Is Chinese Money Good?


By Rahul Sharma

BusinessWorld

In the larger scheme of things there are today two countries that have the capability and the capacity to funnel substantial investments into foreign markets. One is the United States – the traditional home of large multinational companies with global footprint. The other is China, which is looked at with suspicion not only in India, but in the United States as well.

At a time when India needs to attract higher foreign investments – not only to bridge its gaping current account deficit, but to also create millions of new jobs – there is a need to look at Chinese companies differently than we have in the past. And we can learn lessons from the Americans, who worry about China’s rise as much as we do.

The first lesson is to be pragmatic. The second is to find a right balance between politics and business despite the usual noise that tends to drown reason to accommodate the interests of both sides.

Last year, two Chinese technology companies – Huawei and ZTE – were hauled over the coal by the intelligence committee of the U.S. House of Representatives after concerns over national security threats. “Chinese telecommunications companies provide an opportunity for the Chinese government to tamper with the United States telecommunications supply chain,” the committee’s investigation report said.

It recommended that the United States should view with suspicion the continued penetration of the US telecommunications market by Chinese telecommunications equipment manufacturers and private companies should consider the long-term security risks associated with doing business with these Chinese companies. Of course, the two companies protested loudly as anybody would, but the report is now a permanent marker in US-China relations.

However, Americans turned out to be eventually pragmatic. They have not only allowed Chinese companies to invest in the key energy sector, last month the largest acquisition of an American company by a Chinese firms went through without serious hiccups.

There was cause of celebrations when shareholders of the US Smithfield Foods Inc. agreed to sell their company to China’s Shuanghui International Holdings Ltd for $4.7 billion. The deal went through despite initial concerns over national security.

Let’s return to India. The same telecommunications companies that got hammered in the United States have also been under the government microscope for some time. Every Chinese company looking to invest in India quickly becomes a victim of a 50-year-old narrative when India and China went to war over a border issue. Since the issue remains unresolved, the mindset demands that everything China and Chinese needs to be looked at suspiciously.

If for a moment we do agree that Chinese companies have sinister plans to destabilize India, we need to look West – towards Europe, Africa and both North and South America where cash-flushed Chinese state-owned and private firms have been on a business buying spree for some years now. While the big focus was energy earlier, the trend has changed as different businesses (going cheap everywhere post the 2008 financial crisis) are being eyed and bought.

Given that most American companies have virtually given up on India and are keener to invest in their domestic economy that is beginning to finally expand, the only source of investment that India could possibly look at is China. However, it has to be pragmatic and balanced in attracting the kind of investments it wants and in sectors where the threat factor is low. Let’s not forget that the eventual plan of the two countries is to raise bilateral trade to $100 billion in the next few years, and that opens up several possibilities for Chinese investments in sectors that are safer from a “national security” point of view.

While geopolitics will always continue to play a strong role in India-China relations, let’s also understand and appreciate that the two need each other – for different reasons of course. While it is in India’s interest to bridge its trade deficit with China, it is also in China’s interest to get a toehold in the Indian market at a time when its exports to the West are shrinking and its overall economy beginning to slow down.

Similarly, it is in the interest of Chinese companies to overtake Japanese and South Korean brands that have made India a strong home in the last two-odd decades. For India, which is now talking of allowing Chinese companies to set up shop in special economic zones (than let them run around freely in the countryside), the focus should be on getting the best deal for the government and the people.

National security, like everything else, is relative to the situation on ground at a certain period in time. India needs to handle matters with China confidently and keeping its interests in mind.

Let’s go back to the Americans again. Back in 1971, President Richard Nixon and his right hand man Henry Kissinger set the ball rolling to bring China into the global economic mainstream. The reason was geopolitical, For three decades after that American companies poured in billions of dollars into that country, bringing it to a point that now Americans themselves have started looking at China as an emerging global power that could overtake the United States in the near future.

The threat of China to the superpower is as real as it to a regional power such as India, which also happens to share a troublesome border issue with the large neighbor. Good business always makes for good politics and, therefore, it is in the interest of bother India and China to ramp up investments.

India doesn’t have to entirely follow the American way, but it can surely learn how to deal better with the Chinese by letting them in in a manner that helps New Delhi resolve its economic troubles.

(The columnist, a former newspaper editor, is President, Public Affairs, Genesis Burson-Marsteller and co-founder of Public Affairs Forum of India. He has a keen interest in China and Southeast Asia. Views are personal

 

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