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Sanjaya Baru: Asian drama

India-China and India-Japan business relations may have entered a new phase.

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In the week was opening itself up to more investment from China, nearly a 100 Taiwanese business persons travelled to India, under the leadership of Taiwan’s minister for economic planning and development, Ms Christina Liu, to invite Indian investment into Taiwan and prospect for opportunities for Taiwanese investment in India.

The visit to India of the Taiwanese business delegation came just a week before New Delhi hosted an and trade fair, and a week after India and Japan and India and Malaysia announced their intention to sign a free trade agreement.

All this to-ing and fro-ing between India and various South-east and East Asian economies will be dwarfed when business persons from mainland start following the orders from above! Word is out in Beijing’s Tiananmen Square. The politburo’s big daddies want a different kind of companies to march into India!

A year ago, I reported in these columns (BS, 29/3/2010) that “The Chinese Are Coming”, referring to a desire to invest in India’s steel sector conveyed to me by the CEO of a Chinese steel major. “We are not just interested in importing your iron ore”, he said, “we want to build a steel plant in India. Is India game?”

Few months later, hit the headlines with the announcement of a US$8.3-billion power equipment deal with China’s Shanghai Electric Company, unnerving India’s L&T and BHEL. Even as India stares helplessly at a rising bilateral trade deficit with China, now close to US$20 billion, and has been urging China to open its markets, China has made an offer that India cannot refuse — permit import substitution by allowing Chinese companies to invest in India!

Going beyond steel and power, Chinese companies are looking at investing in a range of manufactured goods, all the way from cars to toys. China’s Jianghuai Automobile Company, Brilliance Auto, Chery International, Build Your Dreams and Beiqi Foton have all expressed interest in investing in India’s rapidly growing automobile sector. “Soon Indians will be driving ‘made in China’ cars”, reported a India-China business website www.inchincloser.com, run by a former Mumbai journalist Nazia Vasi.

According to informed sources, China’s Prime Minister returned home from his India visit last year and told his officials that he saw mostly Japanese and Korean cars on Indian roads, and it was time to get some Chinese cars also onto India’s crowded streets! A directive from the very top that no one down the line can ignore. Recent media reports suggest that Chinese truck manufacturers are also eyeing the Indian market and would be quite happy to build capacity through Greenfield projects.

All this is just the beginning, says India’s ambassador in Beijing Subrahmanyam Jaishankar, who spends more time meeting business leaders in China than any previous Indian diplomat in Beijing. China is taking a long-term view of investing in India’s manufacturing sector. The stage of arriving in India with Chinese managers and workers is over, partly because India has put in place more stringent visa restrictions to limit the entry of low-skilled workers and partly because Chinese companies are here for the long haul and would like to work with local employees.

The arrival of manufacturing firms will be preceded by the entry of China’s mega banks into banking and financial services in India. China’s banks will not only finance Chinese investment in manufacturing and services in India, but also finance Indian firms buying from China, as in the Reliance Power deal.

All of this would be a win-win deal for an India looking at investment in new projects and for a China that is dealing with rising labour costs and decelerating growth. However, it is not simple economics that is driving Chinese investment into India. The larger strategic vision is to overtake Japan and Korea in India.

While Korean and Japanese brands have established themselves, the fact remains that China has deeper pockets and a more supportive state system that could offer strategic support to Chinese firms as they arrive in India to out-compete East Asian brands. Japan also has deep pockets but at present China is banking on Japan’s slowness and hesitancy.

Having taken years to “study” India, constantly complaining about Indian systems and procedures, Japan first lost out to Korea in the Indian market and runs the risk of losing out to China, unless Japanese firms get their act together and take a strategic view of India. The Delhi-Mumbai Industrial Corridor is an important means by which Japan hopes to raise its presence in India, but unless projects are speeded up and break ground quickly, they could easily be overtaken by the coming Chinese storm.

Conscious of it having missed the bus during the first phase of post-liberalisation growth in India and now increasingly worried about the rise of China next door, Japan is finally focused on India in a way that has not be seen before. On the heels of the announcement of an FTA has come the announcement of holding an India-Japan Global Partnership Summit in Tokyo in September 2011, that will be attended by the prime ministers of both countries. The summit is expected to lay the “micro foundations of the macro vision” of India-Japan strategic partnership.

At a time when Asia to India’s West appears to be embroiled in instability and crisis, Asia to India’s East is rapidly fulfilling the promise of being an “Arc of Opportunity”. India’s increased participation in the region’s markets, institutions and processes has acquired a new salience and momentum. For India, managing this increased Asian engagement requires tact, efficiency, speed and much better diplomacy.

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