China's nugget "Made in India" investment is hot in the short term and cold There is still room for cooperation in the post-epidemic era

China and India are both large countries with a population of more than 1 billion, and India's potentially huge market and incentives to develop "Make in India" have attracted thousands of Chinese companies to invest.

According to the China Chamber of Commerce in India's "Report on the Development of Chinese-Funded Enterprises in India (2021 Edition)" (hereinafter referred to as the Report), in two years, due to india's new investment policy restrictions and other reasons, the number of Chinese-funded enterprises in India has decreased from more than 1,000 at the end of 2019 to about 700 at the end of October 2021.

The report predicts that in the next four to five years, India will become the world's most populous country. An executive of a Chinese-funded enterprise in India told the first financial reporter that if Chinese enterprises want to become a real multinational company, they must not ignore the opportunities in the Indian market, and they must have patience and long-term plans to open up the Indian market.

Policy and the pandemic have slowed investment in India

In recent years, Chinese mobile phone brands such as Xiaomi, OPPO, and Vivo have achieved a large share in the Indian market; TCL Huaxing, Haier, Midea and other Chinese panel and home appliance companies have increased their investment in India and built new industrial parks and production bases. But after 2020, Chinese companies think that investing in India is no longer as easy as before.

An executive of a Chinese electronics company told the first financial reporter on January 18 this year that the development in India is not as smooth as imagined, mainly investment issues. The cooperation with the local partner at the business level was smooth, and later negotiated with the other party to set up a joint venture factory, which can not be controlled. However, it has been two or three years since the qualification materials were submitted, and due to the new policy in India, it has not been approved.

From 2020 onwards, the Chinese electronics company will visit the Consulate General of India in China every year and invite the other party to visit the Chinese factory, and the two sides will contact each other two or three times a year. But the desire to invest in India has never been fulfilled. However, its Indian cooperative factory has started from the bulk assembly in 2017 and 2018 to the current annual output of more than 3 million color TVs, which can assemble the whole machine and module.

The Chinese electronics company has stationed more than a dozen employees at partner factories in India, including management, technology and supply chain backbones. The local owner makes money and is willing to cooperate. Recently, Indian authorities have demanded that Xiaomi pay about 653 million rupees (about 560 million yuan) in taxes, and the above-mentioned Chinese electronics executives are worried about the impact on the development of Chinese brands and Chinese companies in India.

According to reports, by the end of 2019, there were more than 1,000 Chinese-funded enterprises in India. Since April 2020, due to the adverse impact of India's introduction of relevant policies (investment from India's land neighbors requires government approval), the operation and investment environment of Chinese-funded enterprises in India have changed, and some Chinese-funded enterprises have chosen to leave India. According to incomplete statistics, by the end of October 2021, the total number of Chinese-funded enterprises in India is about 700.

The Indian market has faced a slowdown in growth in the past two years. Smartphone shipments in India in 2020 are down 2% from 2019. The epidemic has also slowed down the growth rate of the Indian color TV market in the past two or three years, from an annual sales growth of 20%-30% four or five years ago to a scale of about 12 million to 15 million units, to the sales growth rate in the past two years to single digits, or even negative growth.

Affected by the epidemic, TCL India project has also been postponed. In December 2018, TCL India Modular Machine Integration Intelligent Manufacturing Industrial Park started construction, outputting the industrial chain capability from screen to machine, and it is also the first time that TCL Huaxing's module business has entered overseas, and it is expected that India, as the world's third largest color TV market and the second largest mobile phone market, was originally planned to be put into production in the fourth quarter of 2019.

Rong Chaoping, senior research manager of AVC Revo, told the first financial reporter that TCL India's module integration factory will be mass-produced in November 2021, with an annual production capacity of 8 million sets of color TVs. Panasonic will end the production of color TVs in India and other places by March 2021, and will outsource the production of low-cost TVs sold in Southeast Asia and India to TCL from 2022, mainly by TCL India's integrated module factory.

