Chinese Enterprises in India and Their Impact

In 2005, when China further opened up its economy, eased controls and metamorphosed into a market-led entity, India figured prominently on its investment radar. There began the saga of the most active phase of Chinese investment in India. Successive years down the line witnessed India-China bilateral trade soaring from as low as US$2.92 billion in 2000 to US$41.85 billion in 2008; and, by 2015, bilateral trade touched US$70.4 billion. While India’s exports to China amounted US$8.86 billion, China’s exports to India were to the tune of US$61.54 billion.

Clearly, China has set its sights on the big market that India offers for Chinese products. As on date, from almost all toys, computers and smartphone brands (such Haier, Lenovo, One Plus, Oppo or Xiaomi) to telecom equipment, China has made its presence felt in Indian households through these products.

For keeping up the pace of investment, a number of Chinese companies have entered India. In order to augment their businesses, they are shrewdly working on a strategy of employing local people, who are quite well versed with the country’s business rules. A case in point is Huawei Technologies Company Limited (India), where almost 90 percent of employees are Indians.

Those Chinese companies, which have gained a firm foothold in India, are gearing up their efforts to execute over US$60 billion worth of projects, according to one estimate. With Chinese companies facing poor prospects and shrinking opportunities at home, Chinese co-operation is expected to make a good impact in India’s high speed rail network, renewable energy sector, smart cities and, above all, the manufacturing sector.

There are no prizes for guessing that Chinese companies outstrip their Indian counterparts in technologies and performance cost, yet they are besieged by gigantic challenges in realizing sustainable strategies and outcomes in the Indian markets.

Their predicament may be explained thus: Whenever there is a surge in demand for Chinese products in India, the number of Chinese companies meeting the demands through sale of their products increases proportionately. The ensuing competition requires the companies to cut their margins. Consequently, Chinese companies find themselves in a piquant situation where they have to quit, invest more or create a manufacturing base in India. This dilemma is an outcome of their success in the market.

The impact of Chinese products in the Indian economy may be gauged by the fact that Indian manufacturers do not have adequate resources and resourcefulness to manufacture products on an equal footing with their Chinese counterparts. Indian products are not competitive against the Chinese either at home or in China. Thus, despite the trade imbalance, the government, which is committed to increasing bilateral trade, finds itself unable to curb the flood of low-priced goods supplied by China to India. At the same time, neither the government nor policy makers have been able to do anything that would trigger growth and demand in China for Indian goods and products, thereby helping Indian exporters.

That gives rise to the question of how India could, and should, then improve its chances of becoming a more favored destination for manufacturing and investment.

The answer is not far to see in a 1.28-billion-strong India, where the demographics make it an attractive market: the young, between 15 and 35 years, account for 35 percent of the population. Apart from being potential consumers, such a population profile can be expected to ensure sufficient labor supply over the next two decades.

Chiefly guided by advantages of the population and the work force, the government took the plunge to announce the “Make in India” program to draw investments from overseas companies. Under the scheme of things, the government has planned to set up large-scale manufacturing hubs countrywide to manufacture and export Indian products at very competitive rates.

As of now, it is quite difficult to predict the viability of the “Make in India” program. More so because Indian consumers are flocking to buy low-cost Chinese products such as electric and electronic gadgets, consumer items, machinery, capital goods and chemicals.

In this context, the impact of the slowdown in Chinese demand affecting our exports requires to be examined. Compared to what India imports from China, India’s range of exports to that country is less diverse. From the Indian side, raw cotton and cotton yarn, petroleum products, iron ore, granite, copper, metal products and some types of spices account for over 70 percent of our exports. If Chinese demand dwindles, resulting in lesser requirements of raw material, it is only natural that India’s exports to China will decrease. In fact, the fall in exports would be to such an extent that India will find itself unable to take advantage of the yuan devaluation for earning more dollars. This is borne out by the fact that India’s export to China went down by 19.5 percent to US$11.9 billion in 2014-15 from US$14.8 in the preceding year.

Recently, the Indian embassy in Beijing issued a trade advisory for dealing with Chinese firms in the wake of disputes.

According to the latest advisory, a checklist has been released of Chinese companies whose credentials are required to be run past the Indian embassy or consulates in China. In case of large transactions, it is recommended to consult a business service company, which could provide a report on the financial health, business transparency, reputation, reliability and credentials of the Chinese company.

