquisition of Hyderabad Grand Pharma Ltd fructify, it may pose a big challenge to the Japanese investment in Indian drugs and pharmaceutical. Similarly, the big investment by SAIC General Motors Investment Ltd of China in 2015 will bring challenges to the Japanese automobile industry and TBEA Shenyang Transformer Group’s entry in India will bring more Chinese electric equipment manufacturing companies to India, throwing challenges to Japanese electrical equipment manufacturers in India.

Currently, China Railway Corporation (CRC) is carrying out feasibility studies of high speed trains between the Chennai – New Delhi route. It will be no wonder if China can grab the construction deal of the longest route of high speed train and could pose a major challenge to Japan hegemony in the high speed train field. China has already proven its capability after winning the Jakarta – Bandung 150 km high speed rail project against stiff competition from Japan. Both China and Japan carried out comprehensive studies of the project.

Given the Chinese bent to invest in India in the wake of the rise in Chinese currency yuan and the attraction of a big domestic market with low cost production, Chinese investment should warrant a wake-up call to Japanese investors in India

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Subrata Majumder

Subrata Majumder is an adviser to Japan External Trade Organization (JETRO), New Delhi, and the author of “Exporting to Japan,” as well as various articles in Indian media, including Business Line, Echo of India, Indian Press Agency, and foreign media, such as Asia Times online and Eurasia Review .

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