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Warming of Sino-India economic ties

Sino, India, China, New Delhi, Pangong lake

Economy

Warming of Sino-India economic ties

The Sino-India economic and trade relations are warming up as military tensions between the two nations ease at the disputed border. According to the latest report from Reuters, Indian government is set to approve some greenfield investment proposals and it will also look to clear some brownfield projects which are considered non-sensitive in terms of national security after the first round of clearance to new investments. Besides, New Delhi is also considering allowing investments from Chinese companies through “Automated Approval Process” or without scrutiny from governments in certain areas. In this round of clearance to Chinese investments, labor-intensive industries such as mobile phone manufacturing and new energy companies will be priorities for the Indian government. Writes Lu Yang

Based on the important consensus reached in the ninth round of Corps Commander-level talks between China and India, the front line troops of two countries started disengagement in a synchronized and organized way from both sides of the Pangong lake area on Feb 10. By Feb 19, India and China had already completed the pullback in Pangong lake area and the disengagement in other disputed areas will be further discussed in the following high-level military talks.

The Sino-India economic and trade relations are warming up as military tensions between the two nations ease at the disputed border. According to the latest report from Reuters, Indian government is set to approve some greenfield investment proposals and it will also look to clear some brownfield projects which are considered non-sensitive in terms of national security after the first round of clearance to new investments. Besides, New Delhi is also considering allowing investments from Chinese companies through “Automated Approval Process” or without scrutiny from governments in certain areas. In this round of clearance to Chinese investments, labor-intensive industries such as mobile phone manufacturing and new energy companies will be priorities for the Indian government.

In 2020, at the peak of the tensions, India implemented various policies specifically targeting China including preventing Chinese firms from participating in governmental tenders under the pretext of national security and banning dozens of Chinese apps. These changes in rules of foreign investment slowed down Chinese capital flows and about 150 investment proposals from China that worth more than $2 billion were stuck in the pipeline, severely harming the interests of Chinese companies in India.

Compared to the 2017 Doklam standoff, however, the recovery of Sino-Indian relations will take longer due to the first combat death in 45 years. First, the deaths and injuries of soldiers on the Indian side were reported and exaggerated by the media in the first place, stoked the fire of Indian nationalist sentiment, limiting the scoop of efforts in Sino-India relations that New Delhi takes.

Second, there is no easy short-term solution to the border dispute between China and India. It must be noted that irrespective of Chinese low-profile reaction, Beijing is taking a harder line toward the border dispute due to the rising Indian nationalist sentiment. The confrontation on the border from time to time might become the normal part of Sino-Indian relations and the consequent security risks must be taken into account for Chinese investors in India even though stressful situations is not that irresistible.

Third, moving forward on defense and security with the US while approaching China for economic considerations is a visible trend since Modi came to power. The global pandemic as well as border conflicts have affected this trend to a certain extent. The Sino-Indian economic relation has deeply suffered as the warming of US-India partnership has not brought more economic benefits to India. Instead, the present situation damaged the interests of Indian consumers. Since the recovery of economy and job-creation will be the focus of Indian government, New Delhi will not rule out the possibility of reinforcing economic ties with China in the future.

Fourth, labor intensive industries in China will be relocated abroad due to the industrial upgrading, the rising labor costs and the increasingly aging problem. On the contrary, India is still keeping its attractiveness to international investors with the population of more than 1 billion and young workforce.

In short, Chinese investors need to pursue prudent and step-by-step policies if they want to enter Indian market. It is advisable to organize plentiful market research and risk assessments, to get familiar enough for local regulations that targeting and limiting Chinese firms out of national security considerations, and to verify the legality of type of business under the framework of Indian government. In addition, finding suitable business partners locally serves as another crucial method for Chinese companies in India to reduce political and security risks. With the easing of tensions on border if some delayed Chinese investment proposals can get smooth approval and these projects could be carried on without further complication and barriers from the Indian government, in the course of time this would give good signs to Chinese business community and confidence of Chinese investors in Indian market will come back.

The author is a research fellow at Institute of the Belt and Road Initiative, Tsinghua University.

Blitz’s Editorial Board is not responsible for the stories published under this byline. This includes editorials, news stories, letters to the editor, and multimedia features on WeeklyBlitz.net

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