No. 24No. 29 March December 2015 2014 Applying the ‘Going Out’ Strategy: Chinese Provinces and Cities Engage India Aravind Yelery, PhD Visiting Associate Fellow, ICS [email protected] As the trade volume between India and momentary and short-term trade by building China has gone up since 2001, economic a grid of industrial repositories abroad to diplomacy remains a driving force behind generate sustainable inter-dependency bilateral relations. According to statistics through enhanced trade and investment. This from the Indian Ministry of Commerce, sort of outbound investment in emerging trade remains at the centre of these markets aims at reducing the sectoral economic engagements (DIPP 2014). But imbalance within Chinese economy by trade relations do not favour India and the giving its industries (both public and increasing trade deficit with China has private) better access to foreign markets and created serious micro-economic protecting Chinese labour from exposure to complications for India (such as dumping, export volatility. As a result, economic restriction on SME growth) which led to relations between India and China have increasing trade restrictions over Chinese experienced changes. While the amount of imports. These externalities along with trade continues to surge, the investments excessive export-led GDP growth forced have provided ancillary strength creating China to take a fresh approach towards its economic synergies between the two industry and trade models. A couple of countries. remedial policy interventions were made to initiate the re-balancing of the economy. Moreover, Chinese investment pertaining to its ‗going out‘ policy is used to assure India The ‗going out‘ (zou chuqu, 走出去) policy that its concerns over the trade deficit are is one of such interventions by the Chinese addressed and forms an indirect way of leadership which desired to look beyond bypassing the trade remedies employed by It is this political pressure to reinvent India over Chinese imports. economic trajectories that has also led to a significant rise in the level of interactions Contextualizing China’s Sub- between Indian and Chinese economies. Investments and trade delegations from national India Approach Chinese provinces to Indian states are not TThe state enterprises were often termed only limited to SOEs and local governments but also include provincial private 先锋 as ‗pioneer‘ (xianfeng, ) and ‗vanguard‘ enterprises. (kaituozhe, 开拓者) in fulfilling the obligations pertaining to ‗going out‘ strategy (OCAO 2011). But against the backdrop of Investments and trade stricter reforms in centralized SOEs and delegations from Chinese restructuring , sub-national SOEs have risen provinces also include to prominence as local governments adopted provincial private enterprises. policies favouring local businesses (Gang and Hope 2013). The sub-national drive in China for seeking investment and trade avenues abroad has been supported with Sub-national Economics and regulatory modifications making ‗going out‘ possible for state-owned and private India-China relations: enterprises. And it is the provincial Complementary Properties governments, provincial SOEs which have effectively followed this as a strategy Given their reform and opening up (zhanlue, 战略). On the ground, the timelines and complementary properties, provincial councils of China Council for the China‘s ‗going out‘ strategy supports India‘s Promotion of International Trade (CCPIT) efforts to attract FDI (IBD 2015). The Indian have drafted strategies to pursue region- economy, US$2 trillion in size, is struggling specific policies. to balance its sectoral growth by realigning its resources of production along with the Private enterprises have also been given factors of market. Specifically, Indian states preferential treatment to participate in are playing a crucial role at this stage. The globalizing their activities in line with the pre-liberalization division of federal broader strategy. State agencies have been responsibilities restricted the role of sub- involved in educating and persuading SOEs national actors in India - states could not to take this up and in one such endeavour, in influence investments and were restricted 2006, the State Council‘s Overseas Chinese from taking a stand on foreign economic Affairs Office organised 4th World Chinese affairs. The economic liberalisation in the Forum centred on China‘s going out efforts early 1990s encouraged these sub-national (OCAO 2011). As a result, by 2010, as per interests to realign their economic resources. the Statistical Report on China‘s Foreign In China meanwhile, the CCPIT actively Direct Investment, the SOE‘s share in studied the legal as well as economic China‘s non-financial overseas direct dimensions