Chapter 1
Asia's Best-Kept Secret
Growing Economic Ties Between India and China
On March 15, 2013, Mr. Li Keqiang was elected by the Communist Party Congress as premier, the second most important position in the Chinese government after General Secretary and President Xi Jinping. Two months later, Premier Li embarked on his maiden official visit outside China. The first stop on his tour? A three-day visit to India. Hopping over to India so early in his term was a clear signal of China's foreign policy priorities. As the premier remarked upon his arrival in New Delhi: āWe are one-third of the world's total population and our interactions attract the world. Without doubt, China-India relations are [among the] most important global relations.ā1
As is true for many neighbors, the relationship between India and China remains full of tensionsāboth economic as well as geopoliticalāwhich we discuss later in this chapter. These tensions are unlikely to ease any time soon. Yet there are good reasons to predict that the economic ties between the two countries will continue to strengthen and, by 2025, will be among the ten most important bilateral ties between any two countries in the world.
Even if the Chinese and Indian economies were to grow at only a 5ā6 percent annual rate over the next ten years, by 2025 they would rank as the largest and fourth-largest economies in the world, the other two being those of the United States and Japan.2 Both countries have also become springboards for the emergence of global champions across a range of industries from technology (Tata Consultancy Services, Infosys, Huawei, and Lenovo) to heavy manufacturing (Tata Motors, Mahindra, Geely, and Chery) to fast-moving consumer goods (Godrej and Shuanghui). Given the size and growth rate of the two economies, growing numbers of Chinese and Indian companies with global ambitions have little choice but to look across the Himalayas and think of their neighbor as one of the world's largest markets sitting right next door.
To date, economic ties between India and China have been dominated by trade rather than investment. Bilateral trade between the two grew from less than $3 billion in 2000 to $69 billion in 2012āan annual growth rate of almost 30 percent, significantly faster than the 19.4 percent and 19.2 percent annual growth rates, respectively, in China's and India's trades with the rest of the world, or the 9.2 percent growth rate in world trade.3 In contrast, the stock of foreign direct investment has been small. At the end of 2012, the stock of Chinese investment in India added up to only about $800 million. The stock of Indian investment in China was also equally smallāabout $500 million.4 However, the picture is changing rapidly. India's Mahindra Group is currently the fifth-largest tractor manufacturer in China, with a market share of about 9ā10 percent. It aims to move up to a number three position within the next five years. Tata Motors' Jaguar Land Rover subsidiary (JLR) has been the fastest-growing luxury auto seller in China over the last five years. In November 2012, JLR established a 50:50 joint venture (JV) with China's Chery. The partners are investing more than RMB 10 billion in a new manufacturing plant and R&D facilities in Changshu, near Shanghai, which are expected to go onstream in 2014. China's Huawei has had its second largest R&D center in Bangalore since the late 1990s. Huawei currently employs over five thousand people in India and has also started manufacturing operations in the country to make telecom hardware. Haier, the home appliance giant, currently manufactures refrigerators at a plant in Pune, India. Given its robust growth in the Indian market, it is now planning to expand its manufacturing base in the country. These are just some of the new developments presently under way in both countries.
This book is targeted at the leaders of both Indian and Chinese multinationals for whom the other country could be a supplier, a customer, a competitor, and a partner and who view their Himalayan neighbor with a sense of mystery and perhaps trepidation. It should also be of high interest to policy makers in both countries (since they serve as important gatekeepers) as well as to leaders of multinational corporations in the United States, Europe, Japan, South Korea, and other countries with operations in both countries. Growing integration between India and China will offer new opportunities as well as new competitive challenges to their companies. It is important for them to know what's afoot.
In this chapter, we discuss the evolving ties between India and China. Although our primary focus is on economic linkages, we begin with a discussion of the historical ties between the two civilizations, the recent history of geopolitical tensions between them, and how their citizens view each other. This multifaceted examination of cross-country ties is important because economic relations are not only embedded in and influenced by cultural linkages, personal attitudes, and geopolitical relationships but, in turn, also shape them.
Subsequent chapters discuss the potential opportunities that Indian companies could pursue in China and the challenges that they are likely to face. We also present detailed case studies of some of the pioneering Indian companies that have made a long-term commitment to China and are beginning to see that commitment pay...