Explaining the rationale for the advisory, policymakers at the helm said that “the advisory is meant to enhance commercial cooperation between India and China by drawing attention to some of the risks faced by Indian companies.” The Chinese are not complaining about the advisory as they do not want a few bad eggs in their country to bring the larger business community into disrepute.

In fact, some of the companies engaged in supply of Chinese products to India feel that the slowdown in the Chinese economy for the last two years has opened a window of opportunity for Chinese entrepreneurs in India, says Mr Rajendra Jain, Director of Micro, Small and Medium Chamber of Commerce. Jain also feels that the Make in India endeavor initiated by the government of Prime Minister Narendra Modi has generated a huge enthusiasm among the community of Chinese entrepreneurs: they feel that this is the appropriate time to enter the Indian manufacturing market especially in sectors such as automobile, machinery, shoes, textile technology, mobile handset and electronic items – all of which have a huge demand in the vast Indian market. The immediate effect of the Make in India program would be to discourage some of the imports from China. At the same time, it would encourage Chinese entrepreneurs who are resilient enough to take the advantage of the opportunity to visit India and explore the possibilities of setting up their own industrial (manufacturing) ventures.

India has learned a lot from the success stories of Chinese manufacturing industries, especially the concept of China’s Special Industrial Zones. Therefore, Chinese businessmen are not surprised that a huge Chinese industrial township, comprising 4,000 acres, has been set up in Neemrana, which falls under Sonipat District of Haryana state and is near Delhi. This township has been set up by the Chinese real estate giant, the Wanda Group. Despite issues like border dispute, the entrepreneurs of both countries are keen on increasing the number of joint ventures, which seem to be catching on.

There are reports that many Indian state governments are in touch with Chinese entrepreneurs and the government in China to get them to invest capital in their respective states for generating employment and increasing industrial production. Experts feel that despite welcoming the Chinese entrepreneurship with open arms, there still exist problems with the lethargic and slow style of functioning of the Indian bureaucracy and government system. Chinese entrepreneurs are facing a crisis of getting skilled labor and obstacles to acquiring cheap land and the necessary infrastructure facilities. Indian entrepreneurs learned a lot from Chinese business leaders regarding application of technology, hard work, quality production and time-bound commitment to deliver the finished product. Yet Chinese entrepreneurs feel that although digital India is changing the old style of functioning of Indian official machinery, there remain a series of difficulties for execution of industrial projects. Corporate observers feel that there is still a lot left to be done for ease of doing business in India especially as acquisition of land and getting allotment of industrial land remain difficult tasks in many of the states in India. Labor laws are cited as another problem, and this is a matter of concern because of the resistance of the labor unions and government departments in many Indian states.

The new consumers and buyers in India have become very conscious about the quality of the products. Keeping in mind the requirements of the better informed and educated young generation in India, the Chinese entrepreneurs are compelled to be more sensitive towards the quality demands of the market. The online shopping culture of the urban India is also posing a challenge to Chinese enterprises (and their counterparts in India, too) to maintain the quality and durability of the products.

The government of India is also conscious about the Chinese desire to make India a fruitful investment destination in the coming years. Chinese President Xi Jinping and Prime Minister Modi have discussed the roadmap of investment in detail. China has promised a US$20 billion investment in India. The controversial advisory regarding Indian security concerns has created an unusual debate. However, this is a temporary setback to the flow of investment from China. In recent months, India’s Ministry of Home Affairs has responded more than adequately to clear the clouds of security issues relating to Chinese products.

Experts in India feel that the Indian government’s advisories on Chinese products since 2013 had initially created a deficit of confidence in bilateral business relationship in various sectors. However, now the government of India, particularly, the Ministry of Home Affairs and the Ministry of Commerce, seem to be more sensitive on the advisory front, liberal in the application of rules and generous in approving security-related issues on Chinese products.

Economists and seasoned observers of India-China relations especially in the matter of business feel that this is the right time to speed up and strengthen bilateral ties between the two countries to broaden the map of entrepreneurship in joint ventures.

The author, a senior journalist based in New Delhi, is former Chief of National Bureau of the daily Hindustan.