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During Chinese President Xi Jinping's state visit, China announced $20 billion investment plans in India over the next five years. Compared with the much anticipated $100 billion investment inflow, the actual investment signed up might look pretty low. However, on the positive side, this might turn out to be the beginning of a long term partnership in infrastructure and manufacturing between the two neighbouring countries.
India and China have several commonalities and are ranked among the key emerging economies of the world. However, in terms of investment and bilateral trade, the story has been an unbalanced one. While Chinese companies have been importing their products from India, they have been quite reluctant to invest here. So even though trade relationship between the two countries has bloomed, foreign direct investment from China has not.
Annual trade between India and China has galloped from $3 billion to $66 billion in the last 14 years, with India importing most of its power plants and telecom equipment from China. However, during the same period, India received a total of around $400 million from China in the form of Foreign Direct investment (FDI), which is way less than the $22 billion FDI received from the United Kingdom; $17 billion from Japan; $13 billion from the Netherlands; and $1.9 billion from Spain.
But times have changed now. China has shown its willingness to invest in India and wants Chinese companies to set ground here. Most of these investments are proposed to be in the infrastructure and manufacturing space.
Making a commitment of investing $20 billion in India over the next five years, China signed 15 Memoranda of Understanding (MoUs) with India. The major thrust area of cooperation between the two countries was the Railways sector. An MoU and an Action Plan were signed between the government of India and the People’s Republic of China, in enhancing technical cooperation in Railways. Potential cooperation areas mentioned in the MoU include training in heavy haul freight transportation; raising the speed of trains on existing routes; station redevelopment; high speed rail and setting up a Railway University.
As per the Action Plan, Chennai-Bangalore-Mysore section has been identified to raise the speed to 160 kmph with China’s cooperation. The Chinese side will also conduct a project feasibility study and prepare a detailed project report for the proposed high speed rail projects in India.
China has also signed MoUs for setting up two industrial parks — one each in Gujarat and Maharashtra — which would act as both, manufacturing and export hubs. These parks are expected to be spread over 1,250 acre of land.
The Export Import Bank of China signed an agreement with the State Bank of India to extend a $1.8 billion line of credit for projects, including those importing Chinese products. A similar agreement was signed with ICICI Bank for $1 billion. While Axis Bank signed an agreement with China Development Bank to help Chinese companies with their requirements in India.
Twenty seven agreements were signed by Indian and Chinese private firms. The agreements were signed in areas of aircraft leasing and financing, telecom, chemicals, wind power components, cotton yarn and fabric, synthetic fibre and seafood. The biggest among these was a $2.6 billion deal between Indian airline IndiGo, and the Industrial and Commercial Bank of China for the financing of more than 30 new aircraft.
Chinese telecom equipment maker, ZTE Corp, and India's Reliance Communications, signed a deal worth $162 million. Reliance Communications also signed a $157 million agreement with Huawei Technologies.
Both countries have also decided to work together to steer regional cooperation and advance their efforts to build the Bangladesh, China, India and Myanmar economic corridor.
Other than narrowing the country’s trade deficit by promoting Chinese companies to set up factories over here, India is also keen for Chinese investment, especially in the infrastructure sector, while China is pushing for a share of the lucrative high-speed train market in India. Both the countries possess complementary strengths to facilitate mutual trade and present strong mutual business opportunities, and have finally realized the time has come to leverage the respective broad industrial bases and resource endowments.
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