Unlike Vietnam, which is relatively passive in taking on external industrial opportunities, India has more ideas about the world
Photo/Visual China
Text | "Finance" reporter Liu Shuqi Chen Yifan Gu Lingyu
Edit | Xie Lirong
Indira Gandhi Airport in India's capital, New Delhi, is waking up from the outbreak. Over the past three months, an average of 130,000 passengers have departed from Indira Gandhi Airport every day over the South Asian subcontinent, with more domestic passenger traffic than before the pandemic.
Data from OAG, a global aviation data platform, shows that in March and April this year, Indira Gandhi Airport surpassed Dubai as the second busiest airport in the world, after Atlanta International Airport in the United States, and remained in the top ten in the world in May. In the same period of 2019, indira Gandhi Airport was still ranked 20th away.
Crisscrossing international routes is only a silhouette of India's economic recovery. In the 2021-2022 fiscal year (ending March 2022), India's gross domestic product (GDP) has exceeded Rs 147 trillion, surpassing pre-pandemic levels in FY2019-2020, with a year-on-year increase of 8.7%, the fastest growth among the world's major economies.
Developing India is remarkable, but it's not a new topic. In the past 20 years, the topic of India's rise has been a cliché: the size of the population comparable to China, the young population structure, the vast market hinterland, and the general trend of industrial chain transfer have made India's position in emerging economies particularly prominent.
According to a report by the United Nations Conference on Trade and Development (UNCTAD), foreign direct investment (FDI) in India has risen significantly since 2005, reaching a phased peak of $47.1 billion in 2008, and has not exceeded this level in the decade since then – until the United States launched its global industrial restructuring in recent years.
"We believe this time is different." Pulkit Patni, an indian equity analyst at investment bank Goldman Sachs, said two years ago that India had once again gained a window into development," "not only because of a number of initiatives by the Indian government, but also because many multinational companies are considering the 'China+1' strategy."
Different from the "All in China" strategy of foreign-funded enterprises in the past, "China +1" is a strategy to disperse risks and control costs in a tense geopolitical environment, of which Vietnam and India are the two major destinations to undertake the relocation of China's industrial chain.
This strategy has brought about a noticeable change. Since 2019, India's net inflows of foreign capital have risen rapidly, from US$42.15 billion in 2018 to US$64.07 billion in 2020, an increase of 52% in two years. However, compared with China, there is still a certain gap in India's ability to attract foreign investment. According to UNCTAD data, China's FDI in 2021 is 180.957 billion US dollars, which is equivalent to four times that of India.
The economic friction between major powers is essentially giving India a rare period of historical opportunity. Unlike Vietnam, which is relatively passive in taking on external opportunities, India is ambitious and has taken the initiative to introduce a number of stimulus policies and development plans in three years. India, with more ideas about the world.
In 2019, India set a target: GDP to reach $5 trillion by 2025 and $10 trillion by 2030, becoming the world's third-largest economy, of which $1 trillion comes from the digital economy industry. India's GDP at the time was only $2.87 trillion.
India is eager to grab hold of the springboard, but the window period is only an external factor. The key to achieving its ambitions still lies in whether India has enough confidence and strength.
Started with Made in India
- The special growth path and era background of the Indian economy make the Indian government believe that the key to India's future economic transformation lies in the manufacturing industry, and the first step is to use economic regulation tools to keep foreign capital in the country
India's economic development model is different from that of conventional traditional countries. According to World Bank data, the added value of India's manufacturing industry as a proportion of GDP in the past 10 years has been around 13%-17%, far lower than China's 26%-30% level. But at the same time, India's services sector once led the way in terms of gdp, accounting for nearly half by 2020, much higher than other industries.
"Instead of gradually upgrading and progressing in the order of traditional countries from agriculture to industry to service industries, India has shown a process of industrial structure evolution that is dislocated or jumped." Zhang Jun, chief economist of Morgan Stanley Securities (China), once commented.
Historical opportunities and talent advantages have created India's developed software outsourcing industry, which generated $194 billion in revenue for India in the 2020-2021 fiscal year. But the hidden dangers are also buried here. Exports of India's IT industry grew by less than 2% over the same period, the lowest level in five years.
The economic development structure that relies too much on the tertiary industry has long made India like a fish in the throat. Relying on the software industry is easy to fall into a situation of being subject to people, and the Indian government believes that the secondary industry represented by manufacturing is the cornerstone of a modern country's rich country and strong army.
In other words, the key to India's future economic transformation lies in manufacturing.
In 2014, Indian Prime Minister Narendra Modi took office with the Make in India Initiative, which increased the share of manufacturing in GDP from 15% to 25%.
In the nine years since, India has introduced a number of supporting incentives. Two of the most noteworthy policies are the Phased Manufacturing Programme (PMP) proposed in 2015 and the Production Linked Incentive (PLI) in 2020, which represent two phases and two routes for Indian manufacturing from "import substitution" to self-reliance, respectively.
