New economic policy meets old paranoia

From ports to telecoms, Chinese FDI in India is hitting "national security" barrier.

28 September 2006
The Hindu

Chinese FDI hitting `national security' barrier

Siddharth Varadarajan

New Delhi: The numbers involved are small compared with the annual bilateral trade turnover of more than $18 billion but the Indian decision to block Chinese firms from investing in the country's telecommunications and port sectors is beginning to cast a shadow over the fast-growing economic relationship between the two Asian giants.

The issue figured in the two-day meeting of the India-China Eminent Persons Group (EPG) held here on September 25 and 26, with the Chinese side registering its concern over the blacklisting of China-based firms from key Indian projects on grounds of national security.

At stake is the Rs. 4,230-crore Vizhinjam Deep Water International Transhipment Terminal near Thiruvananthapuram, where the Centre in August refused to approve the award of a contract to a consortium consisting of two Chinese companies — Kaidi Electric Power Company and China Harbour Engineering Company — and Zoom Developers of Mumbai. The contract was awarded to the consortium by the erstwhile Congress-led State Government of Oommen Chandy but continues to have all-party support within Kerala following the election of the Left Democratic Front.

With India in the midst of an ambitious port construction and modernisation programme, Chinese firms fear being shut out of a sector whose business opportunities are estimated to be worth upwards of Rs. 60,000 crore.

Earlier this month, the Centre formally advised the Chennai and Mumbai Port Trusts to reject the bid of the Hong Kong-based Hutchison Port Holdings (HPH) for the construction of new container terminals at the two ports. The reason cited: unspecified "security concerns." HPH runs 27 international port operations, besides 14 in China and Hong Kong and was partnering the Indian firm, L&T, in joint bids for Chennai and Mumbai.

"We are not for one moment suggesting that India has no right to decide which sectors of its economy should be open to foreign investment and which should be closed," a highly placed Chinese source told The Hindu. "But if a sector is open, it should be open to all." Under the Government of India's own rules, the source said, ports and telecom were open to FDI. "If you have sectors that are not open, like retail trade, that's OK. I know there is one Chinese firm that is keen to come but it can wait till the day the sector is open. But if a sector is open, it is not fair to block firms from one country."

Excellent relations

Emphasising that the number of cases of exclusion was "very limited" and that the overall economic relationship between India and China was excellent, the official nevertheless said that the selective barring of Chinese firms hurt Beijing's sentiments. "It has a psychological impact." Cumulative Indian FDI in China is around $200 million, while Chinese investments in India were only one-tenth that figure. China, he said, imposed no restrictions on Indian investment and its telecoms and ports sectors were open to all, without exception.

Citing the example of Huawei Technology, a Shenzhen-based telecommunications company with more than 800 employees in Bangalore, the Chinese sources said it was not clear on what grounds the company was being denied clearance to invest $60 million in a proposed new manufacturing unit in India. Huawei has been in India for several years now. "For a company, time is money. They don't know whether they can go ahead or not."

The sources also cited as another dampener the Indian reluctance to grant Chinese businesspersons multiple-entry visas or visas allowing stays of longer than one or three months. "Last year, 350,000 Indians visited China compared with 50,000 Chinese visitors to India. Of course, we should promote more information about India in China so as to encourage visitors but there are also big difficulties on the visa front." If India had a more stable, predictable and transparent visa policy, this would lead to more business opportunities for the two sides, he observed.