Govt must take note of CEA's warning on China

Last week, our Minister for Commerce and Industry Piyush Goyal scotched all speculation on whether the government would accept the recommendations of the chief economic adviser (CEA) in the Economic Survey to consider facilitating investments from Chinese companies. “The Survey is not at all binding on the government and there is no rethinking on supporting Chinese investments in the country,” Goyal said. So, any investments from China and any applications for visas from Chinese entrepreneurs, managers, and technical persons will continue to be subject to stringent scrutiny from the national security angle. 

India was so welcoming of Chinese investments that the Foreign Trade Policy Statement put out by the Commerce Ministry in April 2015 recommended industrial parks, special economic zones, and new industrial manufacturing zones for Chinese firms. It referred to the Memorandum of Understanding for industrial parks signed with China and the five-year development programme for economic and trade cooperation that laid out a road map for comprehensively deepening and balancing bilateral economic engagement. The mid-term review in December 2017 reiterated the same approach. The relations soured between the two countries after their troops clashed at Galwan Valley in Ladakh in June 2020. Thereafter, India has made it difficult for the Chinese to get visas or approvals for investments in India. The relationship between the two countries has not improved enough to rethink that policy, as the minister supposed.

China may not be much affected by the decision. Its exports to India at $107.75 billion in 2023-24 represent 15.06 per cent of our total imports of $675.43 billion, whereas they represent only 3.1 per cent of its total exports of $3.38 trillion. Since many countries have erected tariff and non-tariff barriers on imports of goods from China, many Chinese companies have stepped up their investments in setting up manufacturing facilities in Latin America, especially Mexico, from where the markets in North America can be accessed easily; in Türkiye and North Africa, especially Nigeria and Morocco, from where the markets in Europe can be accessed; and Southeast Asia from where most markets can be accessed.

With domestic consumption not picking up and foreign investment also at historic lows of $163 billion in 2023, Chinese companies are not only trying to utilise the existing capacities better by exporting at lower prices but also by setting up manufacturing facilities in developing countries.  They are facilitated by countries, especially in Africa and Latin America, which have benefited from Chinese investments in infrastructure under the Belt and Road Initiative. Chinese companies, however, may not be able to get certain advantages in other countries that they enjoy at home such as economies of scale, economic coercion and discriminatory treatment against foreign-funded companies, industrial policies and subsidies for setting up capacities, and informal state interventions to encourage domestic procurement.

Our government is best placed to assess national security considerations and determine the extent of access we should give to Chinese goods and investments. But, it must take serious note of the CEA’s warning that China’s dominance over a large number of product categories creates a risk of economic coercion, especially export of rare earth and critical minerals which are of high priority in the green transition efforts, and its monopolistic practices that considerably limit the space for new entrants to emerge as new manufacturing powers.

Email : tncrajagopalan@gmail.com