of the Indian state during this investment accounted for 66.2 per cent period (CCPIT-EIC 2007). (SASAC 2012). The new market space, sources of production (including land and labour) at the 2 INSTITUTE OF CHINESE STUDIES, DELHI ● MAR 2015 sub-national level turned Indian states into turning India into a rewarding destination hotspots for FDI (FFD 2014). This is further for Chinese companies seeking to achieve attested in a study conducted by Atri each of their investment objectives and to Mukherjee, which indicates that market size, justify significant long-term presence. Thus, agglomeration effects and size of it is the case that China‘s ‗going out‘ manufacturing and services base in Indian strategy and India‘s sub-national need for states have significant positive impact on growth are synergetic. FDI flows but what disrupted this flow was taxation and the cost of labour (Mukherjee 2011: 99). Hence, sub-national forces in Indian states are engaged in a India, which remained over-dependent on fierce competition to attract federal facilitation in the 1990s, underwent overseas investments, including phenomenal transformation. The rising from China. pressure on existing local resources to meet the fiscal deficits created by falling revenue and receding capital resources forced these How Chinese Provinces are sub-national actors in India to adopt conscious efforts in line with the national Planning their Engagement policy reforms. One more sub-national with India aspect, which turned India into a favourite FDI destination (including that for China) With the multiple economic was the land-use permits local governments complementarities surfacing, regional could use to promote investments (FFD entities in China adopted new approaches to 2014). In fact, this is a major reason why fulfill them. Moreover, the rise of the Indian Chinese investments in India are directed to economy from 2000 onwards provided those states which are using land-use further momentum. The Chinese noticed that permits and related incentives to attract the Indian economy‘s progress was foreign investments. consistent, considering its performance relative to Chinese industries. For example, Consequently, Indian states are engaged in a between 2000 and 2005, Indian industry‘s fierce competition to attract overseas investment in new plants and equipments investments, including from China. For was equivalent to that of China‘s. During the instance, the newly divided Andhra Pradesh same timeline, India‘s inbound volume of is offering several concessions to investors FDI at just half of China‘s inbound FDI still including tax holidays, excise duty resulted in the impressive GDP growth rate exemptions, concessions in entry tax, of nearly to 10 per cent (Huang 2009). The interest-free loans of central sales tax and Chinese noticed the intensity of reforms and free land (Yinduabc 2014). Such its effects on Indian economy and as a opportunities complement the Chinese result, a number of Chinese provinces which guidelines of protecting and expanding did not have any substantial presence in existing sales revenue and increasing market India began exploring possibilities to partner share abroad, increasing profit margins with their neighbour (CNW 2014). These through backward integration and entering engagements covered trade as well as into a new market. Thus, the Indian market, investments. As business between the two and especially, the sub-national drive for countries increases, Chinese provinces are investment promotion and facilitation, is taking a lead role in facilitating these engagements; the opportunities for Chinese INSTITUTE OF CHINESE STUDIES, DELHI ● MAR 2015 3 investments in Indian sub-national India‘s Northeast as well as between economies are immeasurable (Yinduabc Baoshan – a prefecture-level city – and 2014). Northeast India, specifically. This underlines a new dynamics, where Chinese municipal- and prefectural-level entities are seen There are increasing numbers exploring possibilities of tie-ups with any of of Chinese sub-national trade the federal tiers in India. missions to India. Apart from these delegations and trade fairs, there is another ‗going out‘ to India model Chinese provincial economic priorities play employed by Sichuan province. Although, a critical role in deciding the limits of their Sichuan entered into the Indian market a interactions with their Indian counterparts. little later than the coastal Chinese There has been an increasing mobilisation of provinces1, it has been one of the important provincial party secretaries and officials on players in India. Comparing Sichuan trade missions to India. For instance, province‘s ‗going out‘ policy vis-à-vis that Yunnan, Jiangxi, Guangxi, Zhejiang and of the coastal provinces