Fears of Chinese retaliation to
Indian roadblocks By Siddharth
Srivastava
NEW DELHI - Beijing is unhappy
at New Delhi's blocking of investment by Chinese
firms in telecoms, ports and other infrastructure
projects on grounds of national security. Industry
sources and officials say that the steps taken by
India are likely to elicit retaliation by China.
In what is being seen as a strong
indication of the thinking in Beijing, Ambassador
to India Sun Yuxi said China wanted to go in for
large investments in India, but was facing
difficulties due to the
restrictions because of
security concerns.
He said 150 Indian
companies were engaged in about 2,000
projects in China, whereas in
India there are only 50 Chinese companies. He
implied that this imbalance rested with government
policies, not commercial considerations.
There is plenty at stake. India's rapidly
rising telecoms industry is expected to sell
equipment worth more than US$8 billion in the next
few months, with orders from companies such as
Motorola, Nokia, Ericsson and Alcatel. As part of
infrastructure ramp-up, India is looking to invest
more than Rs600 billion ($13 billion) to build 13
ports.
But after deliberating on the issue
for more than 12 months, New Delhi has decided
that it does not want the Chinese investing in or
managing any Indian port. Hong Kong-based
Hutchison Port Holdings (HPH) and Chinese Harbor
Engineering Co have thus joined join telecom firms
Huawei Technologies and its rival ZTE Corp among
those that have been refused permission by India's
Foreign Investment Promotion Board to invest in
India.
"How can Chinese firms be a
security threat to India as the two countries are
friends?'' Yuxi asked. "There are no big problems
to solve between the two countries.''
He
said China plans to set up a steel factory in
India in view of the availability of large amounts
of iron ore that is imported from here. Yuxi noted
that bilateral trade has been growing fast and is
slightly in favor of India, which is "very good'.'
He said trade between India and China grew to
$18.7 billion in 2005, up 37.5% from the previous
year, and is expected to cross $20 billion this
year. Not long ago annual trade between India and
China was just $1 billion.
Yuxi said India
and China would sign at least 12 agreements or
contracts during the upcoming visit of Chinese
President Hu Jintao to India.
Indian
officials, however, say there is still an element
of distrust in dealings with Beijing, given the
past. The two countries fought a brief war in
1962. The economic goodwill between the two has
not translated into the kind of strategic alliance
that will extend to Beijing's supporting India on
issues such as the Indo-US nuclear pact, support
at the Nuclear Suppliers Group or for a seat on
the United Nations Security Council, or curtailing
its support for Pakistan's military program.
With all the talk of cooperation with
China, the experience has not been entirely above
board. China has always been a tricky customer,
and the two countries remain competitors,
especially for energy resources. One example is
Myanmar, where China was secretly dealing with
Yangon to access gas even as India's former
petroleum minister Mani Shankar Aiyer was in
Beijing.
While China has been
accommodating to India in the Shanghai Cooperation
Organization, most agree that this is just a sop
to keep burgeoning Chinese trade exports to India
well oiled. New Delhi knows that the battle for
Central Asian energy resources will be bitter.
India has been developing independent links with
these countries, with its first overseas military
base to be operational in Tajikistan soon.
Observers, however, say that if New Delhi
continues its discriminatory foreign-investment
approach, Beijing's actions are likely to extend
beyond words and into sectors that will hurt. One
likely impact could be on Indian information
technology (IT) giants that are trying to win
contracts from Chinese firms.
One such
deal that is being negotiated and could be
affected is with the Bank of China, which is
looking to revamp its IT infrastructure. Tata
Consultancy Services (TCS), i-flex Solutions and
Infosys are bidding for the contract and face
competition from international vendors such as
Accenture and IBM.
The Bank of China is
the second-largest bank in China and has the
biggest global network among all Chinese banks.
The bank is looking at integrating its IT
requirements for its international network, which
is seen as a huge opportunity as the contract
could lead to managing domestic operations as
well. The Bank of China raised $11.2 billion from
domestic and overseas investors in June.
The potential for business within China is
immense. According to research house IDC, the
Chinese will spend $9.4 billion on technology
services alone in 2006, up from $3.74 billion in
2002. According to Gartner Research, China is
expected to pull in $27 billion from IT services
(including call centers and back-office work) by
2007. Gartner predicts that Indian companies will
carve out 40% of this market, unless other issues
begin to impinge.
Indian IT firms face
stiff competition from multinational companies
also seeking a foothold in China. Ranged against
one another are Accenture, Affiliated Computer
Services, Computer Sciences Corp, Electronic Data
Systems, Hewlett-Packard and IBM, and India's TCS,
Infosys, Wipro, Hindustan Computers Ltd and Patni.
A political bias against Indian firms could prove
disastrous.
The Chinese IT market will
suit Indian firms perfectly. More than 80% of
China's demand for software is for domestic
consumption, thus not infringing on India's
predominantly export-oriented software sector.
With a head start of more than 10 years, Indian IT
firms have reached scalability levels that will
take a while for the Chinese firms to match.
Last year Indian IT companies clocked $17
billion in revenue, compared with just $2 billion
for the Chinese. Three years from now, the figures
are estimated to be $48 billion and $5 billion
respectively.
Indian IT companies also
have elaborate expansion plans in China because of
the cost advantage there. China has an excess
supply of well-trained engineers willing to work
at wages lower than in India.
In this
context it is important that New Delhi chalks out
a realistic framework for entry of foreign firms.
A case-by-case clearance in telecoms and the ports
has resulted in elements of subjectivity impinging
on the deals. A bias against particular Chinese
firms will have to be well justified, as Beijing
is not going to take matters lying down.
Siddharth Srivastava is a New
Delhi-based journalist.
(Copyright
2006 Asia Times Online Ltd. All rights reserved.
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