India must be wary of Chinese investments

G Parthasarathy | Updated on May 05, 2020 Published on May 04, 2020

China does not transfer knowhow and technology to its partners. Many developing nations have fallen into Chinese debt traps

As we live through the trauma of the coronavirus, we would be well advised to carefully ponder over how to deal in years ahead with the growing power, assertiveness and hubris of China. Even European powers like Germany bear this in mind, while assessing global power equations. While a Chinese handshake is welcome, a tight Chinese embrace could well be rather disturbing.

We are inevitably moving into a new era of international economic relations, where current ideas of trade and investment liberalisation, will have to be looked at, afresh. India has to be well prepared to derive the maximum benefit it can from the dynamics of the emerging global economic order.

Even as China was feeling the heat from international pressures, with countries ranging from the US to Germany holding it responsible for the coronavirus tragedy, the Chinese Government mouthpiece, the Global Times, came out with an interesting description of India’s pharmaceutical industries.

Surprising comments

Global Times paid glowing tributes to the Serum Institute of India as the “world’s largest serum maker,” which had announced that it would jointly develop a Covid-19 vaccine, with the University of Oxford. The Institute was hoping to bring this vaccine to the market by October. The Global Times also stated that the US had recently disclosed that it is working with India to develop vaccines to combat the global pandemic. It concluded: “India is known for its scientific research in medicine development. High production and low prices in its vaccine production capacity are two advantages that make the South Asian nation a good partner in vaccine research and development”.

These comments were rather surprising, as the Global Times has been critical, condescending and patronising, in its references to India and Indian industry. The repeated message by the Global Times has been that India has an obsolete industrial and transportation infrastructure, and that there is much India can learn from China. One was also surprised to read this article, almost immediately after India had publicly rejected and sent back sub-standard medical testing equipment, which had been shipped to it, by China.

Others across the world and particularly in Europe, had earlier acted identically, when they rejected sub-standard equipment supplied by China. Moreover, this comment by the Global Times came in the wake of outrage in countries like the US and Germany, at the complete absence of any remorse or regret by the Chinese, about what transpired in Wuhan. This, when the whole world knows that the suffering human civilisation faces today, emerged from actions and developments, on China’s soil.

China has obviously been feeling the heat of growing international criticism, of events accompanying the spread of the deadly coronavirus, globally. China has also not helped its own cause, either by the persecution of Muslims in Xinjiang, or by the racist attacks on African students in the country. It has run into an avalanche of criticism in the US, which has held it directly responsible for the sufferings and deaths of thousands of Americans, caused by Covind-19. This outrage in the US against China, comes amidst calls for economic sanctions against China.

Freezing the reserves

The sanctions being considered include demands to freeze China’s Foreign Exchange Dollar Reserves, amounting to $1400 billion ($1.4 trillion). Such an action will seriously erode China’s ability to function freely in global markets. China is still a major importer of oil and gas, where payments are predominantly in US Dollars.

China, like India is, however, set to benefit substantially as oil prices have been declining sharply from $60 a barrel, barely a year ago, to around $26/barrel, with prospects of falling further to $20/barrel and less. This development also brought together an unlikely grouping of the US, Russia and Saudi Arabia, to stabilise oil prices. This powerful grouping has, however, failed in its efforts. Oil prices continued to fall.

Bilateral trade

The figures of bilateral trade between India and China are hardly inspiring. They are marked by an increasingly unsustainable trade deficit for India, which reached $57.86 billion in 2018, when total trade amounted to $95.5 billion. Industrial and infrastructure investment by China has, however, been growing since 2014.

This is in marked contrast to the pattern of India’s trade and economic cooperation with Japan and South Korea, in the manufacturing sector — notably in the engineering and transportation sectors. But, following President Xi Jinping’s visit in 2014, there has been a greater focus of Chinese investments in India’s financial and manufacturing sectors, with a small presence in the petroleum and IT sectors.

China has, in the meantime, been showing an interest in investment in the infrastructure sector, with ventures for manufacture and distribution of trucks, cranes and other construction and transportation equipment. The energy sector in India is also receiving increasing attention from China. The Chinese are now moving in a significant way into the solar energy sector in Andhra Pradesh.

Chinese companies have pledged investments of $3 billion in wind and solar energy development, in India. But it is the telecom sector that has seen the largest Chinese presence in India, where four Chinese companies, and South Korea’s Samsung, dominate the Indian market.

Hazards ahead

While one can draw satisfaction from the progress that we have made in expanding economic cooperation with China, there are obvious hazards ahead, while proceeding on this road.

The Chinese have a track record of not transferring knowledge, knowhow, technology, spares, or even maintenance instructions, for their projects.

China does not transfer knowhow and manufacturing skills, to enable its partners to stand on their own feet. The Americans learnt, a bit too late, how they had been astutely lured by Deng Xiaoping into a situation, where they transferred investment, technology and knowhow recklessly for four decades, to China. The US is today paying the price for past naiveté.

Many developing countries in the Indian Ocean region, ranging from Kenya and Ethiopia, to Sri Lanka and Pakistan, have landed in Chinese “debt traps,” by welcoming Chinese investment, in economically ill-advised projects. Sri Lanka, which kept recklessly inviting investments from China in infrastructure, found it could not repay Chinese loans. It was then compelled to compromise its sovereignty, by virtually handing over the Hambantota Port, to China.

Others like Myanmar are still working out how to prevent their sovereignty from being compromised by Chinese investments. Pakistan is now unable to repay loans for the much-touted China-Pakistan Economic Corridor (CPEC). But, given its key role in Chinese sponsored “containment” of India, Pakistan will continue receiving Chinese bailouts.

The writer is a former High Commissioner to Pakistan

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Published on May 04, 2020
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