Some redemption for India on
China By Siddharth Srivastava
NEW DELHI - Two issues that have been
generating plenty of heat - the outsourcing of
jobs and New Delhi blocking Chinese investments
for security reasons - are perhaps not as serious
as some observers believe, according to recent
reports.
One, with the global technology
trade increasing at a fast pace, countries such as
India and China have graduated from being merely
recipients of foreign direct investment (FDI) and
outsourced jobs, to exporting jobs to the US as
well by opening
research and development and
manufacturing facilities there, according to a new
study by Forrester Research, a Boston consultant.
Two, the latest figures released by
India's Foreign Investment Promotion Board (FIPB)
show that misgivings about New Delhi blocking
Chinese investments for security reasons might be
overstated.
According to the data
(released ahead of the first visit by Chinese
President Hu Jintao to New Delhi), as many as 33
out of 38 FDI applications by Chinese firms since
2004 have been approved by the Indian government.
In a reversal of established trends,
Indian and Chinese companies are now exporting
jobs to the US - thus establishing that the global
technology trade can create win-win opportunities
for all nations involved, the Forrester Research
report said.
It added that this should
blunt some of the harsh political backlash in the
US against outsourcing due to Western IT jobs
being lost to low-cost software professionals in
India.
Indian companies have announced
more than 130 acquisitions overseas, estimated to
be worth nearly US$19 billion. This includes the
$8 billion planned acquisition of Anglo-Dutch
steelmaker Corus by Tata Steel, the largest
takeover deal ever by an Indian company.
According to data from IBM-Plant Location
International (PLI), India moved up to seventh
place in the league of FDI-origin countries in
terms of the number of projects undertaken in
2005, from 10th place in the previous year with
218 projects.
While the US was the biggest
recipient of Chinese FDI in 2005, the United
Kingdom received the highest number of FDI
projects from India. The US was the fourth-biggest
FDI recipient from India in 2005 with a total of
17 projects, compared to 45 for Britain.
The US has overtaken China as the world's
biggest destination for inbound investment,
attracting 1,200 new investment projects across
all sectors in 2005, the report said.
The
latest FDI trends show that US investors are
continuing to fuel the rise of India and China as
major supply bases for manufacturing and
technology research and development.
At
the same time, the US is also becoming the favored
country for FDI aimed at industries such as
financial services, consumer goods and
pharmaceuticals - which are heavily dependent on
IT and boast of huge, sophisticated markets and
high-end talent, the report added.
"As the
domestic firms from two Asian countries - such as
India's Tata Group and Infosys, and China's Lenovo
and Haier - start expanding abroad, they are
creating new investment projects and are hiring
sales and service staff worldwide, including the
US," Forrester Research's Navi Radjou said.
Radjou said the latest data indicate that
there are growing synergies between the US, India
and China. This conflicts with the belief that the
US is losing its global competitiveness as India
and China rise economically.
The FDI flows
in 2005 indicate the coordinated roles that the
"Indian tiger, Chinese dragon and the US eagle
would play going ahead", he added.
India
is emerging as the "innovator" with its limited
domestic market, but a highly qualified and
service-focused technical talent pool that
attracts huge research and development
investments.
On the other hand, China
would play the role of "transformer", using its
cost-effective industrial labor and vast consumer
market to establish itself as the world's biggest
destination for manufacturing-related investments.
In 2005-06, the State Bank of India
emerged as the number one Indian investor abroad
with over $1 billion invested in Mauritius,
Indonesia and Kenya, according to recent figures
by Crisil. Dr Reddy's Laboratories was the
second-biggest Indian investor. Among the other
top investors of 2005-06 are Suzlon Energy, Tata
Steel, Ranbaxy Laboratories, Videocon
International, VSNL, Matrix laboratories, TCS and
Wipro.
According to IBM-PLI, India came
out on top among destination countries for
research and development projects with as many as
205 projects, while China topped the league of
manufacturing projects with 565 projects in 2005.
India was the biggest FDI recipient in the
information and communications technology sector
and the second-biggest in the business services
sector after the US, while China was number one
for automotive, electronics and base chemicals in
2005. The US was the top FDI destination in the
financial services, food and beverages, and
pharmaceutical sectors.
India-China The FIPB figures show that Chinese companies
have taken up projects worth $2.2 billion in India
in the first half of 2006, a substantial increase
from the $1.8 billion of business bagged by them
in the whole of 2005. The majority of the
proposals were cleared.
Some of the
investments are routed through Hong Kong, Macau or
Taiwan, but considered by the Indian security
establishment to be Chinese FDI. The Chinese FDI
approved by the government so far relates to
township development, cash-and-carry wholesale
trading of toys, shipping services, trading in IT
products and the publication of journals.
Bilateral trade between the two countries
is around $17.5 billion. Exports by China are
mostly high value-added manufacturing goods, while
India exports mainly raw materials such as iron
ore.
Indeed, the Chinese investments are a
reflection of overall trends. India attracted more
than three times as much foreign investment -
$7.96 billion - during the first half of the
2005-06 fiscal year, compared to $2.38 billion
during the corresponding period in 2004-05.
According to a recent AT Kearney's FDI
Confidence Index which tracked global executives
to determine their order of preferences, India has
displaced the US as the second-most favored
destination for FDI in the world after China.
However, Chinese firms wanting to enter
telecoms and ports continue to face problems. New
Delhi has derailed the Indian plans of Hong
Kong-based Hutchison Port Holdings, a unit of
Hutchison Whampoa. In the past, Chinese telecom
firms Huawei Technologies and its rival ZTE Corp
have been refused permission by the FIPB to invest
in India.
India has also rejected a bid by
China Harbor Engineering Co for the Vizhinjam port
near Thiruvananthapuram as the company in question
is also developing Pakistan's Gwadar port, which
opens the possibility of a Chinese naval presence
next to Indian borders. The issue of security
concerns relating to FDI first arose after the
presence of Egypt's Orascom Telecom in
Hutchison-Essar came under severe criticism from
the Ministry of Home Affairs in its review of
potential threats to national security from FDI.
The Chinese do have a reason to complain
as FDI commitment in the Indian telecom and IT
sectors combined have touched $18 billion over the
past 20 months. Six companies that have committed
over $1 billion include Cisco's, SemIndia, Intel,
Microsoft, IBM and SAP Labs. This is due to
expectations of fast-growing markets as well as
reaping the cost advantages.
"It's
difficult to set up business here. Our tender was
rejected without a reason, which we thought was
due to being a Chinese firm," a Huawei executive
recently complained at a seminar.
However,
India's new foreign minister, Pranab Mukherjee,
recently clarified that there was no move to deny
entry of Chinese companies to India. Mukherjee, a
known proponent of improved Sino-Indian ties, said
that denial of permission to any single firm did
not mean that a nation as a whole was barred from
doing business in the country.
Siddharth Srivastava is a New
Delhi-based journalist.
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2006 Asia Times Online Ltd. All rights reserved.
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