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India Business Relations Robust Despite Border Hype

By Dezan Shira & Associates
Posted: 25th September 2017 08:41
Less than three months after a border standoff began at Doklam, China and India agreed to de-escalate the situation in favor of talks and military disengagement.
The standoff caused some strain in bilateral trade and business relations. Yet, eventually, economic and commercial interests trumped geopolitical concerns, leading to the relatively swift resolution of border tensions.
Indeed, a week after the disengagement, India’s Prime Minister Narendra Modi attended the ninth BRICS Summit in Xiamen, and met separately with Chinese President Xi Jinping for bilateral talks.
Chinese exports to India surge in upscale segments
China is India’s largest trade partner, though the balance is heavily in favor of China. In 2016-17, China’s goods exports to India valued at a whopping US$61.3 billion against India’s shipments worth US$10.2 billion
Chinese goods dominate India’s homes, marketplaces, and factories. India imports a wide range of high-value added goods from China: mobile phonesand electronic equipmentto solar modulesand machinery parts, besides cheap and mass manufactured items.

Meanwhile, India exports mainly raw materials like cotton, ore, slag and ash, mineral fuels, organic chemicals, as well as copper and related articles. China’s trade restrictions may have something to do with this – Indian agricultural and pharmaceutical products, for instance, are prevented from reaching the country.

On the other hand, China wants India to remove its anti-dumping duty on 93 products covering broad groups of chemicals and petrochemicals, products of steel and other metals, fibers and yarn, machinery items, plastic items, and electronic items, among others.

China’s investments into India are diversifying

China’s investment pattern in India is changing. After years of sluggish growth, the pace of outbound investments from China has quickened.

Take a look at the numbers: foreign direct investment (FDI) from mainland China into India totaled US$1.55 billion between April 2000 and December 2016 – 77.9 percent of this came after 2014, according to the Indian government.

Between June and August 2016, Chinese firms and investors pumped in approximately US$2.3 billion into India – targeting technology startups and the electronics manufacturing sector.

This in itself is a break away from China’s outbound investment patterns in other Asian markets, where infrastructure and extractive industries have dominated spending.

Economists explain this trend as a gradual shift from strategic to financial equity returns-focused investments. Chinese investors and industry leaders feel that India is where their country was ten years ago, and aim to replicate their homegrown successes.

Over the past year, new Chinese venture capital (VC) firms – including K2VC, Ping An Ventures, and Legend Capital – have visited India to scout for the next great idea.

As such, Chinese investors have paid special attention to India’s digital ecosystem, especially its technology startups, and have invested hundreds of millions of dollars in the e-commerce, online payments, healthcare, and communication media sectors.

For instance, Alibaba, China’s largest e-commerce company and its affiliates own 40 percent stake in India’s largest digital payments company – Paytm. Alibaba plans to raise it to 62 percent.