In mid-October, Guo Guangchang, founder of Fosun, flew to Mumbai in his private plane to attend the dinner celebrating the Chinese conglomerate’s purchase of Indian pharma company Gland. For many weeks, approval for the transaction had been held up — hostage to the border dispute between India and China in Doklam. The situation was finally resolved not because Delhi signed off but because Gland’s founder, PVN Raju, agreed to sell a smaller portion of his holdings, bringing the transfer below the 74 per cent threshold that triggered the need to secure the government’s blessing. Over mao-tai, (which the Fosun people claimed cost $1,000 a bottle), Mr Guo, clad in jeans and a T-shirt, said he hoped to do many more deals in India, according to several attendees. Fosun has already joined the many Chinese companies backing tech start-ups in the country.
The Fosun deal is a pointer to how complicated India’s relationship with China has become. Swaths of the Indian economy are dependent on Chinese products. If solar energy is now competitive with polluting thermal power plants, owned by corporates such as Reliance and Tata, it is in large part because about 90 per cent of the solar panels come from China. The telecoms industry in India is thriving on cell phones that are made in China, assembled in India; Reliance Jio phones are largely sourced from Chinese maker ZTE. Moreover, some of India’s best-known start-ups, such as Paytm and Flipkart, rely on Chinese capital.
Business and government do not always look on China in the same way. The tensions over the disputed border area at Doklam have subsided at least temporarily. But China has few friends in Delhi. Most Indian politicians remain convinced that it is a political, economic and financial bully that wishes to impinge on India’s sovereignty and to solve its excess capacity issues at India’s expense.
However, the business community has a more nuanced view, based on its dependence on China. That adds to the risks facing corporate India today. Many local industries could ill-afford a political backlash from Delhi against China, but that does not mean that a rupture cannot happen. For example, the first anniversary of India’s big demonetisation push in early November led to a round of harsh rhetoric from the opposition Congress party, led by former prime minister Manmohan Singh and the man who would be prime minister, Rahul Gandhi. Somewhat curiously, what should have been an attack on the BJP government of prime minister Narendra Modi instead took the form of an attack on China’s manufacturing prowess.
“One of the primary responsibilities of a state is to provide vocation for its people,” Mr Gandhi wrote in the Financial Times. “China’s global monopoly on blue-collar jobs is a fundamental challenge to other states.” Meanwhile, Mr Singh blamed demonetisation and a new goods and services tax for damaging India’s small businesses. “Our businesses had to turn to Chinese imports at the cost of Indian jobs,” he said.
The situation is especially fraught for Indian entrepreneurs looking to China for funds, given the high cost of funds and the relative lack of domestic risk capital. Paytm ended up taking money from Alibaba (and Japan’s SoftBank) because its founder, Vijay Shankar Sharma, says he needs “continuous capital”. When Mr Sharma first took money from Alibaba (after meeting Jack Ma and his team in Hangzhou), “I knew that India was an open playground,” he says. “I knew Amazon will come and Facebook will come and PayPal will come. We needed outside capital and we needed Chinese money because China understands India. But I chose Jack Ma’s money because I wanted a figure with global respect. He was the first Chinese to inspire global respect. For Ali there is no cheque limit.”
But there can be risks. Chinese money can come with strings attached, which is precisely why there is a risk of a political backlash. That is especially true when it comes to sensitive areas such as finance.
For India to have more and less fraught choices, it needs to have more leverage. But until India’s economy and finances are in better shape, it will be in no position to turn down investments and acquisitions from China, or anywhere else.