Breakingviews – India is preparing for a cooling off from China

MUMBAI, August 28 (Reuters Breakingviews) – A gathering of Asian neighbors in faraway South Africa is rekindling hopes for businesses at home. Indian Prime Minister Narendra Modi’s exchange with Chinese President Xi Jinping on the sidelines of last week’s BRICS summit may indicate an official interest in unfreezing a financial relationship that has been paralyzed since 2020 by border tensions. A selection policy that drastically slowed investment in India seems ripe for some adjustment.

While the dialogue between the two leaders appeared to focus on unresolved issues on their shared border of more than 3,000 kilometers (1,860 miles), it sets the tone for broader engagement on bilateral issues at next month’s G20 summit in New Delhi. . India appears to be preparing for a greater Chinese presence in its business three years after it introduced an approval regime for investments from countries that share a land border. The impact of the assessment was pronounced: China’s foreign direct investment was small, amounting to about $6 billion, including in the pharmaceutical, technology and auto sectors, according to Gateway House, a think tank, but official data from the India show that it fell to $11.7 million in 2021.

Now a softening of its position towards its second largest trading partner is palpable, albeit with strict controls and limits. New Delhi authorities have been approving proposals in sectors such as renewable energy and electronics, in part spurred by companies like Apple. (AAPL.O) that it wants its Chinese component makers to be close by while making iPhones in local factories. Corporate agreements are also being prepared. Fast fashion retailer Shein, whose app India banned in 2020, returns in partnership with Reliance Industries. (RELI.NS) retail unit, The Wall Street Journal reported In May. JSW, Sajjan Jindal’s paint steel conglomerate, is evaluating a large minority stake in SAIC Motor-backed MG Motor India, the Economic Times said in June.

Faster and more frequent approvals could be on the horizon: as of March 2022, India had only approved 66 of 347 FDI proposals under the selection mechanism. Actual investments currently lag behind the number of approvals; a better geopolitical relationship could reduce the gap. A priority area could include anything that eliminates the importation of foreign products and encourages domestic production, such as the manufacture of electric vehicles. India’s digital economy, previously a big area of ​​interest for Chinese entities, may remain off-limits over data security concerns.

Modi has made a deepening financial relationship with China contingent on a warmer political relationship. As long as relative calm continues at the border, warmer handshakes could follow.

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CONTEXT NEWS

Indian Prime Minister Narendra Modi spoke with Chinese President Xi Jinping on the sidelines of the BRICS summit in Johannesburg and highlighted the concerns India has over border issues, Reuters reported on August 24, citing the secretary of External Affairs of India.

Chinese automaker BYD has told its Indian joint venture partner it would shelve plans for a new $1 billion investment to make electric cars after its proposal faced scrutiny from New Delhi, Reuters reported in July.

India is “open” to investment from China, former Minister of State for Electronics and Information Technology Rajeev Chandrasekhar told the Financial Times in an interview published in July.

A private company owned by Sajjan Jindal, chairman of India’s JSW group, plans to buy up to 48% of MG Motor India, a wholly owned arm of Shanghai-based SAIC Motor, The Economic Times reported in June, citing people. not identified with knowledge of the matter.

Shein will return to India through a partnership with Reliance Retail, The Wall Street Journal reported in May. The Chinese fast fashion brand has agreed to a strict licensing agreement with the Indian company, Bloomberg reported in June.

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