Negative China sentiment, FDI rules hit Chinese auto companies plans for India

As the sentiment against Chinese companies and products continues to grow in India and around the world due to the Coronavirus pandemic we explain the newfound challenges being faced by Chinese auto companies in India. In addition, we explain why moving the supply chain from China to India is far tougher than it sounds. Our story reveals some major exclusive bits about Chinese companies such as Changan Automobiles and more.

By:Updated: Jun 05, 2020 5:13 PM

The world is furious with China over the COVID-19 pandemic but for India, it’s not just the pandemic. Currently, border tensions between India and China have escalated in Ladakh which has seen an upsurge in anti-China sentiment. The world seems to be joining the trade war against China started by the Trump government two years ago. Many countries including the likes of Japan, India and the US have undertaken a slew of anti-China measures ranging from moving out of China, reworking production supply-chain to disinvestments in China. The Indian government revised its FDI policies shortly after People’s Bank of China raised its stake in HDFC Bank. These new policies have also affected the plans of Chinese auto companies’ investment in India. The latest to go back to the drawing board on investing in India has been Changan Automobile that was slated to launch its products in India in 2022. Industry sources have now confirmed to Express Drives that China’s fourth-largest automobile company, Changan Automobile has opted for wait and watch policy and has currently put its India plan on hold.

Another industry source also confirms that Great Wall Motors’ which was very close to acquiring the General Motors’ plant in Talegaon, Maharashtra has hit some hurdles in the last stage with government’s change in FDI policy. On the two-wheeler front, multiple Chinese electric two-wheeler manufacturers have delayed the launch of its product in the country.

Many other global and Indian OEMs who were dependent on China for components have learnt the hard way not to rely on China anymore. Indian auto companies like Tata Motors, M&M, Ashok Leyland, TVS Motor Co and Hero MotoCorp have been very vocal about making-in-India for the world and the pandemic has just acted as the tipping point for them to realise the importance of being self-reliant or at least move the supply chain out of China. That said, this is a task that will prove to be extremely difficult to achieve as prepping up suppliers for new products or advanced technologies is a time-consuming process and involves huge capital spends as well. Considering the present condition of carmakers amid the Covid-19 crisis, it would be a lot to expect these companies to make such massive investments.

Shedding further light on the challenges involving the supply chain moving from China to India, Mohit Arora, Associate Director, Automotive Supply Chain & Technology vertical, IHS Markit said, “Automotive investments outside China as of now are too early to comment on as China leads the way in many advanced technology developments – electric mobility reliance, rare earth metals and semiconductors to name a few. Of course, supporting all these developments at a massive scale comes with very high capital investments.”

Recently, PM Modi said, “confident India will get growth back. I trust India’s capabilities to tackle the coronavirus crisis. I trust India’s talent and technology, innovation and intellect. That is why I say yes, India will get its growth back.” There is a clear fear and mistrust regarding China in many countries today. This has led to governments and companies to look inward to create opportunities and to get the economy growing once again. The Indian government has been vocal about localisation but has not yet announced any concrete policy that will help Indian companies. The Indian auto industry, in particular, has been neglected by the Finance Minister giving no direct relief in the COVID economic package. There is no clear direction on other policies like scrappage policy as well that will boost the Indian auto industry.

However, there stands a good chance of this anti-China sentiment becoming a consumer-led Swadeshi movement in the long-term. The disappointment by the Xi government has disrupted the global supply chain system and has given India an enhanced focus as an alternative global value chain destination. The (potential) success of PM Modi’s Make-in-India and Atmanirbhar campaigns, hence could hasten India’s economic recovery in the post-COVID world and propel its long-term growth with the automotive sector being a core part of this growth story.

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