While Chinese companies have been great at peddling their products in India, they have been surprisingly reluctant to invest here. China has invested less in India than even Poland, Malaysia or Canada have.
President Xi Jinping’s three-day visit to India starting Wednesday is likely to include some massive pledges to try to remedy this imbalance.
When Prime Minister Narendra Modi visited Japan recently, Japan pledged to invest $35 billion in India. President Xi is expected to try to eclipse Japan’s promises, possibly pledging $100 billion in investment according to some local reports. His meetings with Mr. Modi are predicted to lay the groundwork for a wave of Chinese money to build industrial parks and bullet trains.
Annual trade between India and China has galloped to $66 billion from $3 billion 14 years ago, something that underscores the rise of Beijing as the global manufacturing hub and India’s growing appetite for everything from phones to machinery from China.
While the trade relationship between the two countries has bloomed, foreign direct investment from China has not. According to Indian government statistics, the country has received a total of around $400 million from China in investment in the last 14 years. Even if you add the $1.2 billion of direct investment India received from Hong Kong, China is still well behind the $22 billion in foreign direct investment from the United Kingdom, $17 billion from Japan, $13 billion from the Netherlands and $1.9 billion from Spain.
It’s not that China doesn’t invest abroad. According to data from United Nations Conference on Trade and Development, China was the third biggest source of foreign direct investment last year, having invested more than $100 billion in other countries. In the seven years to 2012, it invested more than $25 billion in the 10 members of the Association of Southeast Asian Nations alone.
Chinese investment has tended to focus on the resources sector to power its economy. Much of it has gone into getting control of oil, natural gas and coal in Africa, Australia, Indonesia and elsewhere. India has not attracted much of this investment as it is a net importer of resources and has a heavily regulated energy sector, said Rajiv Biswas, economist for IHS.
“China wants to increase investment in India and wants Chinese companies on the ground there,” Mr. Biswas said. “Most of it will be in manufacturing and infrastructure space.”
Chinese companies may also be looking to move some of their manufacturing to India as they struggle with rising wages at home, said Ajay Sahai, director general and chief executive at Federation of India Export Organization.
If India can’t find better ways to fix its trade imbalance with China, New Delhi may want to increase taxes on some imports such as auto-components and pharmaceuticals to encourage Chinese companies to set up factories in India, he said.
“This will not only raise Chinese investment in India but also help in fixing the trade imbalance,” said Mr. Sahai.