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This Chinese invasion = Deals worth $20 billion

Last updated on: December 15, 2010 11:29 IST

This Chinese invasion = Deals worth $20 billion

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Jyoti Malhotra in New Delhi

Business will trump politics when Chinese premier Wen Jiabao arrives in Delhi on Wednesday for a two-day visit.

Both sides are likely to sign deals upwards of $20 billion primarily in the power, telecom, steel & metallurgy, wind energy, chemicals, food and marine products sectors, even as New Delhi will call for the Chinese to show "mutual sensitivities to each other's concerns", such as the inalienable integrity of Jammu & Kashmir.

Significantly, China's political leadership seems to have decided that it will soon add the automobile sector to the telecom and power sectors that are currently the focus of its market strategy for India.

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Image: Chinese Premier Wen Jiabao at China Development Forum at the Great Hall of the People in Beijing.
Photographs: Feng Li/Reuters
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According to a government analyst, Beijing has told its auto majors to begin preparing to take on South Korean and Japanese carmakers in India.

Shanghai Automotive Industry Corporation, a major Chinese auto company, has already begun to act on this political directive, the analyst said, pointing out that with its part acquisition of General Motors, it had already acquired a stake in GM's India concern.

At the time of going to press, haggling over a joint communique was still going on, and it was unclear if India's core concern about J&K being an "integral and inalienable" part of India would be reflected in it.

Government officials pointed out that Prime Minister Manmohan Singh would certainly raise this matter, which links up with the stapled visas issue, "but in a general way."

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But what is increasingly becoming a hallmark of Singh's tenure, at least with heads of the most powerful countries, is a dinner that he will host for Premier Wen this evening, after he visits Tagore International School and presides over a major business event hosted by India's chambers of commerce.

Over kebabs and orange juice, with India's and China's elite in attendance at the PM's home on Race Course Road, both sides are expected to talk of "convergences", especially in the booming trade statistics that touched $49.5 billion in October 2010.

"The Chinese premier's visit is very significant. Not only is it our biggest neighbour, but our trade relations are also expanding very fast," said Finance Minister Pranab Mukherjee on Wen's visit.


Image: Prime Minister Manmohan Singh and Finance Minister Pranab Mukherjee.
Photographs: Reuters
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The Chinese premier comes to India after five long years, a period that has witnessed enormous change in the Sino-Indian relationship, ranging from a 2005 agreement on the unfinished boundary issue that is seen changing the map of India when it is implemented to the disquiet over Beijing's unwillingness to come to terms with India's rising stature.

This, in recent years, has manifested in China seeking to block the Indo-US nuclear deal in 2008 at the Nuclear Suppliers' Group, as well as its refusal to publicly announce its support for India as a permanent member in the United Nations Security Council.

But with India increasingly confident about its own place in the world, the PM is not expected to shy away from thoroughly airing political differences such as on the core concern of J&K being an integral part of India, even as the booming trade and investment statistics blunt the sharp edges.

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Image: Paramilitary police officers hold a Chinese national flag during a parade training session at a military base on the outskirts of Beijing.
Photographs: Reuters
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The Chinese had recently refused a visa for J&K commander B S Jamwal to visit China and had insisted on stapling visas on the passports of residents of J&K, indicating that the state was not an integral part of India.

The business event will see the private sector in both countries ink deals amounting to more than $20 billion, while on Thursday, after the formal conversations, as many as six or seven inter-governmental agreements -- primarily in the banking and financial sector -- are likely to be signed.

Considering the high volume of trade, there is not one Chinese bank in India, while there are as many as 11 Indian banks in China, although several of these have only representative offices.

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Photographs: Reuters
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Still, a look at bilateral trade statistics is more than revealing: Of the approximately $50 billion in trade, $35 billion is in China's favour, while India's $15 billion consists of traditional items like iron ore, marine and food products, gems & jewellery and pharmaceuticals.

Of China's trade basket, machinery -- primarily equipment for the power sector -- amounted to $7.8 billion (or 24 per cent), electricals -- mostly in the telecom sector, with China's Huawei and ZTE already cornering almost a third of India's market in end-to-end telephony -- amounting to $ 7.6 billion (23 per cent), organic chemicals amounting to $3.3 billion (10 per cent), iron & steel amounting to $1.8 billion (6 per cent) and fertilisers amounting to $1.4 billion (4 per cent).

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Image: A visitor tries on jewellery.
Photographs: Krishnendu Halder/Reuters
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Government officials and analysts pointed out that with the western world still mired in the throes of economic recession, the Chinese seemed to have decided that it was imperative to take a long-term view on India and push for "an expansion in India's market".

For example, India's private power companies, whether Anil Ambani's Reliance Power, Adani Power, GMR or Jindal Power, are all joining the queue to buy Chinese equipment, arguing that the competitive pricing, fairly decent quality, fast delivery and commissioning were unbeatable.

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Image: Electric pylons.
Photographs: Jitendra Prakash/Reuters
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Interestingly, Anil Ambani recently signed a $10-billion deal with Shanghai Electric after the US Exim Bank refused him a loan citing Ambani's lack of green credentials.

The Chinese were, on the other hand, happy to lap up the power deal.

But what is fascinating is that even official Delhi seems to have bought into Beijing's determination to deliver the goods.

It is believed that Planning Commission Deputy Chairman Montek Singh Ahluwalia has expressed considerable pleasure at the manner in which the Chinese are delivering on their promises on the power front, pointing out that if they didn't, his own growth estimates in this sector would be severely hampered.

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Image: Anil Ambani.
Photographs: Reuters
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Moreover, several public sector steel plants such as Bhilai, built with Russian help in the 1950s, are now looking to the Chinese for help with restructuring and modernisation.

"The Chinese have shown to us that socialism still lives, although through the capitalist route," one Indian official commented wryly.

However, several other government departments are far more circumspect.

The fact that the trade figures are so severely imbalanced means that even a partial free trade arrangement is out of the question, at least for now.

New Delhi also seems to have sternly told the Chinese that further market access, for example in telecom, would depend on "political understandings", for example in the pharmaceutical sectors.

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Officials have told Business Standard that Huawei's access to the Indian market, which had run into considerable difficulty after New Delhi felt the telecom company had links with Chinese intelligence, was only allowed after the economic ministries in both countries came to a "broad political understanding" that Beijing would also not stand in the way of easing the regulatory processes for Indian pharmaceutical companies.

"If the Chinese want greater market access to India, then we should also create political-level understanding that will further our economic interests," the government official said.

Indian pharma companies have been complaining that Chinese procedures are extremely strict, which has provoked Beijing to point out that if Western pharma companies can do business in China, then surely Indian pharma companies can follow suit.


Image: A laboratory researcher.
Photographs: Sebastian Derungs/Reuters
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