When New Delhi rebuffed Hutchison Port Holdings Ltd.’s overtures one last time, the South China Morning Post described the fate of Li Ka-shing’s partners seeking to enter the Indian container trade with him as the “kiss of death.” That was in 2006, and the “no entry” sign placed before Hong Kong’s richest tycoon — ostensibly for being chummy with mainland Chinese leadership — was for ports, which India viewed as a strategic asset. The ban didn’t prevent Li from running a successful mobile phone business in the country. Shanghai Fosun Pharmaceutical’s Gland takeover: $1.3 billion Eleven years later, much has changed. China is now the 17th largest foreign direct investor in India, an improvement on the 36th rank it held in 2010, according to website IndiaSpend. State-owned China Railway Group Ltd. is keen to penetrate the heart of India’s transport sector with a high-speed train network connecting Chennai with New Delhi. Yet, the Bloomberg News scoop that Shanghai Fosun Pharmaceutical Group Co.’s acquisition of Hyderabad-based Gland Pharma Ltd. is on the verge of rejection by India’s cabinet committee on economic affairs shows that tactical considerations have entered the picture alongside old (and new) strategic misgivings. The proposed $1.3 billion takeover would have been the biggest-ever Chinese acquisition in India, as well as the second-largest outbound Chinese pharma deal.
Superlatives aside, there’s no strategic advantage for New Delhi in barring Fosun, backed by Chinese billionaire Guo Guangchang, from acquiring a maker of injections and nasal drops from KKR & Co. and other investors; it’s merely a tactical response to heightened military tensions between the two neighbors with a long-running territorial dispute. For Prime Minister Narendra Modi, letting the deal go through amid a border standoff might just have meant bad publicity domestically.
Sending a message to Beijing isn’t the goal here. After all, President Xi Jinping is himself cracking down on Chinese outbound M&A by the likes of HNA Group Co., Dalian Wanda Group Co. and Anbang Insurance Group Co., as well as Fosun International Ltd., the sprawling conglomerate behind Shanghai Fosun Pharmaceutical. Xi may even want to thank Modi for doing part of the job for him.
A tactical snub doesn’t close the door on all future deals. Instead of whipping up nationalistic sentiment against cheap Xiaomi smartphones, most of which are now assembled in India anyway, the government would much rather get China to invest its $50 billion-a-year trade surplus with India back into the country.
More strategic high-speed rail projects, though, would face extra scrutiny. A preference for the rival Japanese, who want to get back into the game after losing a big contract in Indonesia, is also a possibility. That will have less to do with the disquiet at the border, and more with India’s fears of being hemmed in by Xi’s One Belt One Road plans, which got a boost last week with China Merchants Port Holdings Co. agreeing to pay $973.7 million to buy 85 percent of Hambantota International Port Group from Sri Lanka.
That transaction, which New Delhi would view as a strategic defeat in its own backyard, is far more worrying for Modi’s government than thwarting Fosun will ever be satisfying.