China - India investment questions and comparisons to be raised

Mar. 18 - The Senior Partner of Dezan Shira & Associates, Chris Devonshire-Ellis, who publishes China Briefing, India Briefing and the emerging Asia website 2point6billion.com, will meet next week with Kamal Nath, the Indian Minister of Commerce, and Mr. P. Chidambaram, the Minister of Finance, in New Delhi.

This pre-empts his annual meetings with Chinese government leaders which are scheduled for this May. Last year’s summary of meetings with China’s officials can be accessed here.

Chris will be reporting on issues arising from these talks on 2point6billion.com next week, please subscribe to that site (complimentary) if you require copies of these.

He has also kindly offered to raise important questions on China-India trade or investment directly with Mr. Nath and Mr. Chidambaram on behalf of our subscribers and readers. If you have questions you would like him to pose to the ministers please email him directly at ministerialmeetings@dezshira.com. Replies will be confidential.

Four days after India, the world’s fourth largest military, raised its defence spending by 10% to $26.5 billion for 2008-09 or about 2.5% of its GDP, China, the world’s largest standing force upped its defence budget by 18% to a whopping $58.4 billion, or 1.4% of its GDP. What Beijing did not mention is that India’s military expenses at $26.18 billion (Rs 105,600 crores) is less than half of China’s expenditure in absolute terms, although it might seem higher as a percentage of GDP.

The spurt in defence spending also comes at a time when China claims parts of Arunachal Pradesh (90,000 square kms), in India’s far East to be part of China. China is now also considered a formidable force by the US, who believe that Beijing’s real military spending is two or three times the announced figure.

Justifying the jump in defence budget ‘because other countries were doing it too’, Jiang Enzhu, spokesman for the National People’s Congress, China’s legislature said “military expenses accounted for 14.1 per cent of India’s overall spending while China spent just 7.2 per cent of its total budget on defence. Developed countries spent a lot more with the United States allocating 4.6 per cent of its GDP to defence and Britain spending three per cent of its GDP, he said. The figure for France is 2 per cent and Russia 2.63 per cent of GDP.

Adding, “China’s limited armed forces are totally for the purpose of safeguarding independence, sovereignty and territorial integrity”. “China will not pose a threat to any country.”

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Singapore-based Changi airports has signed an agreement with Bengal Aerotropolis Projects Ltd. (BAPL) to invest $2.5 billion or Rs 10,000 crore to develop India’s first privately owned airport. The Durgapur Aerotropolis (airport city), India’s first, will be situated in the Durgapur-Asansol region of Bardhaman district in West Bengal an East India state.

The project will involve setting up of a Greenfield Airport, industrial park, logistics hub, IT park with a supporting infrastructure like housing, tourism, healthcare and social interchange facilities. While the airport will be developed over approximately 300 hectares, the supporting industrial and social infrastructure will be developed over approximately 650 hectares. The airport is expected to be functional in next 2.5 - 3 years and would have the ability to handle A-320 aircrafts.

The plan is part of a bigger idea to set up a health city and a sea port in addition to the airport. Last year, West Bengals Chief Minister, Mr Buddhadeb Bhattacharjee, said the Planning Commission was conducting a feasibility study with regard to the setting up of a sea port on the Shanghai model in West Bengal. (more…)

While Vietnam, Cambodia, Burma & Sri Lanka seem to be taking advantage of the opportunities spilling over from India and China, Bangladesh on India’s north east and China’s south west corners seems to be loosing its main export - finished jute products.

 A report by Bangladesh’s Daily star says that Bangladesh is loosing millions in jute exports because it exports the raw material to India and China who process it (mostly into bags (gunny sacks)) and later re-export as value added goods.

“Export price of raw jute is around Tk 13,000 a tonne, but its price becomes Tk 35,000 if it is a finished goods (sacks),” Salim Reza, vice chairman of Bangladesh Jute Exporters’ Association, told The Daily Star.

