China will soon join global leaders’ club of the world investors. In 2013, it was the third biggest foreign investor in the world. In 2014, Chinese overseas investment increased by 14.1 percent to US $ 102.9 billion. At this rate, it is forecasted that China’s outbound investment will overtake its inward investment in next two or three years.

Chinese binge for overseas investment was sparked by the Go-Out policy of the new Chinese President Xi Jinping. From a low annual average of US$ 3 billion before 2005, Chinese outbound investment surged to US$ 50 billion in 2010 and further to US$ 102.9 billion in 2014.

It is ironical that USA was the biggest destination for Chinese investment. In 2013, USA accounted for over 16 per cent of Chinese outbound investment. This was despite the fact that concern over cyber security looms in USA. Chinese telecom giant Huawei’s attempt to buy assets in USA was foiled by the American government.

China has always been keen to invest in India. But, India was hesitant to reciprocate because of security threat. China pledged US$ 20 billion investment in Indian infrastructure development in the next five years. It offered its technical cooperation for high-speed trains, bullet trains and development of Indian railway. To make Modi’s dream of Make in India a success, China committed to set up industrial parks in India.

Nullifying the previous government’s fear over China investment, Modi government is assertive for more gains from Chinese investment than inimical to the country’s security. Contradicting the apprehensions, Modi government seemed to have argued that if USA welcomes Chinese investment, despite having more bitter relation with China, why should not India lay the red carpet for Chinese investment? After all, investment is the base for manufacturing and Make in India programme.

Modi government reinvented its stance on Chinese investment in India. It is considering relaxation of its stringent security monitoring of Chinese investment. Suggestions were leveled to reduce the time-limit of security clearances of Chinese investment to the maximum of two months. There was no time limit under the previous government and it used to create inordinate delays in giving security clearances.

The Chinese are now in the priority list of Modi government for foreign investment. During the visits of Vice President Ansari and Commerce Minister Nirmala Sitharaman to China immediately after Mr Modi became the Prime Minister, MoUs were signed for setting up four industrial parks in India with Chinese investment.

Why is Mr Modi bent upon for Chinese investment despite the fact that the concerns for Chinese infiltrations in the borders have not ebbed?

First, contrary to earlier perception that India was eager to normalize the relation with China, Modi group realized that China was in haste to make a thaw in China-India ties. China’s turnaround in improving relation with India was spearheaded by the change of guards in Chinese leadership in 2012, with President Xi Jinping taking the baton.

China upgraded its diplomatic presence in Delhi after Mr Modi became the Prime Minister. On September 16, 2014 President Xi Jinping appointed Mr. Le Yucheng as the new Chinese Ambassador to India, who was at the rank of Vice Minister. China deputes ambassadors at Vice Minister rank only with those countries with which it has strategic importance. The countries like USA, Japan, Russia, North Korea and Great Britain have Chinese ambassadors at the rank of Vice-Minister. Now, India has.

The second reason, which propelled Modi government to court Chinese investment, was little response to Modi’s Make In India campaign. It failed to stir the investors’ sentiment. Corporate results have been weak since BJP came into power. There was a big gap between the intentions and the actual flow of investment. During 2014-15, while the intentions, represented by new investment announced, surged by 78 per cent, the projects completed increased marginally by 9 per cent. Drop in investment projects was highest during the same period. Further, fall in inflations was not the effect of growth in manufacturing, but due to fall in global oil prices.

In fact, major reforms to accelerate Make in India were stuck by the statutory requirements due to minority in Rajya Sabha. Ordinances were used as left over tools to push forward reforms. But, investors were reluctant to respond as they are not permanent measures.

Two Union Budgets under Modi government did not offer any new fiscal incentives. Fiscal incentives were one of the core demands of the investors. At 33 per cent corporate taxes and 26-28 per cent custom duty, business taxes are one of the highest India in the world.

Third, the Chinese are flushing enough cash for investment abroad. China is splurged with huge foreign exchange reserves. The economic doctrine says that FDI transfers capital, build-up a strong platform for investment and manufacturing in the host country, create buoyant opportunities for employment and increase export.

The fourth reason for seeking Chinese investment is to curb the rising trade deficit. The gushing export by China led to a yawning gap of trade deficit. For one US dollar worth of India’s export to China means three US dollar worth of imports from China. More than one-fourth of India’s total trade deficit was accounted by Chinese export to India.

Chinese FDI in India is miniscule. During January 2000 - January 2015, FDI from China was US$ 612.6 million. China was at 26th position in India’s FDI list, sharing less than 1 per cent of foreign investment. However, during Modi’s period Chinese investment in India spurred. It increased by 108 per cent in 2014 over 2013.

China seemed comfortable working with Mr. Modi. He turned friend rather than a foe. In summing up, if USA can be euphoric to coax the Chinese investment and Japan to uptick bonhomie to woo the Chinese tourists, why should India stay behind and miss the bus of Chinese investment? (IPA Service)