How do you see trade and investment linkages between India and China growing over the next 10 years
By 2025, China and India will rank among the worlds four largest economies. As a direct result, the economic ties between them will rank among the 5-10 most important bilateral ties. Qualitatively, I predict three major developments. First, over 10 years, their economic relationship would be driven much more heavily by investments than by trade. Second, as Indias infrastructure becomes modern, Chinese companies will start to look at India as not just a market but also a manufacturing and export hub. It is even likely that, given the rapidly rising labour costs in China, some Chinese companies may start manufacturing in India to export back to China. Third, as Indian and Chinese companies make acquisitions in third countries, theyll find themselves deeply engaged in each others markets via this indirect route.
What kind of value will Indian companies create for shareholders and investors by investing in China
Indian companies have to be very careful in deciding whether, where and how to invest in China. Obviously, you want to enter a growing sector rather than a declining one. However, companies have to examine deeply whether or not they will have a competitive advantage when they enter China. Chasing an opportunity without a competitive advantage can rapidly destroy shareholder value. Many Indian companies are world-class in terms of management capabilities and far stronger than their Chinese counterparts. If they can combine these capabilities with world-class technologies, it is easy to see how Indian companies can enter almost any high-growth Chinese sector and succeed. This is the essence of the Tata Motors/Jaguar Land Rover story in China. This model can be replicated in other sectors open to foreign players.
For long-term wealth creation, what are the threats investors should be cautious of
Indian companies must not assume that because they are big and successful in India, they can easily succeed in China. China is brutally competitive. Also, unlike India, the government plays a much bigger role. Thus, its critical to think through how the company will build competitive advantage in China and whether or not it will be welcomed by the government.
What kind of opportunities do you see for Indian companies
China is a large economy that should continue to grow at 5-6% over the next 10 years. As such, market opportunities abound. Of course, some sectors will grow much faster than GDP. These will be sectors where demand will be driven by growing affluence or by the urgent challenges facing Chinese society (e.g., a shortage of energy resources, severe environmental pollution, and so forth).
Chinas economy also needs to undergo transformation from heavy reliance on manufacturing to knowledge-intensive services. Companies that can bring technologies, products and solutions to address these challenges will find a large and growing market within China. Of course, the key question is not what market opportunities exist in China but where Indian companies will have a competitive advantage. In some areas (such as IT), Indian companies have the necessary competitive advantage. In other areas, they would need to acquire the brand and technology advantage in Europe and the US. That was how Tata Motors succeeded brilliantly in China.
How should Chinese companies look at investments in India
For Chinese companies, the biggest opportunities in India lie in infrastructure. Take high-speed rail, for example, which the government is keen on. While Chinese companies are unlikely to be allowed to operate rail networks, it is easy to see them investing in factories to build locomotives and coaches. Similarly, large opportunities exist in power plant equipment manufacturing. It is possible that this type of Chinese investment may take place in the context of one or more China-focused special economic zones.