Chinese investment in India is booming. Latest data show that in 2016 China's investment in India reached as high as US$1.063 billion, more than six times that of 2015. By the end of 2016, China's cumulative direct investment in India had exceeded US$4.8 billion, whereas at the end of 2014 the stock was only about US$2.4 billion. This shows that India has become a popular choice for Chinese enterprises' investment.

Why the surge?

Liu Xiaoxue, associate research fellow at the Institute of Asia-Pacific and Global Strategy of the Chinese Academy of Social Sciences, said in an interview with International Business Daily that the rapid growth of Chinese investment in India is partly because Chinese enterprises' previous investment base in India was small, resulting in high growth rates in recent years; on the other hand, India alone, with its huge demographic dividend, weak infrastructure and low level of industrialization, is well worth investing in, not to mention that in recent years, especially after Indian Prime Minister Modi took office, India's economic growth has been impressive, maintained at 7%-7.9%, ranking among the top among global economies.

In fact, Japan and South Korea have always accounted for a relatively high share of India's foreign investment, and Japanese and South Korean enterprises are also eyeing India's domestic market. Liu Xiaoxue explained that India is not an open economy and has never entered the production chain of the international division of labor in manufacturing, and has relatively high tariff barriers and regulatory thresholds. Therefore, investing in India not only allows investors to directly enter India's huge domestic market, but also helps them avoid India's tariff barriers.

Another factor that cannot be ignored is the "Belt and Road" initiative. Liu Xiaoxue said that previously Chinese enterprises' "going global" approach was not yet mature, mostly involving large and medium-sized state-owned enterprises, and industries were relatively concentrated. Now, relying on the "Belt and Road" initiative, the forms of Chinese investment in India are constantly diversifying, and the range of industries for investment cooperation is gradually expanding.

In addition, the advantages of Chinese enterprises in infrastructure and electronic products are also one of the reasons for settling in India. Liu Xiaoxue acknowledged that India's biopharmaceutical R&D, information technology and the service outsourcing industry driven by it are very competitive internationally, but in manufacturing, India is hard-pressed to compete with Southeast Asian countries, with manufacturing accounting for only about 27% of India's gross domestic product (GDP). This is also the reason why Modi proposed slogans such as "Make in India" after taking office. Now China's manufacturing investment in India no longer produces only primary products, but more high-end complete sets of equipment such as large generators and telecommunications equipment.

In the field of electronic products, Chinese companies such as Xiaomi and Huawei have already made a name for themselves in India. Manu Jain, general manager of Xiaomi India, said that since Xiaomi entered India in 2014, it has captured 7% of the Indian market share in just three years. In 2016, Xiaomi achieved explosive growth in India, squeezing into the top three in the market, with annual sales exceeding US$1 billion.

At the same time, Chinese internet companies are also pushing into the Indian market. According to a recent report on the online edition of Forbes magazine, from 2000 to March 2016, Chinese internet companies' cumulative investment in Indian startups was about US$1.35 billion, and by the end of 2016 the figure had increased to US$2.3 billion. Data show that Chinese e-commerce giant Alibaba plans to increase its investment in Indian e-commerce company Paytm by US$200 million; previously Alibaba and Ant Financial had invested US$680 million in India. Tencent Holdings led investment in Indian chat app Hike, and Baidu is also discussing investment in Indian startup e-commerce companies.

Difficulties are also obvious

Although India is gradually improving its internal and external investment environment and expanding its openness, many Chinese-funded enterprises still face a less than optimistic survival situation in India, and most have not achieved their expected goals and profitability levels. The "Report on the Survival of Chinese Enterprises in India (2016 Edition)" mentions that India's legal environment, investment policies, tax system and foreign exchange supervision are relatively complex, and Chinese enterprises have insufficient pre-investment judgment or no long-term operating plans, all of which are reasons why Chinese enterprises encounter bottlenecks in their development in India. The survey shows that, apart from large enterprises, most Chinese enterprises have relatively small asset scales in India, mainly between US$100,000 and US$5 million.

Mao Keji, a researcher at the India Research Center of the Pangoal Institution, also mentioned in an interview with International Business Daily the problems of Chinese enterprises themselves: on the one hand, for markets such as the internet and fast-moving consumer goods, many Chinese enterprises rush in, raising the possibility of vicious competition and overheating; on the other hand, the Indian market is rather special and requires long-term deep cultivation, for which most Chinese enterprises are not prepared. "In addition, India has always held prejudices against Chinese investment, especially in areas involving infrastructure," Mao Keji said.

Take the "Belt and Road" initiative as an example. In its latest commentary, International Forum said that because China has been too eager to promote the concept of the "Maritime Silk Road" to India, this concept has now not only attracted attention in Indian academic circles but has also become an emotional issue in India. To be precise, this is not yet nationalism; it is a kind of symbolism that makes Indians unwilling to agree to any arrangement that subjugates them to the Chinese, even if it is a win-win proposal.