Chinese Investments in India

Chinese investments into India are becoming increasingly varied with investors of various provinces from mainland China expressing interest in investment opportunities in different Indian states. Investments from Zhejiang and Shandong provinces should soon materialize in India giving a boost to India’s efforts to grow into a regional manufacturing hub through the ‘Made in India’ initiative.

The initiative, launched a couple of months ago by the Indian Prime Minister Narendra Modi, identifies specific industries for attracting foreign investment for building new capacities. The programme is expected to increase India's global competitiveness in these industries by pushing Indian producers deeper in regional value chains. Greater investments from China into India will make a fundamental impact on the character of their bilateral economic relationship. Till now, the relation is driven by bilateral trade, which has increased sharply during the last decade. The increase, though, has been asymmetric with Chinese exports to India rising faster than Indian exports to China leading to a rapid expansion in India’s trade deficit. Long-term capital inflows from China, however, can change this trend. These investments can be export-inducing and can generate exports from India to other third country markets, and even China. They can also be effective for placing Indian producers deeper in regional value chains. Apart from influencing the character of the bilateral economic relationship, investments from China can also contribute to the growth of modern commercial services in India. Alibaba is eyeing the Indian e-commerce market closely. It should not be long before it becomes the latest entrant in India’s exponentially growing e-commerce market. There’s obviously more to Chinese FDI than manufacturing and India could well be the location to demonstrate so. It is also interesting that despite outstanding issues like the border dispute remaining unresolved, China and India are keen on expanding long-term business links. With high bilateral trade now being complemented by rising cross-border investments, the China-India economic relationship is expected to flourish notwithstanding political difficulties.