Are India and China looking to warm up frosty relations that have prevailed since the deadly 2020 Galwan clash? Foreign minister S Jaishankar met twice with his Chinese counterpart Wang Yi in July: at this week’s East Asia Summit in Laos and at the Shanghai Cooperation Organization in Kazakhstan. Both men issued mild, moderately reassuring statements with China’s Wang saying the countries should “meet each other halfway”. They also spoke in Munich in February.
Unquestionably, there are powerful motivations for a return to business almost as usual. India is in a tight position because China is a manufacturing giant and almost the entire world depends on its factory products, from solar panels to chemicals.
There have been government murmurings India needs to find a new way forward but it was clear no large initiatives would come till after the elections. But an early sign of new thinking came with the Economic Survey which suggested India bring in Chinese imports and investment. “To boost Indian manufacturing and plug India into the global supply chain, it is inevitable India plugs itself into China’s supply chain,” said the Survey.
Need for partnerships
Days later, the government said it would issue visas selectively to Chinese nationals. One reason was several Indian conglomerates need Chinese technicians to keep their plants operational. Foreign companies also told the government they needed Chinese components. “Western companies have been telling India if you want to attract global supply chains, you can’t expect us to invest a lot of money when you’re not offering any clarity on Chinese participation,” says Santosh Pai, partner, Dentons Link Legal. Pai notes in fields like electronics, Chinese firms are “at the very forefront”. It’s similar in specialty chemicals. “There are very few supply chains worldwide where you can say: we won’t allow any Chinese companies but the entire supply chain must come to India,” adds Pai.
Was the dip in foreign direct investment partly due to the China factor? In the last fiscal year, India’s total FDI fell marginally to $70.95 billion, from $71.35 billion the previous year. Inevitably, India’s security establishment remains deeply opposed to any relaxation for Chinese companies.
But many top Indian groups need partnerships with Chinese companies. Take the Adanis who see a massive renewable energy future. The Khavda Renewable Energy Park in Kutch will be the biggest globally, generating 30GW. The group’s other renewable-energy projects will generate another 10GW.
Where will the Adanis source solar panels? Obviously, it needs a China connection. The world’s cheapest solar panels are made in China. But the Adanis must make the panels themselves and are negotiating with the Chinese when they can start manufacturing in India. But the group will obviously need FDI approval for any Chinese tie-ups for manufacturing panels or other components.
Crucially, keep in mind China is experiencing a significant industrial slowdown. President Xi Jinping has ordered companies to maintain production to prevent further economic deceleration. But weak demand means growing losses and the companies are keen to export as much as possible.
Another Indian giant with a strong China connection is JSW. It has tied up with Chinese auto-manufacturer SAIC which already makes MG automobiles at its Gujarat plant. A new company, JSW MG Motor India, has been formed in which JSW will hold a 51 per cent stake.
But JSW has greater ambitions. Aiming to control the full supply chain, it’s planning a 50 GW-battery-making plant in Odisha for EVs and battery-storage systems. It also will launch another battery-cell-making plant. The combined investment will be $5 billion. Inevitably, Chinese participation could be essential at some stage.
Reliance is another giant group with huge renewable-energy plans. It may need Chinese participation. And it isn’t only the biggest groups requiring Chinese collaboration. Many companies at all levels are in a jam due to business restrictions with China.
Meanwhile, China’s been investing globally in countries like Mexico to enter the North American market and also Vietnam. In Vietnam, Chinese investments doubled to $4.47 billion in 2023 from $2.92 billion in 2021. Needless to say, almost no investment is coming to India.
China is also muscling its way into the entire ASEAN market. Trade with the region is now almost the same as the Dragon nation’s EU trade.
India and China have held 21 rounds of border talks. It’s unrealistic for us provoke a larger conflict with China which has an economy five times ours and a powerful, modern military. The question is whether we can afford to keep up a trade war of sorts with such a powerful opponent, or should we take advantage of investment winds?