Fifteen years ago, when Chinese companies needed to import telecom equipment, vendors like NSN and Ericsson were forced to manufacture locally with 95% local staff and content. Today, China is reaping the benefits of an indigenous manufacturing base in Huawei and ZTE, an estimated $40bn in revenues & $4bn in profits and 500,000 jobs from the telecom equipment space.
On the eve of Wen Jiabao’s visit, it appears like India is no match for such sort of economic diplomacy. Chinese banks are beginning to fund Indian companies in capital-intensive sectors like telecom and power, in turn to procure equipment from Chinese manufacturers. Over the last two months, Chinese banks have provided $3bn (Rs.13,500 cr) of loans to Reliance Communication and Reliance Power. Roughly 50% of that amount will be used to import equipment from Chinese manufacturers. In October, RPower had signed an MoU with four Chinese banks for $12bn of power equipment financing.
As a result of such deals, India could potentially lose out on creating much-needed manufacturing capability and importantly, jobs in the socially volatile manufacturing segment. Agreed, Huawei has announced an investment of $2bn over 5 years, but there is no JV with any Indian company and no development of an indigenous industry. While this may sound like socialist gibberish to many, the fact of the matter is that losing out on employment creation and capacity building is never a good option – like many western economies are realizing. And it is not up to industry to achieve this – it is solely the Government’s responsibility to tweak policy and exploit the inward flow of capital & technology to maximise employment, manufacturing capability & GDP.
It is here that India loses out to China. The current style of Indian governmental functioning is, at its worst, clueless but largely reactionary – it responds to requests and lobbying by existing industry bodies. With increasing divestment and privatization, government takes less of a pro-active approach to creating industries like it did with the auto industry a couple of decades ago.
In the meantime, like an expert boxer, China is dancing around a lazy opponent with light, quick, successive punches – economically, militarily and socially. The Indian establishment needs to do away with inanities – “…they need to explain to us what they are doing to bridge the current account deficit” – and start executing a smart strategy for maximising capacity and capability for the long run.