The purpose of the PMP in 2015 is very clear, through the imposition of tariffs, enterprises have to gradually transfer production and manufacturing to India, often from the assembly of the whole machine to the upstream of the supply chain to accessories, ordinary devices and even high-value devices. The first to be regulated by PMP is the mobile phone industry with the largest industrial scale, and then spread to many industries such as home appliances and cameras.
Since 2017, India has continuously raised tariffs on mobile phone imports, rising from 10% in a stepwise manner. Yang Shucheng, secretary general of the Indian Chinese-funded mobile phone enterprise association, told Caijing that the current tariff on mobile phone imports is more than 25%, the supply chain tariff is about 15%, and only a small number of components or auxiliary materials have no tariffs.
According to the Mobile Phone and Electronics Industry Association of India (ICEA), the output value of India's domestic electronics industry in the 2015-2016 fiscal year was only 37.1 billion US dollars, and by the 2019-2020 fiscal year, this figure has risen to 75 billion US dollars, more than doubled.
According to Yang Shucheng, there are currently about 200 electronics companies in India, the vast majority of which come from China (including Hong Kong and Taiwan). In order to control supply chain costs, mobile phone manufacturers will make transfer requirements to upstream manufacturers, otherwise they may lose orders.
Yan Xiaoxiao's company was one of the first mobile phone supply chain companies to relocate its business to India. In 2016, Yan Xiaoxiao and his employees came to Noida, India, to take charge of engineering projects for Chinese companies such as mobile phones. Noida is a special city in India. Noida, actually short for New Okhla Industrial Development Authority (NOIDA), is a new town located in the Gautama Bodhi Nagar district of Uttar Pradesh, India, in the southern suburb of Okla, the capital of India, on the southern outskirts of New Delhi. The city is part of the National Capital Territory (NCR) of India, and in addition to having many federal central units in India, it is also one of the most important locations chosen by many multinational information industry players when setting up service outsourcing bases in India. According to the 2011 census, Noida has a population of nearly 640,000 and a literacy rate of 88.58%, which is much higher than the Indian average and comparable to New Delhi.
Automobile plant in Noida, India. Photo/Visual China
Mobile phone factory in Noida, India. Figure/Faxine
Yan Xiaoxiao still remembers 2016 Noida, with piles of garbage everywhere and animals leisurely on the road.
In just a few years, Noida has developed rapidly, and many manufacturers such as Samsung, OPPO, vivo, transsion and their huge supply chain networks have converged here, with factories lined up and new parks under construction everywhere. It's like Dongguan in China, or Shenzhen in the early years – absorbing the dividends from fragmented global value chains at a low cost.
Initially, mobile phone companies only had a low-tech assembly link in India, and then, the production line of SMT patch (surface assembly technology) with a higher value chain also came, and more and more parts were relocated to India. Samsung, Huaxing Optoelectronics, and Shenzhen Tianma have moved some panel production lines to India, which is already a high-end link in the mobile phone industry chain.
However, tariff regulation is only a short-term strategy for the start-up period of India's manufacturing industry, and the negative effects cannot be ignored. There are still a considerable number of manufacturers and suppliers for various reasons have not been able to set up factories in India, and after the cost of tariffs is superimposed, it will be transmitted downstream to bring about an increase in the price of end products. Pulkit Patni judged that the current tariff regime may have a countervailing effect on the development of Indian manufacturing, and the net effect may be negative at the macro level.
What's more, the driving force for foreign capital to build factories in India is to bypass tariffs and control costs, so the vast majority of products produced by foreign-funded factories are also digested in India, and very few "go out" and play the brand of "Made in India".
The pursuit of self-reliance
- Beginning in 2020, India's ambitions have swelled further, and the focus of manufacturing has shifted to nurturing local champions, looking forward to gaining a foothold in the assembly value chain
After 2020, the Made in India strategy has undergone a drastic adjustment, requiring "self-reliance" and reducing dependence on countries such as China.
In 2020, India launched the PLI, which will support the production of 14 key industries with 19.7 trillion rupees (about $26 billion), including semiconductors, photovoltaics, electronic equipment, pharmaceuticals, medical devices, automobiles, etc., to support the "Indian champion" among India's local manufacturing enterprises and create 6 million new jobs.
The Indian Mobile Phone and Electronics Industry Association analyzed in a recent report that the change in policy direction means that India is no longer only concerned about import substitution, but also blocks the import of products by imposing high tariffs. In the future, India's focus will be on solving the problem of difficult imports of components and accelerating the delivery cycle in order to gain an important foothold in the assembly value chain.
According to Liu Xiaodong, secretary general of the Indian Chinese Chamber of Commerce, at this stage, the category of India's local manufacturing industry is quite unsound, and it is still highly dependent on foreign-funded enterprises, mainly Japanese, South Korean and Chinese (including Hong Kong and Taiwan) enterprises. Eight of India's top ten car companies in the 2021-2022 fiscal year are foreign-funded, with India's Tata (12%) and Mahinda (7.4%) ranking third and fourth respectively, and the top two being Japan's Suzuki (43.65%) and South Korea's Hyundai (15.78%). In the mobile phone industry, the top five mobile phone manufacturers in India in 2021 are foreign-funded enterprises, of which 67% of the market share comes from Chinese companies.
