FDI Policy | India finally bites the Chinese bullet

Faced with China’s economic drive at a time of acute economic crisis, concerns have been rising across the world about Chinese companies using this opportunity to buy up distressed assets at cheap rates. The ongoing economic crisis is presenting opportunities for takeover in several sectors and India will need to safeguard its own technological assets at a time when China's cumulative investment in India has been rising, exceeding $8 billion till December 2019.

In particular, Chinese investors have been investing in Indian startup sector aggressively. India emerged as an attractive destination for the Chinese firms ever since the US-China trade war began to restructure the global supply chains.

India’s response is part of a worldwide trend where Chinese predatory trade practices and weaponisation of trade has generated an intense backlash. This process has been accelerated by the current pandemic. Europe too has been raising alarm at the Chinese practices. Chinese investments in strategic industries have led European nations to more aggressively defend their economic interests.

The COVID-19 pandemic and the resulting economic crisis can open up new possibilities for Chinese inroads in Europe. However, there is a new resolve in Europe to fend off the threat of a Chinese takeover. In fact, Margrethe Vestager, the European Union’s (EU) competition commissioner, recently suggested that European countries should consider taking stakes in companies to fend off this threat.

Last month, the European Commission had called upon its member states to ensure protection of strategic assets from a likely Chinese takeover. Australia is also taking precautionary measures aimed at preventing sales of distressed corporate assets during the coronavirus crisis.

So India is not alone in taking measures to ensure its strategic sectors are protected at a time of great socio-economic turmoil. Like most mature democracies, India too is coming to terms with the challenges of economic interdependence with a country such as China. The Trump administration in the United States has been talking of an ‘economic decoupling’ from China for some time now. However, it took the pandemic for the rest of the world to take it seriously.

For India the problem lies that trade with China has often been viewed as a positive in a relationship which is increasingly devoid of any positive sentiment. After the Doklam stand-off in 2017, the Wuhan ‘reset’ with China was premised largely on India and China working towards a more robust economic relationship. Yet, China’s reluctance to adequately address Indian concerns and the challenges posed by sectors such as trade and health also becoming national security challenges meant that New Delhi had had to finally bite the bullet.

Beijing should recognise that while New Delhi will certainly lose in the process, it is a price it seems willing to pay in order to not only strengthen its own manufacturing and technological base, but also to demonstrate its resolve by standing up to China’s shenanigans.

Harsh V Pant is director, Studies at Observer Research Foundation, New Delhi and professor of international relations, King’s College London. Views are personal.