Due to the continuing face-off on the Sino-Indian border since April 2020, the heat is on Chinese companies who seek to invest or operate in India. India would like to believe that it is not business as usual for bilateral ties as it has intensified the screening of foreign direct investment proposals from neighbouring countries, obviously targeting China. During the past and current year, the government has received about 54 FDI proposals that are pending for approval as on March 31, 2023. But the Chinese continue to invest after April 2020.
Tencent acquired a 1% holding in Walmart for $260 million in June 2022. A ball park estimate of Chinese investments in India is $16.65 billion from March 2007 till June 2022, according to the American Enterprise Institute’s China global investment tracker. Even if some like MG Motors India have faced restrictions, they have found a way to step up investments through local partners.
To secure the necessary resources for modernising its plant and introduce newer models, MG Motors is reportedly in talks with the JSW Group which could result in the latter taking a substantive stake in the company, with the prospect of the Chinese even becoming a minority partner. The online fashion group Shein Group, which was among the Chinese apps banned in 2020, has recently tied up with Reliance Industries to sell its clothing, albeit with strict licensing conditions. Shein, which doesn’t sell any of its apparel in China, has since tried to distance itself from its home country, relocating its headquarters to Singapore in 2021.
To be sure, there has so far been no change in the case-by-case screening of investment proposals. The severe curbs on Chinese investments remain. Yet, the fact that the dragon continues to invest in the country does raise questions. For starters, AEI’s estimate of investments is 7 times larger than the cumulative investments from the mainland of $2.5 billion till March 2023, according to the department for promotion of industry and internal trade. Instead of originating from the mainland, it is possible that such investments are being routed through havens like Cayman Islands and Singapore into India. If so, there is a warrant for tracking such investments as they do not register in official databases.
Last year, Shein made its Singapore arm its de facto holding company, a strategy known as “Singapore-washing” that is being deployed by Chinese investors looking to take stakes in countries that are sensitive to mainland investments, according to the Financial Times. The city-state in fact is the second-largest foreign investor in India, accounting for 23% of cumulative investments.
As Chinese companies continue to invest and have a found a way around restrictions, it is obvious that the government has not been able to impose severe costs on the dragon for its border transgressions. The government, for its part, maintains that there is no blanket ban on anything Chinese and that it allows what is in the best interests of the nation. Besides investments, however, there is also no diminishing dependence on Chinese goods. The dragon remains one of our largest trade partners, with two-way trade rising to $113.8 billion in FY23. China remains the largest source of our imports with a share of 13.8% while only 3.4% of our exports head to the mainland. The upshot is that India’s dependence on China is only growing, which definitely was not intended since April 2020.