Indian companies only have a place in some segments, such as Tata Group and automotive company Mahinda, which operates in steel, automotive and machinery, tractor company Sonalika, motorcycle company Bajaj and so on.
Yan Xiaoxiao judged that in the short term (India's local manufacturing industry) will definitely not be able to do it. Like OPPO and vivo, the requirements for the supply chain are very strict, and the ecology is relatively closed, and it is difficult for Indian companies to break in. But he is also soberly aware that the window period of Chinese suppliers is limited, and when Chinese companies teach Indian companies, they will be the time to transform and upgrade.
In other words, it is only a matter of time before local companies grow up.
Yang Shucheng found that some steel, LED, and electronic companies in India are also developing rapidly, such as Jio, Lava, Reliance and other brands in the mobile phone industry. "Although they are small, they are learning from foreign companies, and they will integrate local resources and support the government."
The pursuit of self-reliance in India does not mean that it does not need the help of foreign enterprises, on the contrary, in order to improve the local industrial chain, India is increasing its efforts to attract investment.
Li Qin is a researcher at the India Research Center of Pangu Think Tank and a consultant in the China Affairs Department of Daheng Zhucheng Law Firm in India, and has long provided legal services for Chinese enterprises to invest in India. He learned from an Indian counterpart that at the World Economic Forum in Davos in May, India sent a number of participants, including at least four states (provinces similar to China) to lobby for foreign investment.
India's current investment attraction is no longer limited to lower-value links, but also eager to go deeper into more upstream links such as semiconductor fabs. In 2020, India promulgated the "Electronic Components and Semiconductor Promotion Scheme (SPECS)", which plans to attract semiconductor companies to build factories in India through incentives and subsidies.
According to foreign media reports, india's first semiconductor conference in April this year also released an incentive plan to attract semiconductor and display manufacturers with $10 billion. India's IT minister, Ashwini Vaishnaw, stressed that India would fight for more incentives and that more semiconductor manufacturers would need to be involved.
Vaishnaw said: "We have a big appetite. ”
The target output value of India's electronics manufacturing industry by fiscal year 2025-2026 is $300 billion, of which $70 billion to $80 billion of semiconductor products will be consumed.
At present, there are very few semiconductor manufacturers responding to the call of the Indian government, only a few joint ventures established by Indian natural resource group Vedanta with Foxconn and Hon Hai, ISMC, and Singaporean enterprises IGSS Ventures.
A number of semiconductor industry veterans told Caijing that they would not consider building a wafer manufacturing plant in India in the short term, "there is no industrial cluster, no stable government, and the comprehensive cost is not cost-effective."
In addition, India should vigorously develop manufacturing exports and transform its role from a manufacturing power to a world factory. The Indian Mobile Phone and Electronics Industry Association reported that if the import substitution path continues, in the next 4-5 years, India's domestic electronics market will grow to up to 150 billion to 180 billion US dollars. In the face of the target output value of 300 billion US dollars, the export value should reach at least 120 billion to 140 billion US dollars.
In fiscal 2020-2021, the domestic market size of The Indian electronics industry is $67.3 billion, while the export market is only $10.6 billion. That said, less than 14% of the electronics produced in India are exported. In just five years, India has more than ten times higher than that — a more radical and difficult step in the "Make in India" program.
According to the "Finance" reporter, at this stage, most foreign-funded enterprises have not yet considered India as a key hub for transit exports. Even if there are products exported, the categories and amounts are small.
Compared with Southeast Asian countries such as Vietnam, India's primary motivation for attracting foreign investment is the potential of India's local market. An important market with a rapid economic development, a large population base and rising consumption power is something that any powerful multinational enterprise cannot ignore when laying out.
According to the latest fiscal year data, India's merchandise exports reached an all-time best level of $421.8 billion, up 44.6% year-on-year. However, this figure is still quite different from That compared with China. China's exports of goods in 2021 will be $3.36 trillion, eight times that of India.
Venture capital boom and bubble
- What has really accelerated the wave of entrepreneurship in India is the hedging strategy of dollar funds in recent years
Huang Yinghong, a professor at the Law School of Jindel Global University in India, who has studied the Indian economy and society for many years, told Caijing reporter that India's development in the past two or three decades has always had the problem of "growth and no employment", and a large number of agricultural populations cannot be transformed into urban populations engaged in industrial production through industrialization, which has led to India's poverty problem for a long time can not be more effectively alleviated, and the gap between rich and poor in society is huge.
Huang Yinghong's research found that most of india's government-led investment attractions are large-scale industrial projects, such as steel, automobiles and other capital-intensive industries, rather than labor-intensive industries. These industries offer relatively few jobs and have a certain threshold for education. China's past route was to blossom industrial parks everywhere and absorb all kinds of small and medium-sized enterprises, which did not have high requirements for workers and also provided induction training.
