21 April 2020
The impact of Chinese investment in India

    The relation between India and China has seen a lot of ups and downs. From the coining of the slogan "Hindi-Chini Bhai-Bhai" to the bloodied 1962 Indo-China War, these two countries have never been in stable terms. However, when globalisation took the entire world by storm, Indian trade became excessively reliant on the mass Chinese exports.

    Till date, China continues to be one of the largest trade partners for India, raking in a staggering trade value amount quoted at over $16.3 billion. The bustling MSME sector in India is also heavily dependent on Chinese exports. The cost of a China-made product is low due to a very low manufacturing cost in China, hence the heavy reliance.

    Adding to the trade relations, Chinese companies also retain a significant amount of stake in reputed Indian startup companies such as Practo, Zomato, Paytm and Swiggy. This goes to show how important it is that a balanced financial relationship is maintained between the two countries.

      What’s New?

    The COVID-19 pandemic has made a huge impact across all businesses and industries, and China’s current situation plays a big role in it. An alarm has been set off due to the sudden impediment of the supply chain. Industries across the country are panicked to the core in the light of recent events. Even newer industry sectors have been gripped with fear as they face a potential threat of running out of capital and resources.

     China’s Upper Hand Over India

    There has always been a significant gap in trade revenues earned by India and China. The previous financial year witnessed a humongous trade deficit between Indian and China, recording a 65 per cent increase over the past four years.

    There are some very prominent advantages which China's production business enjoys over India. For starters, India's production efficiency is nowhere near as compared to China. Indigenous production industry continues to face hardships, mostly accepting defeat to China's aggressive marketing policy and product marketing. China is also known to subsidise the resources that go into production, thus lowering manufacturing costs as well as accelerating production.

      China’s Dumping Tendencies

    Another factor, which is problematic for Indian industries apart from the upper hand China enjoys over India when it comes to mass production, is China's tendency to dump subservient-grade products. It is a huge concern and has been vehemently brought to attention by the Indian Government on numerous occasions.

    However, India is not the only sufferer here. China is infamous for exporting sub-standard products, the recent news being that PPE products made in China being rejected for not even passing the minimum standards required.

          The legality of dumping has always been a major debatable topic at the World Trade Organization (WTO). WTO, to date, does not consider dumping of inferior products as an illegal trade practice if it adds to the value of creativity to the customers of the nation importing goods. However, if a country can prove that dumping of inferior goods is creating a negative impact on the indigenous manufacturing market of a particular country- it is only deemed to be illegal then.

    To block this unfair trading practice executed by China, the Indian government has been implementing several policies to encourage indigenous production. Manufacturing industries in India contribute 25% of the nation's total GDP. This industry is also the largest employer of blue-collar jobs in India.

    In recent years, India's manufacturing sector has been receiving a major push for revamping. India is also implementing huge anti-dumping duty on no less than 99 Chinese products- starting from technology imports to petrochemicals.

      Chinese manoeuvre into Indian Startups

    In the span between 2014 and 2019, the net capital flow from Chinese investors to India-based startups amounted to a whopping amount of over $27 billion. Some of the prominent Chinese enterprises- Alibaba and Tencent, have been reported as a stakeholder in Unicorn startups like Hike, BigBasket, Paytm, Zomato, BYJU’s, Flipkart and even more.

    Chinese investors are mostly participating in Series A and Series B funding rounds. A gross total of 234 deals have been signed which included at least one Chinese investor. While 49% per cent of them were in the developmental stage, the rest of them were in their later stages. These investors reserve a special interest for firms which lean on E-commerce and Fintech, which displays their disinterest for risk-taking- as their innovation is being adopted by the entire country, irrespective of the metro or tier-two city demography.


    Parallels can be drawn in the China-India relationship for both mainstream products as well as the modern-age business sectors. India has welcomed China's aggressive domination in the electronic sector with the introduction of smartphone manufacturers like Xiaomi and BBK electronics (the parent company which controls Oppo, Vivo, OnePlus and Realme).

    Even the introduction of social domain applications like TikTok in India goes to show how China is making forays into the Indian tech market. Keeping in mind the above factors, it is necessary for both the country to maintain a sustainable relationship.

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