Till last year Narendra Modi and his Government were rolling out the red carpet for Chinese investment. What explains the sudden chill?
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Gujarat had wooed China with open arms when Narendra Modi was Chief Minister and the process accelerated once he became the Prime Minister.
The ‘personal’ chemistry between Modi and Xi Jin Ping, demonstrated on the Sabarmati river front, led to a number of delegations from Gujarat visiting various parts of China for investment.
Adani Group operated Mundra Port signed a ‘sister port’ agreement with Shanghai port, 5,700 nautical miles away, and Adani Power enlisted Chinese support to put up its power plant in Godda (Jharkhand).
In January this year there were 80 Chinese Engineers in Godda, the last five of whom arrived in the middle of the month and were quarantined for a month.
Narendra Modi had visited China when he was Chief Minister; and old timers recall an occasion when despite the Government of India not permitting him to travel to China, he nevertheless went to China via Hong Kong.
To the great embarrassment of the then Indian Ambassador, Modi then landed up at the Indian embassy in Beijing, meeting employees and diplomats individually.
Chinese media too had written glowingly about the Gujarat Model when Modi got elected in 2014. Prime Minister Modi had declared in Tokyo that commerce ran in his blood and that he was ready to trade with anyone as long as he got a good deal.
Typically, in the run up to the 2014 general election, Modi had ridiculed the UPA Government’s handling of China. He was wary of Chinese expansionism and felt that the UPA Government had dealt with China with kid gloves, letting China get away with incursions into Indian territory. Once he became PM, he claimed, China would never dare ruffle India’s feather.
Once he became the PM though, his government was more than willing to do business with China. Regulations were eased and tweaked in favour of Chinese companies, leading to a surge in Chinese exports to India. From hi-tech components for computers and mobile phones, if not computers and mobile handsets, to fire crackers and idols of Ganesha from China flooded the Indian market.
Even everyday consumer goods like lamps and torches made in China were sold at prices cheaper than products made in India. While experts alleged that China was dumping goods in India, the honeymoon between the two countries showed no sign of slackening.
Chinese companies initially set up projects in industrial clusters of Gujarat. But after 2014, they began to expand big time, even buying land in Gujarat (as opposed to land acquired by the state and allotted to them) and also asking for vast swathes of land in Kutch and Rajkot to set up units.
The Chinese had set their eyes on the Gujarat coast, where the ports would enable them to export to Africa and the Middle East. The sea route from China to the Middle East and Africa is far too long. But if Chinese goods containers could come over land to ports on India’s west coast, the cost and time would clearly get reduced.
Chinese state owned port company Guangzhou Port invested in Adani owned Mundra port as recently as 2018 and shared technical knowledge and expertise. While ports like Mumbai and Tuticorin were not allowed to get Chinese investment, citing security concerns, an exception was made in the case of Mundra Port.
Investment strategy of the Chinese companies while investing outside China, like any other country, looks for synergy in expertise, logistics and culture. Did Gujarat meet those requirements and expectations? Was productivity and skill offered by Gujarat really so high that they met Chinese production standards?
India’s opposition to China’s OBOR ( One Belt One Road) initiative, the ambitious infrastructure development project across 70 countries, on security concerns since the CPEC ( China-Pakistan Economic Corridor) passed through Pakistan Occupied Kashmir, did put a brake to the pace at which the elephant and the dragon had begun to dance.
While OBOR was unveiled in 2013, China never made a secret of its belief that India should join it to benefit all countries in the region. Indian suspicion was also fuelled however by China developing the Gwadar Port in Pakistan.
OBOR seeks to expand the Kashgar Corridor all the way to Aksai Chin and Tibet. The Chinese have carried out rapid industrialisation and mining in these two regions and are now looking to connect it to the CPEC corridor.
The United States supporting India’s opposition to OBOR also riled the Chinese. The US shared India’s concerns and declared that the initiative made no economic sense but required countries to cede their sovereignty.
India’s joint military exercises with the US military and the decision to join the QSD ( Quadrilateral Security Dialogue) also known as QUAD along with the US, Australia and Japan would have added to the Chinese disquiet.
OBOR after all is a pet project of the Chinese President and of course is part of the Chinese strategy to emerge as an economic powerhouse. The US stands to lose the most, economically and strategically, and India’s tilt to the US would have added to strains in the Sino-Indian relations.
Besides, it is believed, that China would like to divert water from Shyok, Galwan and Chang Chenmo rivers in Ladakh to Aksai Chin and Tibet for industrial and housing needs and for its plans to resettle Han Chinese in the region. While Chinese are looking at Ladakh and North Kashmir as part of the bigger well carved strategy, India is looking at it only from the territorial point of view.
But after rolling out the red carpet for Chinese investment, often despite objections raised by the UPA Government at the Centre, Modi in his second term as PM has taken a U-turn on Chinese investment. The Government viewed with concern Chinese investment in Indian banks and companies, picking up shares when the prices plunged in the wake of the pandemic in the stock market.
The FDI policy was tweaked to incorporate a clause that countries sharing a border with India would have to get a nod from the Government first before investing in the country.
India has also refused to join the ASEAN-led RCEP (Regional Comprehensive Economic Partnership), amidst fears that cheaper Chinese goods would kill domestic industry and allegedly over ‘COVID concerns’.
The Confederation of All India Traders (CAIT), strong Modi backers and fund raisers for the BJP, not surprisingly, has been leading the campaign to boycott Chinese goods. Another factor which might have prompted India to distance itself from Chinese investment is the hope, misplaced according to some quarters, that international companies would be pulling out of China in large numbers and much of it would relocate to India.
Till a year back, Modi was seeking greater economic cooperation with China, inviting Chinese investment across sectors, unconcerned about either security or domestic manufacturers. He was happy to play along with the importers.
What has happened suddenly? Has the commerce-in-the-blood Gujarati leader been swayed by commercial pragmatism?
Or has he finally realised the threat of Chinese trade expansionism drowning domestic traders? Or has the anti-China lobby of the United States succeeded in its designs? The jury is still out.