India is warming up to a cooling China

China's President Xi Jinping and India's Prime Minister Narendra Modi arrive for a signing ceremony during the Shanghai Cooperation Organization (SCO) summit in Qingdao, Shandong Province, China June 10, 2018. REUTERS/Aly Song/File Photo Acquire Licensing Rights

MUMBAI, Aug 28 (Reuters Breakingviews) - A meeting of Asian neighbours in distant South Africa is rekindling hopes of businesses back home. Indian Prime Minister Narendra Modi’s exchange with Chinese President Xi Jinping on the sidelines of last week’s BRICS summit may signal official interest in thawing a financial relationship hamstrung since 2020 by border tensions. A screening policy that dramatically slowed investments into India looks ripe for some fine-tuning.

While the dialogue between the two leaders appeared focused on unresolved issues on their shared over 3,000-km (1,860-mile) frontier, it sets the tone for a broader engagement on bilateral issues at next month’s G20 summit in New Delhi. India appears to be warming up to a larger Chinese presence in its businesses three years since it introduced an approval regime for investments from countries sharing a land border. The impact of screening was steep: foreign direct investment from China was small, amounting to some $6 billion including in pharma, technology and autos, per Gateway House, a think-tank, but official Indian data show it slid to $11.7 million in 2021.

A softening of its stance against its second largest trading partner is now palpable, albeit with strict controls and limits. Authorities in New Delhi have been clearing proposals in sectors like renewable energy and electronics, partly driven by firms like Apple (AAPL.O) which wants its Chinese component makers around as it builds iPhones in local factories. Corporate tie-ups are in the works, too. Fast-fashion retailer Shein, whose app India banned in 2020, is returning in partnership with Reliance Industries’ (RELI.NS) retail unit, the Wall Street Journal reported in May. Sajjan Jindal’s steel-to-paints conglomerate JSW is sizing up a large minority stake in SAIC Motor-backed MG Motor India, the Economic Times said in June.

Faster and more frequent clearances could be on the horizon – as of March 2022, India had approved only 66 of 347 FDI proposals under the screening mechanism. Actual investments currently lag the number of approvals; a better geopolitical relationship could narrow the gap. One priority area might include anything that abolishes the import of foreign products and encourages domestic production, such as in electric vehicle manufacturing. India’s digital economy - previously a big area of interest for Chinese entities – may remain out of bounds on data security concerns.

Modi has made a deepening financial relationship with China dependent on a warming political one. So long as relative calm continues on the border, warmer handshakes could follow.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

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CONTEXT NEWS

Indian Prime Minister Narendra Modi spoke to China's President Xi Jinping on the sidelines of the BRICS summit in Johannesburg and highlighted concerns India has about border issues, Reuters reported on Aug. 24, citing India’s foreign secretary.

Chinese automaker BYD has told its Indian joint-venture partner it would shelve plans for a new $1-billion investment to build electric cars after its proposal faced scrutiny from New Delhi, Reuters reported in July.

India is “open” to investments from China, the former’s Minister of State for Electronics and Information Technology Rajeev Chandrasekhar told Financial Times in an interview published in July.

A private company owned by Sajjan Jindal, chairman of India’s JSW Group, plans to buy as much as 48% of MG Motor India, a wholly-owned arm of Shanghai-headquartered SAIC Motor, The Economic Times reported in June, citing unnamed people with knowledge of the matter.

Shein is set to re-enter India through a partnership with Reliance Retail, The Wall Street Journal reported in May. The Chinese fast fashion brand agreed to a stringent licensing deal with the Indian company, Bloomberg reported in June.

Editing by Una Galani and Thomas Shum

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