China's clumsy attempts to cramp India's strategic space are holding back its ties with India.
The popular mood in India, it will be fair to say, is not very favourable towards China at the moment. A daily barrage of blunt official statements and highly jingoistic media reports from the Middle Kingdom warning India of dire consequences - even war - and reminding Indians of the military humiliation it faced in the 1962 border conflict between the two countries is largely to blame for this downturn in the public perception about China.
The reason for this latest media belligerence: a stand-off at the India-Bhutan-China border over China's unilateral claims over Bhutanese territory, which, if conceded, will leave India's North East at the mercy of the Chinese military in case of a conflict.
The Chinese media, a proxy for that country's one-party government, has cautioned Chinese companies operating in India to be alert and to take steps to avoid being hit by anti-China sentiment in this country following the tensions on the border.
Large Chinese presence
Chinese companies, which dominate India's mobile phones market and have a very visible presence in other segments of the consumer electronics sector, are the 17th largest source of FDI into the country, with cumulative investments of about $4 billion in India.
Many experts, however, say actual Chinese investments in India is at least three times the official figure as large doses of investments from that country are routed through Hong Kong, Singapore and other tax havens.
“Actual Chinese investment in India is at least three times higher than the official Indian figure,'' Santosh Pai, partner at Gurgaon-based Link Legal India Law Services, which provides legal services to members of the China Council for the Promotion of International Trade, told 'IndiaSpend'.
Mobiles and automobiles
Five years ago, they were not even present in India. But today, Chinese mobile phone brands such as Xiaomi, Oppo, Vivo and others enjoy a dominant presence in India, having pushed homegrown brands such as Micromax, Karbonn and Lava to the sidelines. Xiaomi, China's fourth largest mobile phone company, produces one phone every second in India.
Figures show that Chinese automobile companies account for 60 per cent of FDI into India but they still don't have any presence in the market, probably because their factories aren't up and running as yet.
But Alibaba, China's answer to Amazon.com, does have a major footprint in India. It owns 40 per cent of PayTM, India's largest digital payments company, and there have been media reports that it will raise its stake to 62 per cent.
In 2014, visiting Chinese President Xi Jinping promised $20 billion in investments in India over five years.
A large part of this investment is coming in the form of investments in infrastructure. Chinese companies have committed massive investments in Haryana.
The Dalian Wanda Group, one of China's largest real estate companies, has recently signed a memorandum of understanding (MoU) with the Haryana government to develop Wanda Industrial New City at an investment of $10 billion over the next decade. This is the single largest investment proposal received from any Chinese company.
The proposal includes the construction of industrial townships and retail and residential buildings. Construction of Phase-I of the project, spread over 1,300 acres, is expected to start soon.
Another MoU signed between China Fortune Land Development Company Private Limited (CFLD), another large Chinese developer, and the Government of Haryana, envisages building large industrial parks in the state.
Wary of cyber attacks
The Indian government's norms for foreign participation in India's power sector will bar Chinese companies from participating in India's multi-billion-dollar market for power transmission.
The norms stipulate that India will not allow investments in India's transmission sector from countries that do not allow Indian companies reciprocity. China does not allow foreign companies to invest in its electricity grid for security reasons. Though India allows Western and Japanese companies to make 100 per cent investments in its grid, the reciprocity condition will block Chinese companies from bidding for billions of dollars of contracts that India is expected to dole out over the next few years.
Given the fraught political situation, India is wary of possible cyber-attacks on its power sector, which is increasingly software-driven.
Rivalry in manufacturing
Despite unfortunate attempts by some quarters in India to downplay India's growing competitiveness vis-à-vis China, this change is being recognised and acknowledged across the Himalayas.
'Global Times', which carries the views of the Communist Party of China, said the 8.3 per cent growth in the manufacturing sector was a “...great achievement for India...”, adding that rising labour costs in China will work in favour of countries like India and Vietnam.
“Although India is still in its initial stage of developing export-oriented manufacturing industries, the country has great potential to emerge as a regional hub for labour-intensive industries. One recent analysis showed China's manufacturing hourly wage in 2016 was roughly five times that in India. China should pay more attention to India's increasing manufacturing competitiveness,” a recent Global Times article said.
“As labour costs climb in China, Vietnam has become an emerging manufacturing nation, but China doesn't need to panic. However, manufacturing development in a large country like India means more pressure on China. The increasing competitiveness of India's manufacturing sector is an issue of strategic importance and deserves more attention,” the article said, adding: “... Chinese manufacturers will inevitably face increased competition from Indian firms....”
Politics in the way
Over the last year, China has publicly taken on and opposed the mainstream global opinion in the United Nations to anoint Maulana Masood Azhar, founder of terrorist organisation Jaish-e-Mohammad, a global terrorist only to protect its “all weather friend” Pakistan from international opprobrium.
Then, it has blocked a consensus on India's entry into the Nuclear Suppliers' Group on very flimsy grounds only, it seems, to stymie New Delhi's rise as a rival Asian power.
The $60-billion China-Pakistan Economic Corridor, which passes through Pakistan-occupied Kashmir is yet another point of divergence between the two countries.
Huge potential but...
The potential gains from a collaborative relationship between the two countries, especially in the realm of infrastructure and economic development, is clear to everyone. But Chinese geo-political calculations and its thinly disguised ploy to surround India and cramp its strategic space are huge constraints that are impeding further development of this relationship.
A lot will depend on how the leadership of the two countries tackle these issues - especially the unfolding game of “chicken” at the tri-junction between India, China and Bhutan.
Till then, the only way to describe bilateral ties is: It's complicated.