Nevertheless, there is another side of trade war. It unleashes greater opportunities for FDI flow in third countries. With high tariff war, which USA contemplates to impose on US $ 200 billion imports from China, the investors in China are likely to shift their factories to third countries. Growing Chinese investment in India, Thailand, Vietnam and Philippines epitomizes the trend.

Japan showed the way and China is likely to follow suit. US-China trade row replicates US-Japan trade tiff. During 1980 and 1990, over a decade , US- Japan were locked in trade skirmish over Japan’s bulging exports to USA, with USA accusing Japan utilizing fixed exchange rate with US Dollar. It indulged USA for a tactical currency war by abandoning the fixed exchange rate and raised Japanese yen value in Plaza Accord in 1985. Eventually, Japanese goods became uncompetitive and USA’s imports from Japan declined.

Japan’s economy is export based and USA was the biggest destination for export. To undo the impact of yen appreciation, Japanese companies shifted their factories to low cost ASEAN countries, and subsequently to China, when China liberalized its FDI policy.

Facing the similar economic paradigm shift, China is likely to follow Japan with overseas FDI dynamism, that is, shifting investment to overseas. It will help China to counter-balance the impact of high tariff by USA.

China already started FDI binge in overseas following Chinese President Xi Jinping‘s call for ‘Go Out’ policy in 2012. It became emphatic for overseas investment, despite its investment raised alarm for security. From a paltry overseas investment of US $ 3 billion in 2005, Chinese overseas investment in non-financial sector increased to US $ 170 billion in 2016. It became the third biggest overseas investor in the world. Paradoxically, USA is the biggest receiver of Chinese investment. Chinese investment also made a surging growth in South East countries including Myanmar, Indonesia, Malaysia and Thailand.

Given China loosing cynosure, owing to plummeted GDP and export growth since 2011, China lost the FDI sheen. Despair in China grew. Many MNCs were considering to pull out from China. Best Buy, an American electronics retailer and Media Market, a German company, put their shutters down. Tesco, a British retail giant, joined hand with local firm, turning down its intention to go alone in China.

A new strategy, China+1, was born out. Chinese investors as well as MNCs in China started diverting their investment expansion in low cost countries like India and ASEAN nations, without shutting down their China presence. There are three advantages of the new strategy. First, it acts an hedge against Chinese product’s competitiveness, produced in third countries, in the wake of high tariff. Second, It will help risk diversification by spreading production process across the countries. Third, the country like India will act a major savior with big domestic demand.

Make in India was focused a prime initiative of Modi government and a lot were made to steer the initiative by dismantling the bureaucratic tangles by improving Ease of Doing Business. Notwithstanding, it lost the steam. Domestic investors were shyto invest. Nevertheless, foreign investors were upbeat to invest with Modi Government liberalizing the FDI policies, along with improving Ease of Doing Business. Evidently, while new domestic investment announced by Indian corporate slipped to an half in 2017 from 2014 level, FDI surged by more than 45 percent during the period.

Given this opposite growth between domestic and foreign investors, hopes are raised on FDI to drive the Make in India. With trade war sullying the investment potential of China, hopes for investment diversion to India brighten. For example, in 2018 foreign investment through M&A was lower in China to US 32.8 billion than in India to US$93.7 billion.

India accounts for a paltry share of Chinese overseas investment. But, this does not reflect the reality. The recent trend of Chinese investment in India and its growth trajectory foretell a new era of Chinese investment in India.

Chinese investors are euphoric to invest in building up India’s innovative digital ecosystem. A big share of Chinese investment in India flowed in the fields of Start-up business in India. Nearly US $2.5 billion was committed for investment in Start-up business in between 2015 and 2016. The major investments were Beijing Mitene Communication Technology investment of US $ 900 million in Media.net and Alibaba investment of US$680 million in Paytem and US$ 500 million in Snapdeal.In mobile phones, China has already established its presence in India. It outsmarted Japanese and Korean brands, capturing more than 50 percent of market share by manufacturing in the country.

Mr. Chris Devonshire Ellis, senior partner at Dezan Shira & Associates, a professional services firm providing FDI consultancy services in Hong Kong, said that many of their foreign investors’ clients in China were contemplating to go to India, not necessarily to shut down their manufacturing operations in China, but to take advantage of the large domestic demand.

Frequent frictions between China and Japan triggered Japanese companies, such as Toshiba, Hitachi and auto manufacturers to shift their R&D institutions in India from low cost production site in China. (IPA Service)