As a result, Indian farmers have protested against the construction of industrial parks from time to time. "The peasants' land was expropriated, but the peasants' children could not work in the factory, but could only work as security guards." Huang Yinghong said.
Following the Make in India initiative, Modi launched another important initiative, the Startup Initiative, in 2015. One of the main aims is to create more jobs and expand the entrepreneurial wave from India's first-tier cities to second- and third-tier cities, as well as semi-urban and rural areas.
The Indian government announced at the time that it would provide a fund of 100 billion rupees (about $1.5 billion), mainly to support the manufacturing, agriculture, health and education sectors.
The ecosystem cultivated by the mobile Internet, the huge population and the technological spillover of multinational companies have provided the soil for Indian startups. After 2020, as using dollar funds and global venture capital to gradually look at the Chinese market, "Entrepreneurship India" has obviously improved. In 2021, Indian unicorn companies and investment entered a period of rapid growth.
According to a report released by third-party consultancy EY, Indian unicorns increased by 44 in 2021, and venture capital investment reached a record high of about $28.5 billion. Active capital comes from all over the world: Tiger Global Fund in the United States, Sequoia Capital, KKR, Apax Partners in Europe, SoftBank in Japan, etc.
One of these capitals cannot be underestimated, that is, Indians who work as executives or engage in investment activities in multinational companies, such as Microsoft CEO Satya Nadella, Google CEO Sundar Pichai, IBM CEO Alkwin Krishna and so on.
"Return in has played a pivotal role in India's industrial development." As an executive of a multinational semiconductor company, Liu Chen said that in addition to introducing investment, these entrepreneurs will also bring emerging Indian companies into the industrial chain of multinational enterprises and promote business cooperation.
Liu Chen has long been responsible for the investment of the company's industrial ecological fund. He has a number of Indian friends who are involved in venture capital, "and they are usually either in India or on their way to India".
Cui Huaizhou caught up with the blue ocean period of Indian entrepreneurship. He was the deputy general manager of YYY Overseas Short Video of Happy Gathering Times, and when he went to India to start a business in 2019, he did not even have a specific business model, but he also got a $1 million angel round investment from Jianfeng K2VC.
SoftBank founder Son Zhengyi once proposed the "time machine theory", due to the imbalance in regional development, entrepreneurs can bring the experience and achievements of developed market practice into the underdeveloped market, as if sitting on a time shuttle.
Cui Huaizhou, who has been in India for three years, feels the heat of the country's entrepreneurial ecology, similar to the eve of the outbreak of the mobile Internet industry in China. Entrepreneurs are hard-working and willing to endure hardships, "our Indian team has been working six days a week". His first short video product was launched only three months ago, and his daily active life reached 200,000.
Song Yang is the head of overseas marketing for a stranger social app, and in 2020, her company also entered the Indian market. She feels that although the ability of users to pay is not strong, it is good that the population base is large. As long as the App introduces preferential activities, Indians will spread word of mouth and "shear" together.
However, at that time, a large number of Chinese companies of the same kind had entered India, and the competition was more intense than expected. "In fact, India is becoming more and more 'volume'." Song Yang said.
Today, in India, the number of unicorn companies has surpassed that of the United Kingdom, ranking third in the world.
But then came the problem. On the one hand, government support is difficult to implement, according to a survey of more than 8,000 Indian startups by LocalCircles, a third-party organization in India, only 20% of respondents benefit from government programs such as "Entrepreneurship India", and nearly 70% clearly state that they have not benefited. In other words, what has really accelerated the wave of entrepreneurship in India is the hedging strategy of dollar funds in recent years.
On the other hand, Liu Xiaodong told Caijing that although U.S. capital such as Google, Amazon, and KKR has invested more than $20 billion in India in recent years, it is basically concentrated in the Internet field, and the help to the manufacturing industry is very limited.
According to the EY report, India's unicorn companies are concentrated in the Internet sector, with the highest proportion of financial innovation, followed by e-commerce and education innovation. These are all extensions of the advantages of the traditional strength of the Indian service industry, and the huge software talent pool, the language ability to connect with Europe and the United States, and the help of Indian entrepreneurs are enough for India to graft the IT advantages of the past few decades into the mobile Internet era.
But correspondingly, there are not many entrepreneurs in the field of technology manufacturing. This seems to be far from the original intention of the Indian government to use entrepreneurship to drive employment and support basic livelihood industries such as manufacturing, agriculture, health and education.
The business environment has been repeatedly criticized
- Some people use the term "casual" to describe Indian law, and the result of "casual" is that many small and medium-sized enterprises choose to leave
Under the continuous encouragement of policies such as "Made in India", foreign companies have flocked to the past decade.
The "honeymoon period" is always wonderful. Liu Xiaodong recalled that about 10 years ago, the Indian government invited Chinese-funded enterprises to invest in India and took the initiative to streamline rules and regulations and approval procedures. Since then, in the fields of home appliances, mobile phones, construction machinery, automobiles, communications, building materials, new energy, venture capital and other fields, more than 1,000 Chinese-funded enterprises have come to this hot land.
