From China to India

India should welcome investments looking for alternatives

The Communist Party of China (CPC) on Sunday began its annual meeting in Beijing. The meeting will last until March 13, and several more indications about the CPC’s intentions will emerge over time. However, it has already revealed its growth target for the country’s economy: 5 per cent for the year, according to a speech by outgoing Premier Li Keqiang. This was one piece of economic news that emerged from the first two days; the other was the focus on “self-reliance” in frontier technologies. The work report released by Mr Li called for a “whole nation strategy” that essentially recruits the entire economy, from the military to the private sector to academia, into a party-run effort to control the advanced technologies of the future. Both these pieces of information, when taken together, however, reveal the urgency of investment-friendly reform in India.

The growth target of 5 per cent is considered relatively modest by economists. It is down from 5.5 per cent last year. In addition, it comes after a major U-turn by Beijing and indeed by supreme leader Xi Jinping on the nature of pandemic-related restrictions. Following protests against the rigidity, which revealed the patience of his compatriots was wearing thin, Mr Xi abruptly lifted those restrictions at the end of last year. He also chose a premier with a business-friendly reputation to succeed Mr Li and word got out that the investigations of the levels of loyalty in the tech sector that had chilled investment and innovation might come to an end. So, the consensus was that a higher growth target would be set. Instead, however, it was a measly 5 per cent.

On the one hand, the party’s policymakers might simply have an eye on the possibility of surprising on the upside. However, this is not how some are reading the conservative targets. These assume that the low-growth expectation is a product of assumptions by policymakers that the loyalty campaigns are not yet over. The financial sector has become the latest target of party enforcers, with an “anti-corruption” campaign catching well-known financiers and bankers in its net in recent weeks. Other mechanisms — such as regulatory restrictions on local governments — may also be put in place and they will constrain the flow of capital into new investments.

The warning that the entire economy must now serve the government’s targets for frontier technologies and sectors is even more worrisome for investors in those domains. This level of state interest means that there is no real private sector in China for such investors and companies to partner with, and existing concerns about intellectual property rights in the country will only be exacerbated. They will be looking elsewhere in the world, therefore, for the basic research and the end-use adaptation of new technologies. The Government of India should thus ensure that the place they look for is India. It is in this context, also, that recent news about new manufacturing plants from Foxconn should be considered. Reports placed these plants in Telangana or Karnataka, though the company denied any final decision. The Union government should refrain from excessive interference in such corporate decisions, and merely ensure that incentives to come to India are in place.