Ballooning Hope

The once-in-a-decade leadership tran- sition in Beijing, at the 18th Congress of the Chinese Communist Party (CCP) held from November 9 to 14, may also mark a change in the way the world and next-door India do business with the world’s second-biggest economy.

The 10-year tenure of China’s prospective President and military chief Xi Jinping, 59, and Premier Li Keqiang, 57, starts in the midst of an economic reforms debate roiling the CCP.

Outgoing president Hu Jintao signalled change in his address to the Congress. “We should follow more closely the rules of the market and better play the role of the government,”he said. Beijing’s policy shifts in the next decade will reveal if China and India, Asia’s two largest nations, can ever forge a meaningful economic relationship.

What prevents better economic ties? “Market access for Indian companies is a major concern,” New Delhi’s envoy in Beijing, S. Jaishankar, said at the inauguration of an ‘India Show’in Beijing last month. India’s bilateral trade deficit, he added, was“difficult to sustain or to defend”. (See Widening Gap.) Jaishankar had said the same thing three years ago. “Nowhere else is our export so dominated by commodities and raw materials.”

Beijing’s future India policy, currently erratic, will determine the more significant investment relationship as well. China strategically invests more in Brazil than across the border. India invests more in South Korea. Cumulative Chinese investments in India and vice versa until last December were less than a billion dollars each. Negative cross-border perceptions further curtail investment priorities. The global research firm, Pew Research Center, this year found that 62 per cent Chinese polled had a negative view of India. Similarly, only 24 per cent Indians think China’s rising economy is a “good thing” for India.

Indian corporate entry into China in the last decade coincided with Beijing’s expansion of state-owned enterprises at the cost of the private sector. The Chinese market remains skewed in favour of domestic companies. Thus India’s top software majors have had only sporadic success in striking deals with Chinese public sector units.

Certainly, India is not the only country affected. Western majors have been complaining louder than India, demanding a level playing field. China’s total trade surplus in October hit a 45-month high of $32 billion. In his latest book No Ancient Wisdom, No Followers Beijing-based author James McGregor details how “authoritarian capitalism” has created “a climate of fear among western multinationals” in China.

The World Bank’s China 2030 report this year warned that a “biased business environment” of state monopolies“can jeopardize fair competition”. “China needs to shift…from direct state intervention to more reliance on markets and entrepreneurship, and from absorption of technologies to innovation,” it said. A top think-tank of the State Council(the Chinese Cabinet) collaborated to produce the report.

Signals of a policy rethink have leaked before the succession.“The aggressive expansion of stateowned enterprises will slow down under the new administration,’says Yuan Yue, Beijing-based CEO of Horizon Research Consultancy. The Indian corporate community in China too is hopeful. “We need to wait at least six months to understand the changes,’ says R a n g a r a j a n Vellamore, Chairman of the CII India Business Forum in China. “Opportunity definitely exists in the IT, pharmaceuticals and specialised manufacturing industry.’

Xi and Li will face opposition in steering away from state capitalism, which made the party elite wealthier. Premier Wen Jiabao’s earlier calls for reforms went unheeded. His presumed successor, Li, is an economist who once termed China’s gross domestic product data “manmade”. Xi’s best-known comment is not about reforms; in 2009 he mocked the “finger-pointing...(of a) few foreigners with full bellies and nothing better to do”. Xi has a legacy of market reforms in earlier positions he occupied, but as China’s most powerful man he will first focus on sops to tackle domestic imbalances, such as the rich-poor gap and the persistent price rise.

No doubt, Indian businessmen will have to scale the great wall on their own. So far, the Chinese see Indian firms as uncompetitive. The average Chinese consumer is disinterested in, and ignorant of, the Indian economy. India lobbied for years to sell cars and auto components in China, the largest car market today. Finally, Tata Motors-owned Jaguar land Rover is preparing to produce cars with Chery Automobile near Shanghai.

“The opportunity for business will be there as long as Indian business makes the effort to understand the Chinese market and build right products and capabilities,’ says Vellamore. “It can’t be that ‘I have a product and I will sell it in China’.”

(The writer is is a former China correspondent and author of a forthcoming book on China-India relations.)