Blasé Capital welcome to  china

Now that India has inked two mega trade deals (call them father, mother, or uncle) with the US and European Union, amid claims of paybacks and profits, and counters of controversies and criticism, it is time to focus on China, and woo Chinese investments. During the trade disruption with Uncle Sam, the elephant decided to shake hands, albeit gingerly, with the dragon. Now, according to media reports, it is time to take a few more concrete steps forward. The much-debated Press Note 3, which was introduced in April 2020 during the pandemic period, and made official approval mandatory for investments from nations that share a land border with India, was aimed to restrict, even stall and ban, the inflow of Chinese money. According to some officials, it is time to somewhat dilute the provisions of Press Note 3. India will not do away with it. It will open the valve to allow small amounts.

One of the mechanisms is to introduce a de-minimis limit (lower thresholds or exemptions) to allow automatic approvals (and not mandatory ones) for small investments. According to a media report, an official said, “We are examining whether there could be any openings to make it faster and easier to get a yes or no on (China’s) investments into India. We are examining whether we could have any de-minimis to permit larger funds that have some small element which has come to our attention.” While this may exempt low-value and low-stake inflows from the stringent requirements, Press Note 3 will remain in place to act as a strong guardrail against critical, strategic, or sensitive investments. One is not sure how this will work in practice. But the fact remains that there are growing demands to ease the regulations from specific sections within the local business community.

Recently, the electronics sector argued that Indian firms need the freedom and flexibility to form joint ventures with the Chinese. In such cases, the foreign investment can be capped at 26 per cent of the equity, which will make the partners only minority shareholders. For the interested Chinese firms, the stake will provide them with enough powers to have a say in crucial decisions, as per the Companies Act. In this sector, despite claims of huge local manufacturing potential, and grand investment plans, the upstream is controlled by China. It is one of the major suppliers for components, tooling equipment, and process engineering. Indeed, most of the critical components for the much-touted ‘Made-in-India’ Apple iPhones are imported from China. Indian industry desperately desires Chinese capital and knowhow, even as it realises the need to “ring-fence strategic control” in ventures. Hence, the focus on “measured easing,” and not “wholesale liberalisation.”

Although Press Note 3 has not been tinkered with, some Indian firms possibly feel that this will happen soon, with when and not if mindset. They have, as per media reports, finalised operational, commercial, even financial, agreements, and await formal approvals. This is especially so in cases where minority stakes by the foreigners are involved, and where the inflows are small and incremental. In many cases, the existing ventures, where Chinese investments were cleared, need follow-on or incremental capital, which is stuck in the elaborate, fearful, and apprehensive bureaucratic red tape. The de-minimis rule may help remove the obstacles and bottlenecks for small, low-risk investments, and keep the national security concerns intact. However, some experts argue that a lot of water has flowed under the India-China security bridge since 2020. Given the new geopolitical realities, where neither New Delhi nor Beijing can be aggressive adversaries, despite the trade deals with the US, Press Note 3 has lost its relevance.

In the recent past, several economists have voiced opposition against it. One of them argued that inflow of Chinese capital is more useful and beneficial compared to tariff barriers on Chinese goods. In any case, despite the calls for self-reliance and ban on Chinese goods, actual bans on Chinese apps, and higher duties in some segments, imports from China have grown substantially. The trade surplus rose with China having a huge edge. Some sectors like pharma and electronics, and possibly power, are completely or largely dependent on imports. Chinese capital, contend other experts, can boost Indian manufacturing which, over the years, can reduce imports. As the economist quoted earlier explained, tariffs offer protection in the short-term, and capital inflows create assets for the long term. What India needs is to build local capacities, and not shift sources of imports, say, from China to other nations. In the past, some think tanks argued that a substantial portion of Chinese imports can be sourced from friendly nations.

At the end of day, the trick is to master the strategic needs of the global supply chains and logistics. India needs to ingrain and embed itself in them, and fast. With changes in the global order, and in the post-pandemic period, the present offers immense opportunities. Whatever one may say, the truth is that across sectors such as electronics, electric vehicles, and renewables, “Chinese firms remain dominant players in intermediate goods and production technologies.” They are an integral part of the supply chains. Wooing the Chinese can help India.