The Economic Survey for 2023-24 suggested that the government needs to consider facilitating investments from China. Commerce and Industry Minister Piyush Goyal has however ruled out any rethinking by the government on this issue. This has not deterred some more economists weighing in support of the idea.

Currently, Chinese investments can come into the country only through the government route which requires case by case scrutiny. Economists seem to be favouring a more open policy.

One suggestion calls for a more open process under a clearer set of guidelines since case by case review was slow. Chinese investments are also favoured because of China’s surplus savings and technology.

Some feel that given China’s intent to diversify its manufacturing base to overcome Western restrictions, getting Chinese firms to manufacture in India and export those goods is a better option than importing from China.

This viewpoint also notes that such investments could help some of the outgoing dollars from the rising deficit to get ploughed back to India.

Another factor that needs to be considered is China’s trade and investment polices and whether liberalising our policies will help in reducing our deficit.

CCP’s grip

The Chinese Communist Party’s (CCP) hold on the country’s economic management, whether private or state owned, is only tightening. Decisions of the recent 3rd Plenum of the 20th Party Congress that will guide its economic policies for the coming years also make it clear that China will employ industrial policies to further enhance its manufacturing capacities and trade dominance particularly in strategic industries.

But the biggest issue is the huge trade deficit that India has with China, which has also been flagged by the Economic Survey. This is despite all the measures taken by the government so far both on the supply side and on the trade remedy fronts.

While China’s share in India’s imports in 2023-24 was 15 per cent, it had around 40 per cent or more import share in 18 sectors (that is at HS-2 digit level) and in several of them they are rising. At the individual 8-digit product level of course there are numerous ones at over the 70 per cent level.

With western nations taking restrictive measures against Chinese products there is a real possibility that China will redirect its exports to markets like India.

So the question now is will attracting more Chinese investments address the trade deficit issue?

First, if freely allowed, which are the areas that would attract Chinese investments? The Chinese investor will likely invest in areas in which accessing the Indian market is otherwise difficult either due to high tariffs or because of some trade remedy measures or restrictive regulations currently in force.

But those are areas in which the Indian industry has the capacity and may be wary of a foreign competitor. Is that our priority even if some competition may serve us well?

Chinese companies are keen on getting into the EV and renewable space. These are evolving areas in which both technology and capital should be welcome. Equally, India will also need to ensure adequate space for domestic and other players to curb Chinese domination. These make detailed discussion of the proposals important rather than conveying automatic approvals.

Will Chinese investments go to boost our exports to the West? Will they also reduce the imports that we otherwise receive in the form of intermediates or components from China? There are no definitive answers to these questions.

That China plus one approach has worked in the case of more export driven Vietnam or Malaysia does not mean it will work for India. If such Chinese investment relocations however come as part of a MNC driven global supply chain the likelihood may be higher.

Trade deficit issues

It is unlikely that Chinese investments will reduce our trade deficit. China’s manufacturing trade surplus with ASEAN grew by 3 per cent as a share of recipient GDP for the ASEAN countries between 2019 and 2023, according to a recent Rhodium Group report. This was also a period when Chinese investments into ASEAN were rising. Investments may help integrate the collaborating economies more but reduction in deficit is not assured. Indeed one can envisage a Chinese company in India continuing to source key inputs from the home country with minimal operations here.

China’s trade and investment practices such as bringing their own personnel for a variety of tasks is another factor that needs to be considered. How much local employment they generate would need a case by case assessment.

Finally, China does not seem to be vacating low end or traditional industries since they are still seen as vital source of local employment. So they will continue to retain that space and make sure those industries do not leave China and invest in other countries.

It is interesting that Indonesia’s Trade Minister Zulkiflli Hasan has, without naming any country, conveyed last month that Indonesia will impose 100-200 per cent duties on seven set of products including textiles, garments, footwear, cosmetics, ceramics and electronics because of the flood of imports of these items, which threaten the existence of micro, small and medium enterprises in Indonesia.

One can imagine from where the flood of goods is coming from. And this is despite rising Chinese investments into Indonesia.

In conclusion it may be preferable to maintain the status quo on investments from China being examined on a case by case basis even as there could be a case for swifter decisions being taken on them.

The writer is a former Ambassador and is currently Senior Fellow for Economic Security at the Delhi Policy Group. Views expressed are personal