The advantages of low labor costs soon emerged. Yan Xiaoxiao found that the structure of Indian workers is younger, and the average monthly wage of workers is about 1,000 yuan, and they are not included in food. He commented to the Caijing reporter that this is indeed an advantage. "In China, not only is it a package of food and housing, but also a few thousand yuan a month, so it is impossible to recruit workers."
According to Yang Shucheng, among the three countries of China, India and Vietnam, India's demographic dividend is the most prominent. China's Pearl River Delta and Yangtze River Delta general workers wages are about 4500-5000 yuan, the central and western provinces are also 4000 yuan, Vietnam is about 2500-3000 yuan, and India's general workers are only 1500 yuan.
But outsiders soon realized that the Indian market was far more complex than imagined. India has a private ownership of land, the process of acquiring land is cumbersome, some landowners raise prices year by year, and the cost of leasing also increases, offsetting the advantage of lower labor costs.
India's labor laws are also very strict. In the past, companies with more than 100 employees had to obtain government approval to lay off employees, or they would face union protests, employee strikes, and legal proceedings. Although the threshold for this layoff in 2020 has been relaxed to enterprises with more than 300 employees, the impact is still there.
Huang Yinghong learned that in order to circumvent the restrictions of labor laws, many companies prefer to delay the pace of expansion and keep it on a small scale, which actually inhibits the development of the Indian economy.
When Yan Xiaoxiao first arrived, he also took many detours. "It's all small things to say, but it's very slow to do things, and it costs a lot of money." For example, indians spend 15 yuan per square meter to rent a factory building, and the intermediary rents it to Chinese but it costs 25 yuan; When recruiting, they do not understand the market, and they are "fooled" into paying Indian employees wages that are much higher than the market price. Some Indian HR falsely claim that every holiday in India has to be a holiday, 100 days a year, and the company cannot operate at all.
From the cost point of view, the investment of enterprises in India is not small, because the industrial ecology and infrastructure construction are not yet perfect, the import cost of raw materials and logistics costs are also higher than those in China. Taken together, India's advantages are not obvious. But Yan Xiaoxiao also gradually groped out of the doorway, "it has been a long time, and after the management ability comes up, the cost is also decreasing."
However, some problems are difficult to solve based on years and experience alone.
Haojie Zhao is one of the founders of a semiconductor design company and has worked as an executive in the Indian market at a multinational telecommunications company. A few years ago, he received a request from an Indian customer to make a smartphone for about 200 yuan. "We thought it was crazy." At that time, China's cottage machine was also about 1,000 yuan. But unexpectedly, in the end, the Indians did it, and there were only two functions - sending and receiving mail and paying.
Zhang Cheng worked in the marketing business of the Indian branch of a Chinese mobile phone company, and the low and slow-growing spending power of the Indian market made him feel hopeless. India's per capita income in 2020 was $1,920, up just 57 percent from a decade ago, according to the World Bank. China, on the other hand, grew about 1.5 times over the same period.
He told the "Finance" reporter that at that time, more than 50% or 60% of the sales volume of his company came from mobile phones below 1,000 yuan, and the gross profit was only a few points. Even the model of obtaining customers with hardware such as mobile phones and making profits from the Internet business is difficult to run through in India. "Users' willingness to pay is very low, and the game and advertising business is relatively better, but advertisers find that conversion rates are also poor, and over time they slow down delivery."
According to IDC data, even in the first quarter of 2022, the average selling price of smartphones in India is only $211, far below the global level of $402.
Another big hurdle is taxation. "Indians themselves say that the complexity of India's tax law is probably the first in the world." A veteran of a Chinese-funded enterprise in India lamented.
Even non-profit organizations hire specialized companies every year to provide tax, accounting, auditing, compliance and other services. A slight negligence is a fine of 10 times to 12 times the amount of violation, and the compliance cost of ordinary companies will be higher.
Yang Biao, who withdrew from the Indian market in 2019, runs a company that specializes in electronic imaging products such as surveillance and cameras, and moved the factory to India with downstream customers at the end of 2017. He told Caijing that Indian law enforcement agencies took turns to come to the door, sometimes even sealing warehouses, and he had to pay the unsealing fee. He was tired of the Indian government's elusive rules: "I'm in business and have no interest in spending time studying those things." ”
Zhao Haojie used "casual" to describe Indian law, telling Caijing that many times it is difficult to find a basis in Indian laws, but law enforcement will suddenly declare that companies have violated a certain law, and this law is likely to come from a judge's judgment or an antitrust complaint filed by a competitor.
"High standard legislation, universal violations, selective law enforcement." Li Qin has been engaged in the legal business of enterprises investing in India for many years, which is his deepest understanding.
Lin Minwang, a researcher at Fudan University's Institute of International Studies and deputy director of the South Asia Research Center, told Caijing that Chinese companies in India are encountering similar situations encountered by enterprises in the United States, Japan and other countries in the past.