In 2018, India increased import tariffs on LCD TV panels, and Samsung closed its color TV factory in India and moved its production line to Vietnam. Rong Chaoping said that Skyworth's cooperative factory in India produces Skyworth TVs and does OEM work for Samsung and so on. Most of the high-end TVs sold by Korean brands in India are re-exported to India by Chinese factories, and low-end TVs are more oem by Chinese-funded factories in India.

India's refrigerator and freezer markets have also contracted due to the epidemic. According to the data provided by Industry Online to First Finance, the Indian refrigerator and freezer market sold more than 17 million units in 2019, with a growth rate of about 10% for many years, and the scale fell to about 14 million units in the past two years due to the impact of the epidemic. India's refrigerator and freezer markets are mostly produced locally in India due to trade protection and other reasons, and the main manufacturers are LG, Samsung (Samsung), Whirlpool (Whirlpool), Haier (Haier), Godrej and so on.

The upstream supply chain of Indian-made refrigerators and freezers is still imported from places such as China, especially core components and raw materials such as compressors and foam materials. Industry Online expects that as the epidemic improves, the Indian manufacturing industry will continue to grow rapidly, mainly due to the fact that the penetration rate of refrigerators and freezers in the Indian market is still low, and the market size is in a period of rapid growth.

Exploring the Indian market requires patience and foresight

Although there will be obstacles to entering the Indian market in the past two or three years, Chinese companies that entered the Indian market earlier have blossomed.

Chinese mobile phone brands have entered India since 2015, and Chinese brands represented by Xiaomi, OPPO, vivo and TRANSSION will occupy 75% of the Indian smartphone market by the end of 2020. In the fourth quarter of 2020, Xiaomi, Samsung, vivo, realme, and OPPO ranked in the top five smartphone shipments in India, with market shares of 27%, 17%, 17%, 12%, and 11%.

The leading enterprises in China's mobile phone supply chain have basically set up factories in India, and the local procurement volume in India accounts for 20%, and it is expected to reach 50% in 2024. Xiaomi has led partners to set up factories in India, such as assembly patch foundries Foxconn, Wistronics, BYD, Wingtech, Guanghong, etc., display module companies TCL Huaxing, Lianchuang, etc., as well as camera modules, chargers, batteries, data cables, shell materials, fixtures of enterprises. OPPO and Vivo have each purchased 1,000 acres of land in India to build an industrial park, oppo Industrial Park has been put into production, vivo leasing factories and industrial parks are stepping up construction, and they need to employ 15,000 Indians at their peak.

In 2020, India began to be affected by the new crown pneumonia epidemic, and the production capacity of Chinese mobile phone factories in India before 2019 was only two-thirds of the normal state; after 2019, The Chinese mobile phone factories stationed in India, some rented factories, some were renovating, some equipment had just moved in, and by October 2021, about 20 factories in similar situations were in a dilemma.

China's white goods faucets also entered India earlier. Haier Electric (India) Limited was established in 2004 and expanded production last year. The first financial reporter learned that Haier in India produces and sells refrigerators, freezers, washing machines, household air conditioners, commercial air conditioners, televisions, microwave ovens, etc. In November 2017, the expansion project of Haier Industrial Park in Pune was put into operation, with an annual output of 2.07 million units, which not only meets india's local demand, but also exports to South Asia, the Middle East, Africa, Australia, South America and other regions.

In July 2021, Haier Zhijia Industrial Park in the Noida region of northern India was put into operation, and Haier also added 20 new experience centers in India that year. Haier Zhijia (600690. SH) said in last year's semi-annual report that in the first half of 2021, it achieved sales revenue of 3.926 billion yuan in the South Asian market, an increase of 44.9% year-on-year; among them, the market share in India continued to increase, overcoming the challenges of the epidemic to ensure that the industrial park in northern India was put into operation at the end of the year, and the two industrial parks in India could better meet the demand for orders.

