Complex market, regulations pose challenges: Chinese business leaders
India, with the fastest-growing major economy and the second-largest population in the world, presents a tremendous amount of opportunities for Chinese companies that are aggressively expanding overseas, Chinese business leaders and experts in India said on Wednesday.
But they also warned that the risks of operating in India are high, if not properly managed with thorough understanding of the local market and culture, a lesson, they said, many Chinese companies have learned in recent years.
"India is definitely a market that many Chinese companies cannot ignore, the potential market is huge," said Wang Chao, founder and CEO of ZDream Ventures, which aims to bring investments from China's technology, media and telecom (TMT) companies to India and help financing local start-ups.
"We have seen more and more Chinese companies coming to India, especially in the past couple of years, to pave the way to that vast market," Wang told the Global Times on Wednesday.
Chinese investments into India have been growing exponentially since 2010, when direct investment stood at just $250 million, according to a report the Industrial and Commercial Bank of China's (ICBC's) Mumbai branch released on October 3.
In 2014, that number grew to about $1.18 billion and it rose further to $3.55 billion at the end of 2015, the report said.
Investments in the manufacturing, infrastructure and TMT sectors are the leading forces, accounting for 42 percent, 25 percent and 13 percent of the total investment in 2015, respectively, according to the ICBC report.
Wang, who has been living in India for more than five years, said it is in those three areas where Chinese companies have a competitive edge because of their capital and expertise, which are highly sought after by the Indian government and businesses.
India is going through the same developmental stage China went through years ago, he said.
For Chinese manufacturing and infrastructure construction companies, India, in addition to the vast market, offers something of great value to them: cheaper labor, according to Lü Qingyong, head of Indian operations for Sichuan Jinwangtong Electronic Science and Technology Co, which makes cable TV devices in India.
Lü told the Global Times on Wednesday that, for the same line of work, his company pays a worker about 3,600 yuan ($535.39) to 4,000 yuan per month in China, but in India, that number is about 900 to 1,000 yuan.
"That's a big factor for most manufacturing companies that moved here," Lü said.
He noted India is also a unique market and it's different from other Southeast Asian countries, where labor costs are also low, because of the size of the Indian market and its connection to the rest of the world.
Moreover, the Indian government is actively looking for such cooperation, especially under Prime Minister Nerada Modi's leadership. He has introduced industrial policies like "Make in India" to support domestic development and further open up the market for foreign investment.
The Indian economy grew 7.1 percent year-on-year in the second quarter, maintaining its position as the world's fastest-growing major economy, according to Indian government data released in September. The Indian government is expecting an 8 percent growth for the whole year, according to Indian media.
If the Indian economy continues to grow at this pace, the size of the Chinese investments will only increase, Wang said, especially with support policies such as "Make in India" and increased access for foreign capital.
However, these opportunities come with high risks, which have caused many Chinese companies to take heavy losses or even withdraw their investments from India, business leaders and experts said.
Many Chinese companies face difficulties with complex Indian laws, investment policies, taxation systems as well as the big differences between Chinese and Indian culture, the ICBC report also said, citing a survey the bank conducted on Chinese companies operating in India.
In addition, some Chinese companies misjudged the market, were too anxious for success and failed to develop a long-term operating plan before they came to the Indian market, according to the report.