Enterprises in these countries entered the Indian market earlier, and the pioneering was unspeakably painful. When encountering disputes with local authorities in India, even if the winning side of the lawsuit is very large, it also takes a lot of time and money. Therefore, there are not a few European and American companies that regularly withdraw and transfer assets.
This is also one of the important reasons why European and American companies favor the Indian Internet industry and invest less in the manufacturing industry, which is a heavy asset investment, low profits, and "very few enterprises that are willing and able to take root in India for a long time."
Lin Minwang turned to say that the magic of India is that it always makes people feel hopeful. It drives people away and always draws people back. South Korean steel companies Pohang, The United States Walmart and other companies have repeatedly wavered between walking and staying.
In the World Bank's ease of doing business rankings, India ranked 62nd out of 190 economies in 2019, followed by Bulgaria and Saudi Arabia, respectively, and China ranked 32nd. This is the result of India's efforts to improve the business environment, ranking outside the 100th place before 2017.
"We often say that whatever you describe India in other words, the converse is true." The xiaomi people who have worked in India for more than a decade concluded that India is such a magical country where tradition and modernity, backwardness and richness, chaos and order coexist.
We need China, and we are jealous of China
- After the introduction of the New FDI Policy of the Indian government, the direct investment of Chinese enterprises in India and non-financial categories in 2021 fell by nearly 70% year-on-year, to only 63.18 million US dollars
In the ambitious goal of revitalizing India's manufacturing sector, how India handles its relationship with China is particularly important. China is a manufacturing power, the contribution of manufacturing to the world is close to 30%, for India, China is both a partner of close cooperation and a rival eager to surpass.
"Love and hate."
A veteran of a Chinese company described India's attitude toward China. On the one hand, India has a rigid demand for Chinese products or Chinese-funded enterprises in large infrastructure, electronic equipment, chemicals and other fields. According to data from the General Administration of Customs of China, the trade volume between China and India reached 125.66 billion US dollars in 2021, an increase of 43.3% year-on-year, and China is still India's largest trading partner.
A number of interviewees told Caijing that mobile phones are the most typical industrial chain in India that cannot leave China. For example, Chinese mobile phone brands account for nearly 80% of India's market share, from terminals to components and even packaging, all from China. This reflects a kind of discourse power and irreplaceability.
But on the other hand, India wants to get rid of its dependence on China at every turn.
The Internet industry has been hit head-on. In the past two years, the Indian government has continuously banned a total of 224 Chinese apps, including TikTok and WeChat, the overseas version of Douyin.
India's native apps quickly carved up this part of the market gap. In the Indian App Store and Google Play, after TikTok left, India's local short video apps (including MX TakaTak, Moj, Josh) won the top three downloads in the first quarter of 2021. Two years ago, all three of these seats were Chinese apps.
Li Qin believes that India will divide China's Indian industry into industrial investment that can create a lot of jobs, as well as investment in the lighter Internet. Internet companies create fewer taxes and jobs, and there is a risk of data flowing across borders, so India's controls are the most aggressive.
Song Yang had already "seen no surprise" about this. When her company entered the Indian market in 2020, almost all Chinese apps with a large market share in India were removed. Paytm, one of India's largest online payment gateways and recharge portals, has also cut off payment channels for Chinese companies, which cannot pass the review as long as the company's actual equity has a Chinese background.
In April 2020, India enacted a new FDI policy that requires countries bordering it to undergo a review by the Indian side before investing in India. China is the most important investor among the countries bordering India, so this policy is also considered to restrict China's freedom to invest in India.
After the introduction of the FDI new policy, there is almost no chinese enterprise investment on the surface, and there are only a small number of capital increase projects. According to data from China's Ministry of Commerce, Chinese enterprises' direct investment in India and Africa in 2021 fell by nearly 70% year-on-year, with only US$63.18 million.
The tax picketing storm since the beginning of this year has once again put Chinese-funded enterprises in a dilemma. Xiaomi, who bore the brunt of the case, was first recovered in taxes of 6.53 billion rupees (about 560 million yuan) in January and then frozen for $725 million (later unfreezed) in April.
Tax issues are commonly used by the Indian government to regulate or restrict foreign-owned enterprises. In recent years, the Indian tax authorities have conducted tax investigations and issued high fines against shell, Nokia, IBM, Walmart, Kane Energy and many other foreign-funded enterprises, including many cases in which the Indian government has lost the case.
A Xiaomi Indian source told Caijing that Xiaomi can be said to be one of the best Chinese-funded enterprises in India to do localization, and a large number of Indians are used as branch executives, but they still can't avoid trouble. The amount of funds frozen is the largest in India's history.
The comprehensive survey of caijing reporters understands that not only large enterprises such as xiaomi, OPPO, and Huawei, but also at least 500 Chinese-funded enterprises have suffered tax and compliance censuses in India. This is the largest and most far-reaching systemic crisis that Chinese companies have faced since they entered India.