Midea Group (000333. Wang Jianguo, vice president of SZ), told the first financial reporter on December 30, 2021 that india has had a severe epidemic situation in the past year or so, but india's air conditioning industry chain has invested a lot. It is understood that the Indian joint venture company of Carrier Midea was established in 2012, with an annual production capacity of about 700,000 units of air conditioners, achieving localization of research, production and marketing, and midea and Carrier brand home air conditioner India business has increased by about 28% in recent years. CarrierMax's Indian joint venture, which became profitable in 2014, has entered the top five of the Indian air conditioning market.

As a solution provider of modified plastics upstream of home appliances, Kingfa Technology (600143. SH) also has a branch office in India. Shen Hongbo, head of Kingfa Technology's East China Operation Department, told first financial reporters that Kingfa Technology acquired India's largest modified plastics factory in 2013, and currently has about 100,000 tons of sales a year, mainly automotive materials, for Japanese automotive companies such as Suzuki.

Chinese-funded construction machinery enterprises are also developing rapidly in India, and Sany Heavy Industry (600031. SH) is a microcosm. Sany regards India as the first overseas investment market and wants to radiate South Asia, the Middle East, Africa and other regions. Sany Heavy Industry India Pte Ltd was founded in 2002, invested 60 million US dollars in Pune in 2006 to establish an industrial park, put into operation in 2009, set research and development, marketing and service functions, can produce 1,000 equipment per year, 2019 revenue of 2.1 billion yuan (the same below), 2020 due to the impact of the epidemic income of 1.9 billion yuan, is expected to achieve sales revenue of more than 3 billion yuan in 2021. Sany is also developing local supply chains in India.

The executives of the above-mentioned Chinese-funded enterprises in India told the first financial reporter that India has more than 1.3 billion people, which is the second most populous country in the world, and from the perspective of enterprise development, it is necessary to develop in India. In the strategic market, there must be a production base and a research and development base. If large companies want to become multinational companies, they must take root in India in order to have long-term peace and stability, and trade is not sustainable.

"The Indian market, Made in India, is not necessarily as fast as the Chinese market and Chinese manufacturing." The Chinese-funded Indian executive said that "there is no patience, no long-term plan, and it is difficult to adapt to the Indian market." Although India's labor force is cheap and the cost of living is low, it is not as efficient as China due to cultural and institutional differences. The key for chinese enterprises to develop in India is to "go to the sea in groups" and "warm up in groups", and the key is that the upstream and downstream of the supply chain work together, because the Indian supply chain still needs strong support.

Executives of the aforementioned Chinese electronics companies also said that they are constantly trying to find ways to improve the level of localization in India, such as guiding Indian cooperative enterprises how to produce cartons and bubbles, telling them where to buy raw materials, some imported from China, some imported from Vietnam and Malaysia. "Chinese companies are now cultivating local supply chains in India, a bit like japanese and Korean companies in the 1980s and 1990s when they set up factories in China and teach Chinese companies to process, and import materials from Japan and South Korea, and there are similarities between the two."

How to dig for gold in the post-epidemic era "Made in India"

Chen Guihua, Counsellor of the Economic and Commercial Office of the Chinese Embassy in India, said in the foreword of the report that in the first nine months of 2021, the bilateral trade volume between China and India has reached 90 billion US dollars, and it is expected to exceed 100 billion US dollars in the whole year, which will reach a record high. China and India are both important emerging economies, carrying out economic and trade cooperation and exchanges, seeking common development and achieving win-win results, which is conducive to the development and prosperity of the two countries.

In the case of the decline in China's investment in India in recent years, the bilateral trade volume between China and India will still grow significantly in 2021, showing the strong complementarity of the two economies. According to the Website of the Ministry of Commerce, private equity and venture capital investment in India in Chinese mainland and Hong Kong in 2020 was only US$952 million, a sharp decrease of 72% year-on-year. Since India's government approval measures for investments in countries bordering land borders in April 2020, more than 150 investment applications from Chinese entities remain pending by the end of 2020.