According to official data, during the July-December period this fiscal (2007-08), Bangladesh exported raw jute worth US$82 million, a 13.18 percent increase from the US$72 million exports during the corresponding period in the last fiscal year.

While Bangladesh’s jute goods export has declined by about US$2 million to US$166 million in the first half (till December) of the current fiscal year compared to the same period of the last fiscal year.

India, China and Pakistan have become major buyers of Bangladeshi raw jute in the recent time, exporters said.

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Both China and India are leading the way forward for global vehicle trends as Tata’s Nano has stunned the US car manufacturing market in it’s simplicity and low cost. The increasing rising of gas prices is having three effects, both of which China and India have long foreseen – the need for smaller cars, a fundamentally different financial production model than the current one used for auto manufacture,  and the trend ultimately to electric powered clean emission vehicles.    

The Reva 

While the US market is not planned for market entry by Tata, many industry experts believe that the way forward will be vehicles of the Nano type. The disposable culture of the US fits that of the cheap USD2,500 Nano – with no need to spend much on repairs or maintenance – you just buy a new one when the need arises. The Nano is already mostly made from recyclable materials – with it’s manufacturer, Tata also owning many recycling plants in India, thus creating an entirely new economic model for vehicle production. This financial model is completely different of anything American, European and Japanese manufacturers have previously considered.

Forecasts for ‘small’ car purchases are set to rocket by 65% in the next four years, and by 50% in Western Europe. Even the conservative US, lovers of big auto statements, are anticipating a growth of 25% in the category.

Auto analyst John Wolkonowicz stated “The Nano is the price of a small laptop computer, and is the 21st century equivalent of the Model T Ford. It is going to mobilize the third world and that will have implications for everyone”.

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Who knew that in 1991 ( economic policy), India would come this far and welcome investors with open arms. In the last few years the Nation has changed its policies towards a fruitful object and continues to do so.

I can recall when I was studying economic and business legislations of India that we used to talk about whether the FDI limits would eventually change to bring in more money and a better infrastructure or would Indians be driving on those bumpy roads and suffer in jams with its overgrowing population due to lack of adequate flyovers; will there be enough place at its airports to accommodate the immense increase in air traffic to India or for that matter will there be airlines other than Air India/Indian Airlines/a few more. Today the picture as changed and seems like we have the right people on board to gauge the needs of the hour.

Yesterday, 30th January 2008, the Government of India (GOI) showed how liberal it’s getting in its policies. The Cabinet Committee on Economic Affairs (CCEA) announced the following increases in the FDI limits in 7 sectors. Lets have a look below :

Sector/activity                                                           New Limit (max)        Old Lmit

oil refinery joint ventures with public-sector              49                                      26
oil firms  (1)

ventures involving the trading and marketing of        Deleted a rule
petroleum products. (2)

maintenance, repair and overhaul organisations        100                                   49
(MROs) and flying training institutes, helicopter
and sea-plane services

cargo and non-schedule airlines                                   74

ground handling services
(after requisite security clearances are obtained)`       74

Indian commodity exchanges     (3)                              49

mining and mineral separation of titanium
-bearing minerals and ores (4)                                      100

Credit information companies (5)                                 49

listed credit information companies                              24

Industrial Parks (6)                                                waviers (more…)

By Chris Devonshire-Ellis

So runs the summarizing headline in the Financial Times new “India & Globalization” special report (January 25). It’s a report will worth reading, covering as it does relations with Pakistan, competition with China, ties with Washington, and the concepts of transparency, openness and better corporate practice, not to mention moving up the value chain, and India’s participation in global M&A deals.

