Challenges before Japanese investors

Author: 
Subrata Majumder

Speculations are rife over the impending new era of Sino-India economic relations. Political and economic relations, which were intertwined hitherto, moved diagonally opposite to each other. Despite border standoff intensified at Sikkim, Bhutan and Tibet tri-junction, Chinese investment initiatives are unlikely to be debilitated. Border tension is not new. Before, whenever the border tension erupted, it had a drag on Chinese trade and investment in India. India used to restrict Chinese investment with a plea on security concern. This time, no such move was made by India.
Similarly, in a paradox, Chinese investors continued their overdrive to invest in India, nudging out Chinese warning for anti-China protests and ripples of India’s resistance to Chinese OBOR, which means Chinese outreach for globalization. Chinese investors were swayed by India’s growth story and market dynamism.
Currently, India accounts a paltry share of Chinese overseas investment, against the backdrop of China being the third biggest investor in the world. But, this does not tell the reality. The recent trend of Chinese investment in India and its growth trajectory foretells a new era of Chinese investment in India. Till 2015, the cumulative Chinese investment in India was US $ 1.3 billion. Between June and August 2016, China bid for US$ 2.3 billion investment.
Pinning hope in Make in India initiative, Chinese private investors are gung-ho to strengthen their footprints in India through investing in digital ecosystem. A big chunk of recent Chinese investment flowed in the fields of Start-up business in India. Nearly US $2.5 billion was committed for investment in Start-up during 2015 and 2016. The major investments were Beijing Mitene Communication Technology investment of US $ 900 million in Media.net and Alibaba, investment of US$680 million in Paytm and US$ 500 million in Snapdeal.
China has already made a dent in the Indian mobile market investment. China brands now account for over 51 percent of the smart phones sales in India. Large penetration of Chinese top brands of smartphones, like Xiaomi, Oppo, One-plus, Gionee, Vivo, Huwai are the cases in point. In corollary, India emerged a potential turf for Chinese companies to reap the windfall of vast Indian market.
In 2016, Japan was the third biggest foreign direct investor in India. China was the seventieth investor in India. Even though Chinese investment was one-fifteenth of Japanese investment, days are not far when China will catch up the Japanese in race in India.
The challenges, the Chinese investors pose, are the low cost advantage and their investment pattern which are in tune to Make in India initiative. India has robust IT industry that operates at cheaper costs in India than in China. By investing in digital start-ups, China is in unique position to give a challenging shape to its investment in India. India is in the threshold of building 100 smart cities by 2020 with an investment of US$ 15 billion.
Gujarat has become a hotspot for challenges between Chinese and Japanese investors in India. Modi’s charisma and his leadership for development became the magnet for Chinese to invest in Gujarat. During Modi’s trip to China in 2015, China Association of Small & Medium (CASME) and China based Golden Concord Holdings LtD (GCL), pledged to set up industrial parks in Gujarat. In addition, government of both countries agreed to set up Skill Development in Gujarat.
Similarly, setting up Maruti became the trigger for Japanese investment in Gujarat. Around 60 Japanese companies are operating in Gujarat.
There was a turnaround in the Japanese interest to invest in India. Japanese investors underwent for a new look towards India. The Lehman crisis and rise in Chinese currency Yuan, which dented the Chinese low cost manufacturing competitiveness, drifted Japanese investors to India and other South east Asian countries. The green shoots are visible. The Japanese investment soared five times in between 2013 and 2016 - from US $ 1.4 billion in 2013 to US$ 5.8 billion in 2016.
According to a survey, seventy percent of Japanese investors in India are geared up to revamp their operations in the next few years. The Japanese business expansion plan in India is the largest among the Japanese investors in Asia and Oceania. The sustainable growth in the Indian economy, continuous flow of deregulations and increase in sales attributed to the turnaround in the Japanese investment in India. 
Till now, the Chinese and Japanese investment in India did not wade in row under the realm of competition. China peers in Start-up and mobile phones and Japan concentrated in automobile, HSR ( High Speed Railway) projects, such as Mumbai-Ahmedabad Shinkansen railway project and infrastructure such as DMIC (Delhi Mumbai Industrial Corridor).
But, the growing presence of Chinese investment demonstrates a new look and usher in a borderless investment in India.  China has developed its own technologies in various fields during its modernization programme, which are challengeable to the Japanese technology. The bullet train, power plants, solar panel manufacturing are the cases in point.
China has proved its technological competence in bullet train after winning Jakarta – Bandung 150 km high speed rail project. This was against stiff competition from Japan. Currently, China Railway Corporation (CRC) is carrying out feasibility studies of high speed trains between Chennai-New Delhi route. It will be no wonder if the Indonesia case is replicated in India, since China has an edge in cost competitiveness and AIIB can act as prime donor to this project, where China and India are the prime stakeholders.
Given the Chinese bent to invest in India irrespective of border standoff, Chinese investment is posing a major challenge to Japanese investors in India. (IPA)

Thursday, 3 August, 2017