"SMEs do not have the ability to resist risks, and if they are frozen assets or receive high fines, they are likely to be difficult to maintain or withdraw from the Indian market." Li Qin said that this will have a certain impact on India's business environment. The prosperity of a commercial society is not only large enterprises, but also relies on small and medium-sized micro and medium-sized enterprises with capillary networks in general.
In India, Chinese-funded enterprises are already in danger, and other foreign-funded enterprises are also cold. "The current tax audit storm has been too widespread, and foreign-funded enterprises in other countries are also beating drums in their hearts, and they are insecure about India's business environment." The aforementioned Xiaomi person said.
Today, there are many difficulties facing Chinese-funded enterprises: company registration, capital injection, investment, etc. require government approval, enterprises cannot participate in relevant project bidding, and it is difficult to obtain work or business visas. According to incomplete statistics from an informed source, the Chinese engaged in production and operation of Chinese-funded enterprises in India during the peak period was about 10,000, but now only one or two thousand people are left. Some companies have withdrawn from the Indian market due to the delay in obtaining visas.
But abandoning India is still an unrealistic decision for big business, the core reason is that it is impossible to abandon this huge market that is visible to the naked eye. And the upfront costs have been sprinkled in, and now the withdrawal is no less than a disaster.
A person in charge of a Chinese-funded enterprise who has worked in India for more than ten years told Caijing that large enterprises have invested billions of yuan in India, and this kind of overseas layout is an important strategic decision at the group level, and it is impossible to easily retreat. The Chinese Chamber of Commerce in India is also encouraging businesses in India. "It is difficult for new enterprises to enter India, and those who have come in should cherish the business opportunities to open up the Indian market, and they must persist if they have the conditions." Liu Xiaodong said.
Chinese going to sea to do business, flexibility is the most important. Register the company as a Singapore company and inject capital into India, or set up a company directly in India; Payment channels are restricted, so multiple alternative providers are tried; By being carded, the number of people applying for visas will be increased, and the original 10 places will be increased to 20.
Today, Cui Huaizhou's company is a Singapore company in the legal sense, and he is based in Singapore as the actual controller of the company.
Li Qin feels that since this year, more Chinese companies have sought professional overseas compliance services from law firms, mainly multinational companies and suppliers who have had to migrate with them. "Even with FDI restrictions, they're willing to wait in line."
Yan Xiaoxiao undertakes engineering projects for Chinese companies, and even after the FDI New Deal in 2020, he still witnesses the construction of new industrial parks on the land of Noida. TCL's TV and display production line, OPPO, vivo and other new parks of Many Chinese electrical and electronics companies will be landed. Behind the fiery scene, it may mean that the entanglement between China and India will be more complicated.
Can the "slow elephant" catch the window period?
- India is not the only economic depression suitable for the development of manufacturing, and some supply chain companies have expanded their layouts to Mexico, Africa, Thailand, Indonesia and other places
Looking at the overall situation of the world, India's development dividend period was born in an era full of uncertainty, and the friction between China and the United States and the conflict between Russia and Ukraine have accelerated the reshaping of the global industrial chain, and also won a relatively favorable strategic space for India.
India is not the only economic depression suitable for the development of manufacturing, and some supply chain companies have been deployed in Mexico, Thailand, Indonesia and other places. Figure/Faxine
During his trip to Asia in late May, US President Joe Biden embarked on a series of moves that were interpreted as deliberately dominating the Asian situation and balancing China's rise. The United States first launched the "Indo-Pacific Economic Framework" of the 13 founding members, including India, and then joined forces with Japan, Australia, and India to convene the "Quadrilateral Security Dialogue" leaders' meeting. In March, Japan also announced that it would invest 5 trillion yen (about 266.9 billion yuan) in India over the next five years.
Chinese Foreign Ministry spokesman Wang Wenbin stressed at a regular press conference on May 22 that "China, like regional countries, is happy to see initiatives conducive to strengthening regional cooperation, but opposes attempts to create separatist confrontation." What category does the U.S. 'Indo-Pacific Economic Framework' fall into? First of all, we must draw a big question mark and see through the hidden plot behind it. ”
However, whether being close to the United States means that India has joined the "circle of friends" of the United States, and whether the so-called period of opportunity can truly benefit India, is still full of uncertainty.
Because of its unique history and national size, India has long defined itself as a great power. In foreign policy, India has maintained a relatively independent posture. As early as the middle of the 20th century, Indian Prime Minister Jawaharlal Nehru co-sponsored the "Non-Aligned" Movement with other third world countries to pursue an independent foreign policy outside the United States and the Soviet Union.
Huang Yinghong explained that even if India is close to the United States at this stage, it is only strategic. India has always maintained a great power posture and will not necessarily lead the United States in diplomacy. It was only under the pressure of China's rise that India took over the olive branch from the West.
On the China-India issue, India has shown a clear decoupling posture. Wang Mingyuan, a researcher at the Beijing Reform and Development Research Association, wrote that the "China Industrial Substitution Policy" promoted by the Modi government is manifested in three levels:
- The first step is to replace "Made in China" with "Made in India";
- The second step is to replace "Chinese capital" with "Indian capital";
- Finally, on a global scale, the "America + China" model is replaced by the "America + India" industrial cooperation model.