However, it’s pretty much a ‘mid-term’ report than a longer term analysis of India’s development, and one that is not always accurate. For sure, calls for a stable Pakistan are a given – India certainly does not want a massively failed State on its doorstep, even given the history of antagonism between the two countries since partition. Indeed, it is relevant to note the Indian government’s current policy of restraint concerning news coming from Islamabad – the assassination of Benazir Bhutto for example being handled in a sensitive and low key manner by the Indian government – and its media. Signs here are positive then that in times of grave danger, India will reach out to its estranged neighbor and seek to secure the future of Pakistan rather than antagonize. (more…)

Beijing, Jan.14 - H.E. Dr. Manmohan Singh, Prime Minister of the Republic of lndia, and H.E. Mr. Wen Jiabao, Premier of the State Council of the People’s Republic of China, yesterday met in Beijing with the aim of strengthening peace and prosperity between the two nations as well as developing a strategic and cooperative partnership.

lndia and China, home to more than one-third of the world’s population, play a significant role in the future economic and social development of Asia and thus this meeting in Beijing served to further highlight the importance that both countries have attached to their role in maintaining sustainable economic and social development and simultaneously driving forward two of the most booming economies in the world.

In his speech Dr. Singh highlighted a number of important issues that the two nations must face as well as ways in which both China and India can work together in harmony to ensure that this development continues unabated. Here are some excerpts:

In his opening paragraphs, Dr. Singh strongly emphasized the importance of strengthening the relationship between India and China stating that: “the India-China friendship and common development will have a positive influence on the future of the international system. India-China relations are not targeted at any country, nor will it affect their friendship with other countries.”

“Both China and India believe that in the new century, Panchsheel, the Five Principles of Peaceful Co-existence, should continue to constitute the basic guiding principles for good relations between all countries.”

Dr. Singh reiterated that: “An international system founded on these principles will be fair, rational, equal and mutually beneficial, will promote durable peace and common prosperity, create equal opportunities and eliminate poverty and discrimination.”

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While upbeat talks are being held this week in Beijing between the Indian Prime Minister Dr. Manmohan Singh and the Chinese President Hu Jintao, concerning record trade figures between the two nations, the real key to the continuing development of this relationship is a resurgent Russia. Indeed, while bi-lateral talks between India and China will make the headlines, it’s really a triumvirate story that is developing – the new Trading bloc that will be made up of these three superpowers to counterbalance both the United States’ aggressive desire for oil inflicting global imbalances upon the world’s economy and the geopolitical and geographical expansion of Europe.

It’s a subject largely unreported and little understood in the media’s seeming unending fascination with China and the hullabaloo of an American election. Yet Russia is expected to join the WTO later this year, with just Saudi Arabia standing between them and a mandate to come aboard and fully participate in the global community. Doing so will further add strength to Russia’s already booming economy, yet with wary eyes on its borders with Europe, and strongly felt suspicions concerning the proposed American desire to place missile sites in Poland, Russia is more likely to align itself with India and China as the global balance of power settles down into a tri-polar power base of America, Europe and Asia. (more…)

Jan. 14 - Prime Minister Manmohan Singh began his three-day visit to China yesterday with an informal meeting with his Chinese counterpart Wen Jiabao as both sides grapple to find a mutually acceptable solution to the on-going issue of disputed border areas. Dr. Singh and Wen discussed a range of issues of mutual interest during their ‘restricted meeting’, held at the Diaoyutai State Guest House. National Security Advisor, MK Narayanan, Foreign Secretary Shivshankar Menon and Indian Ambassador to China Madame Nirupama Rao were also present during the discussions. The borders issue is expected to figure prominently during the discussions though both sides do not expect any breakthrough at this stage. Special Representatives MK Narayanan and Dai Bingguo, senior Vice Foreign Minister, will brief the leaders on the progress in negotiations on the boundary problem.

“An early settlement of the boundary question will advance the basic interests of the two countries and should, therefore, be pursued as a strategic objective,” said Dr. Singh.

Dr. Singh, who was accorded a red carpet welcome at the Beijing international airport, will have official delegation-level talks with Wen at the Great Hall of the People today. (more…)