How to tackle China

My humble suggestion:
India has the biggest trade deficit (with any country), with China! Its a $55 billion annual trade deficit. Now, China has excess money to invest and India is in need of investment.
What we need is to tell China that this $55 billion annual trade deficit in not acceptable and instead of repatriating this money back to China, it should be invested in India, else we will find ways like blocking market access for Chinese companies. Read
India is in the middle of negotiating RCEP with China, ASEAN, Japan, Australia, South Korea and New Zealand. This is getting difficult for India because on the one hand, China has already become a manufacturing power house and India is lagging, and on the other hand, India cant afford to not join this global community with its cultural backyard nations being a part of it. More so, other countries in RCEP look up to India as a counter weight to China and all the more reason why India should be in it.  
China has its differences with South Korea, Japan, Taiwan etc but still on economic matters, it does business where it suits it. India should do the same with China.
Agreed India is now fighting with China on matters like UN proscription on Masood Azhar and on India’s membership of NSG, but let us make the most of the money China has. The problem India is facing with RCEP should be looked from the prism of getting massive investment in India from member countries of RCEP. India has to be a part of RCEP on its own terms.
Real Map of China

Real Map of China

I am not saying give them 3 Silk roads passing through India, because India’s principled position is that CPEC passes through PoK and is hence not acceptable. But somewhere in my mind, the calculation does run that even if we give 3 Silk roads to them, we will get $200 billion of investment and since any road runs both ways, Indians would be able to trade with Tibet, thereby increasing our contacts with Tibetans and build a way to get independence for Tibet someday. And our 3 Silk roads will wean China away from Pakistan.
But we NEED this investment from China and $55 billion of it annually, is our OWN money which they are getting.
On top of it, this $55 billion deficit is because China has kept its sectors closed for Indian companies and its all the more reason why we should tell them we wont allow their products here if they dont invest here and ALSO dont allow us to make money in their country.
So, prudence demands we tell China:
1. India will ensure this $55 billion annual deficit goes to zero. To avoid, they should take example of the global companies investing in India and manufacturing from here and opening their service companies here. Sign a pact with China for compulsory investment of the deficit in India
2. If China relents on Masood Azhar and NSG, India will work on BCIM Corridor. Expressway/ Trains will run from India, Bangladesh, Myanmar, China and thus North-East India will see the fruits of it
3. Offer them deals – If China relents on Masood Azhar and NSG, India will link the Tibet-Nepal railway line to India.
A superb move was made recently when a Taiwanese delegation was invited to India. Back of envelope calculations show Taiwan will invest $200 billion in India, if India makes Taiwan an all-weather friend, like China has made Pak. I am not saying give nuclear weapons to Taiwan, Mongolia, South Korea and Japan but Chinese perfidy with Pak, calls for this insanity. On trade front, give a carte blanche to Taiwan, give them preferred treatment, make them your best pal. Let Taiwanese semiconductor companies, hardware manufacturers set up their shop in India. This is China’s pain point and will send a message to Japan, South Korea, Australia and US that India means business and can walk the talk.
Saw a news that India is considering not to allow Australia to participate in Malabar exercises with US, Japan. This is hara kiri. When India-US-Japan-Australia axis is taking fruition and India is going all out to get ASEAN on board by pushing ASEAN states to give joint statements with India on need for maintaining International Law in South China sea, then why is India cowing down to China on this? Unacceptable and we need to show more spine.
China did a successful test of a satellite-killer rocket in 2007. India has the capability but is shying away from such a test because supposedly, it would be violation of Global Space treaty. But its time India demonstrates this capability, considering China is breathing down our neck after Dalai Lama’s Arunachal visit.
The most critical problem India is facing in foreign policy, right now, is the siding of Russia with China (even Russia’s siding with Pak-China on Afghanistan issue). If Russia can be weaned away from China and aligned with US, clearly China will see another difficult front opening for it on its northern border with Russia. Is there a scope for PM Modi ji to try and bring Trump and Putin together? Would it complicate India’s independent relationship with US and Russia and unnecessarily drag India in global conflicts? I guess we need to think hard about it. But definitely Russia needs to be dragged out of its embrace of China, which is just because Putin has few friends in US/ Europe and is hence forced to side with China.
If we can persuade Putin to give 3 of 4 Kuril islands back to Japan, we have a successful Japan-Russia relationship going, which will also mean Japan, Australia, South Korea, ASEAN states and India together can get Putin and Trump on same stage and then the consequences for India will be less, because we will be acting in concert with allies. Please do think about this.
Last, China has been blamed by US for keeping Yuan weak. The reality? Actually, China has spent $1 trillion in past 3 years to keep Yuan STRONG against the Dollar. Reason? A strong currency makes a country like a king, sucking world’s output cheaply. Saw Nirmala ji’s Sitharaman’s statement that its good that Rupee is appreciating against Dollar, but given that we already have forex reserves approaching $400 billion and earning measly return of 0.25% annually from US Treasury deposits, its high time we let Rupee appreciate, back to 40 levels. India imports of petroleum products, defence equipment, foreign technology will be cheap.
The most important point is that India is a consumption driven economy. Weak currency means global companies dont set up manufacturing here, because the profits they will make, will get them less dollars, when repatriated back to their country, but strong rupee means a big push for Make in India ! Further, Indian companies will be able to partner with Global companies on their own terms if Rupee is strong. Currently, India is being made a dump-yard for capital, just like its a destination for poor/ dole-getting tourists from abroad.

Author: Tushar Kansal

Tushar has been associated with the Project Assessment, Fund-raising & Financial Advisory realm in India for 2 decades. He has straddled multiple roles in Financial Advisory in Deloitte Touche Tohmatsu, PE Deal-maker in Times of India’s Brand Capital, in Corporate Finance roles in Aircel, as an Entrepreneur in Education field and as a CFO (Chief Financial Officer) till 2014. Prior to that, he was the Head of Debt for MTS India, where he was instrumental in raising $2.5 billion structured debt. Tushar has been involved in $6 Billion of transactions in Debt/ PE/ M&A across all asset classes. He has major experience in Education domain – From 2001 to 2006, Tushar led his Education entrepreneurship venture which provided Entrance examination training for Engineering colleges in India. The venture grew to 800 students and then was bought out by a marquee pan-India player in this space, as a strategic sale. Tushar is a panel member at CNN-News18. He is also a Columnist @ Business World, Indian Defence News, Business & Economy, Indian Economist, Digital Market Asia, OpIndia & Growing India.

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