In 2021, the trade volume between China and India has reached 125.6 billion US dollars, and China's trade surplus with India has reached 69 billion US dollars. Lin Minwang told Caijing that India is worried that excessive dependence on Chinese goods will lead to the hollowing out of India's manufacturing industry, which is the same logic as the United States' concerns and vigorously promoted manufacturing return.
Indian Foreign Minister S. Jaisheng Jaishankar, in his 2020 book The Indian Road: Strategies in an Uncertain World, said India's strategy for dealing with different target countries at this stage is to "make peace with the United States, control China, foster friendship with Europe, appease Russia, co-opt Japan, and attract neighbors."
But this does not mean that there is absolutely no room for improvement in Sino-Indian relations. "The key issue in Sino-Indian cooperation is the lack of trust." Huang Yinghong believes that the border issue is only one layer, and there is still a strategic mistrust in Sino-Indian relations. "One of the topics that used to be debated was whether to develop the economy first and then resolve disputes, or to settle disputes first and then talk about the economy, and now the same question is also true."
In Huang Yinghong's view, after the end of the Cold War, the world established a newly liberalized international economic order, and the global trend was open under the impetus of major institutions such as the World Trade Organization (WTO). While India is seeking alternatives to China, these efforts have not been fruitful.
A possible space for cooperation remains. The review of India's FDI new deal is still ongoing, and some banned Chinese apps are also expected to return to the Indian market through cooperation. According to India's Economic Times, ByteDance's TikTok is trying this possibility.
Under the strategy of being close to the United States, although in recent years, the Indian government has continued to promote the Indian market, the growth of the middle class and the acceleration of urbanization to global technology companies such as Apple, Samsung, Intel, and Cisco, but the results have been limited.
Among Apple's top 200 global suppliers, the number of factories in India has increased from seven in 2018 to nine in 2020. This year, Samsung plans to expand the production capacity of mobile phone factories in India from 60 million units to 93 million units per year, and the proportion of global production capacity will increase from 20% to 29%.
The "hard wounds" in the business environment are still stubborn: complex labor laws, difficulty in land acquisition, lack of stable power supply, backward logistics systems, and low administrative efficiency.
The fragmentation of the central and local governments in India has also slowed down the implementation of some policies at the central level. Huang Yinghong said: The ruling party in some states is different from the central authorities or is not an alliance of the central ruling party, and there are often cases where localities do not cooperate with the central authorities.
This has led to some policies that appear to be ideal, but in the process of practice, they are difficult and the mobilization effect is poor.
As the main leader of India's economic reforms, Modi's "Make in India" policy has achieved mediocre results. After 2014, india's manufacturing value added as a share of GDP fell from 15% to 13%. At the same time, India has the largest young population, and the slow pace of manufacturing development is likely to lead to more serious employment problems.
"India is like an elephant, moving slowly." Huang Yinghong described, "What China can do in 20 years, India may take 50 years." ”
Of course, India's slowness is only compared to China's, among the emerging economic powers, India's GDP growth rate is second to none.
Under the sun, there is nothing new. The restructuring of global industrial chains has been in progress over the past few decades. India is not the only economic depression suitable for the development of manufacturing, new signs have emerged. Yang Shucheng observed that some supply chain companies have expanded their layout to Mexico, Africa, Thailand, Indonesia and other places. As labor costs and land prices rise, the migration of industrial chains will continue.
The mobile phone industry chain belongs to the earlier batch of China's electronics manufacturing industry to go global. Taking the mobile phone industry as an example, Yang Shucheng judged that India's life cycle is only 10-15 years. This shows that India's time window is also limited, and the special historical period has given India unique development opportunities, but whether it is fully prepared is also particularly important.
In 2019, Modi proposed to achieve the goal of becoming a $5 trillion economy by 2025. The International Monetary Fund recently forecast that this target will not be completed until fiscal year 2026-2027, two years later than the original slogan. This is due to the impact of the epidemic and the factors that have not yet been resolved by various objective obstacles in India.
As a fast-growing emerging economy, India has always had a sense of confidence and pride: to become the world's third largest economy by 2030, with a GDP of 10 trillion US dollars, to become the world's largest electronics manufacturing and exporter. Each slogan is loud and clear, but it is also challenging.
This not only requires India to seek more alternatives outside of China in the US-Russia relationship, but also to vigorously improve the internal environment such as infrastructure conditions, business environment, and administrative efficiency.
But in any case, the spotlight of the world has been cast on India. According to the World Bank and other institutions, in the next 20 years, the average growth rate of the Indian economy will be about 8%, while China's economic growth rate will be about 4.5%-5%.
Although it is speculated that India's total economic output will still be smaller than China in 20 years, how to face a neighboring country with a higher development speed and era dividends than China, and deal with its impact, will be a problem that China has to face head-on.
(Liu Chen, Song Yang, Zhang Cheng, and Yang Biao are pseudonyms)