The first financial reporter learned from the China Chamber of Commerce for Import and Export of Machinery and Electronics that the amount of Goods imported by China from India was 20.95 billion US dollars in 2020, an increase of 16.48% year-on-year, and 28.15 billion US dollars in 2021, an increase of 34.37%; the amount of China's exports to India was 66.72 billion US dollars in 2020, a year-on-year decrease of 10.83%, and 97.53 billion US dollars in 2021, an increase of 46.18% year-on-year.

It is reported that the total population of India is currently about 1.38 billion people (2020 data), and the national average age is only 26 years old. India has a cheaper and younger workforce than China. In 2021, nearly two-thirds of India's population will be working-age, surpassing China as the world's largest labor market. At present, the wages of ordinary workers in India are only 1/4 to 1/5 of those of their Chinese counterparts.

On the one hand, "Made in India" requires overseas investment, and on the other hand, Chinese companies need labor and markets to expand reproduction. China's main investment areas in India include automobiles, pharmaceuticals, e-commerce, telecommunications equipment, mobile phones, home appliances, power equipment, iron and steel, construction machinery, etc. As of March 2020, Chinese automakers had invested more than $575 million in India.

South Korean companies have increased their investment in India in the past two years. For example, Samsung Electronics operates the world's largest smartphone factory in Noida, has a household appliance factory in Chennai, and expands research and development centers and mobile phone production capacity in India, and Samsung Display has also invested $500 million in Noida to build an OLED module factory. With 1.2 billion mobile phone users in India, about 40% are still using feature phones, it is a "blue ocean" market for smartphones. Samsung wants to regain its number one position in the Indian smartphone market from Xiaomi.

In the next 4 to 5 years, India's population will surpass China's, thus becoming the world's most populous market, and Chinese-funded enterprises are facing historical opportunities to carry out investment and operation in India. However, the future development of sino-Indian economic and trade cooperation will not necessarily be smooth, and relevant experts suggest that Chinese-funded enterprises should make preparations for various responses.

First of all, India has 28 states, each state has an independent management model with local characteristics, Indian Chinese-funded enterprises should pay attention to strengthening exchanges with the state government where the enterprise is located, establish a good working relationship, and strive for the state government to assist in solving the difficulties of enterprises.

Secondly, according to the current relevant regulations in India, Chinese-funded enterprises cannot participate in the construction and bidding of relevant projects on the Indian side, nor can they form a consortium with Indian enterprises to participate in the bidding. In this case, a Chinese-funded enterprise in India may consider establishing a cooperative enterprise with a suitable Indian enterprise, and according to the division of labor, the Indian personnel will come forward to carry out relevant economic activities.

In addition, the Indian market potential is huge, the economies of China and India are highly complementary, Chinese-funded enterprises investing in India, should recognize the potential risks, and combined with their own actual situation, do a good job in investment risk research and prevention in India. In the process of investing in India, Chinese-funded enterprises can appropriately increase the degree of localization, and at the same time, they should conscientiously fulfill their social responsibilities such as paying taxes according to law.

India has vigorously promoted "Made in India", and the United States, Japan, South Korea and some Taiwanese companies are optimistic about India's future market potential and have increased their investment in India. The above-mentioned Chinese electronics executives believe that "we must have the right mentality to look at Indian manufacturing." India has advantages in labor costs and market potential, but the skills and efficiency of the Indian workforce need to be improved. In the short term, "Made in India" will not threaten "Made in China". In the medium to long term, "Made in India" could be a strong adversary.

"Distant relatives are not as good as close neighbors", the executives of the above-mentioned Chinese-funded enterprises in India are optimistic that China and India have a long overlapping national border, which is affected by some policy obstacles in the short term, and is optimistic about Sino-Indian economic and trade cooperation in the long run. In 2020, India experienced the severe challenges of the epidemic and locked the country for 90 days, and in 2021, after the second wave of the epidemic, India's GDP growth rate can still reach about 9%, and the potential of the Indian market and people's ability to survive will be investment hotspots.