The news reports that Chinese companies are betting big on India and rolling out plans for funnelling in foreign direct investments of $5-10 billion is good news. This is a major improvement as the FDI by Chinese companies into India during the last decade and a half was less than $ 1.5 billion.

 

Not only will it help Indian and Chinese companies to reap synergies but also help restore some semblance of balance in the highly imbalanced economic relations between the two Asian neighbours. The Chinese foray are especially encouraging as it includes big players like its largest real estate developer and largest car maker apart from the other medium and small companies and high net worth individuals.

 

What makes this move even more attractive is that cash rich Chinese companies are also pouring in money into start-ups and in major service providers. This is will help Chinese companies to take advantage of the huge potential of India’s talent in information technology while at the same time providing the much needed cash flows that the Indian start-ups need to scale up their operations to a global scale.

 

The new Chinese investments into India is very different from the earlier years when the Chinese companies were focussed more  on infrastructure projects like power, ports, transport and other sectors many of which ran into hurdles because of strategic concerns and also because of questions regarding the quality of the Chinese equipment.

 

However, the entry of new Chinese companies into India is also in line with the Chinese strategy of rebalancing its economy by shifting from investments and exports to consumption and services sector. China would like to tap into its huge surplus capital, which has already made China one of the largest global investors, and utilise the potential of the skilled workforce and rising labour supply in countries like India to partially relocate production and counter the decelerating numbers joining the Chinese work force and the rising Chinese wages.

 

The growth of Chinese investments in India is a welcome change for India which has been struggling with the growing imbalance in trade relations between the two countries. Though India-China trade has gone up ten-fold from $ 5 to $ 72 billion in the last ten years the growth has been uneven with India’s trade deficit with China going up to $ 48 billion last year.

 

The new investment forays of the Chinese companies can boost the Chinese FDI flows into India in the same trajectory of the trade relations. This would not only help reduce the impact of imbalance in the trade but also help India to expand its exports of services into China, especially in information technology where a large segment of the Chinese financed start-ups are concentrated. Services exports will also get a boost because a growing share of the manufactured products has more and more software embedded in them.

 

It is gladdening that the spurt in Chinese investments into India happened in 2015 which was designated as ‘visit India year in China’. Hopefully, 2016, which is designated as ‘visit China year in India’ will also see a reverse flow with more and more Indian companies, especially in the service sectors like information technology, making more substantial inroads into China to tap the full potential of the Chinese markets and build more balanced relations between the giant Asian neighbours in the long run.Source: Economic Times 

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