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22 May 2013, Gateway House

Li and Obama’s Mumbai lessons

Chinese Premier Li Keqiang is also a salesman for his country – but he comes with the one offer no foreign dignitary has made so far: money. Cash-strapped Indian business especially those in the infrastructure and resource businesses, will certainly be looking now to China to make their dreams of survival come true.

Executive Director, Gateway House

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The banquet hall at the Taj Mahal Hotel in Mumbai was packed to the brim with Chinese and Indian businessmen, in anticipation of the arrival of Premier Li Keqiang and his 200-strong delegation. The May 21 evening, organized jointly by India’s three top chambers of commerce, was a packed affair, in keeping with the guest from a country that is seeing seemingly boundless growth and global ascendancy. French wine, served with jumbo prawns and Indian King Alphonso mangoes was on the menu, served to Chinese businessmen from the power sector and consumer product sectors and the bolder, newer Indian entrepreneurs representing companies like Marico, Essar and Yes Bank.

There hasn’t been such an expectancy among India’s business community since U.S. President Barack Obama visited India’s financial capital in 2011 – a keenness which quickly dissipated when, haven shaken hands with India’s high and mighty, President Obama was found to be just another salesman for his country. Li also is a salesman for his country – but he comes with the one offer no foreign dignitary has made so far: money. China has lots of money, about $3.4 trillion in reserves, a treasure the Chinese government can use at will and is doing so to encourage their companies to establish and expand their foreign presence. “The leaders of our two countries have reached a strategic consensus on this issue and our governments are working on this. My trip is to expand participation of business in each others’ markets, and establish joint ventures,” he told the gathered audience.

For Chinese producers, India is a prize that is still not theirs. They have captured the Western markets, the African markets, the East Asian markets and most of South Asia – except India. Bilateral trade is $67.8 billion, with a deficit in favour of China of more than half that. Still, the penetration has been spotty. Chinese power and telecom equipment players are dominant players in the Indian market at the upper end and at the lower end, Chinese toys and consumer goods like torches and small electronics. While this has wiped out India’s small and medium-size industry – the mainstay of employment for our vast millions of youth – it has also provided them affordable products that were previously out of reach.

This is a double-edged sword, and as the United States and Europe have discovered, jobs are more important for a country’s sustenance than cheap consumer goods.

What China wants is India’s middle-class market – those big, aspirational consumers currently the preserve of Indian companies and multinationals which sell them computers, clothing and cars from brands that China can not yet offer. India’s consumer markets are set to grow from $10 billion to $100 billion by 2024, according to the Indian Brand Equity Foundation.  Li saw this when he said, “The market has a magic power, and business people can make things happen…they have the wisdom to do so.”

Li is looking for the big, respectable names to do business with, and the Tata Group is on the top of his list. Although Anil Ambani’s ADA Group is his number one debtor – Reliance Communications and Reliance Power have taken over $2 billion in debt from Chinese banks in the last year to stay afloat – Li made an hour-long visit with Cyrus Mistry, the new chairman of the Tata Group. He recalled that Jamsetji Tata came to do business in Shanghai in the 1860s. The Tata group now has a steel, auto, logistics and software services business in China, with 4,000 employees and about $9 billion in revenues. The third-largest market for Tata’s Jaguars is China. But the group is still largely looking west for its markets, and leaning west in its intellectual and cultural inclinations, giving $50 million in donations to U.S. universities, for instance.

This can change: TCS, the first Indian software company to have an office in China, offered Li its software services to support China’s state-owned banks – a big job that can keep Tata’s engineers occupied for decades if those banks start to reform and fix their problems. “This shows that Indian products have a competitive edge in China,” he said of the TCS offer.

Other Indian enterprises are, meanwhile, doing debt deals in China, like Essar which signed a $1 billion debt-for-fuel deal with China Development Bank. Unlike investment from the U.S., the Chinese deals are unburdened by strict issues of compliance. As Li promised Indian business, “China can make your dreams come true.”

It’s a promise that President Obama could not make to Indian business. Instead, he came looking for arms sales and the creation of jobs at home – neither of which adds to India’s GDP growth. Li too, is concerned about employment at home, and pitched for open markets – India’s, his own, as the plaintive requests from our government and business for a lower trade deficit show.

Still, cash-strapped Indian business especially those in the infrastructure and resource businesses, will certainly be looking now to China to make their dreams of survival come true. But most will use the funding to export – or import – products, not to expand within India and create the jobs and manufacturing base we so badly need.  In contrast, India’s small and medium enterprises which do provide that employment, are stuck with borrowing at high local interest rates from Indian banks, and are unable to compete with the cheap Chinese products that are wiping out their businesses.

In that sense, both Obama and Li are protecting their own businesses – a lesson that our Prime Minister should learn before he signs any more strategic agreements.

Manjeet Kripalani is the Co-founder and Executive Director of Gateway House: Indian Council on Global Relations.

This article was exclusively written for Gateway House: Indian Council on Global Relations. You can read more exclusive content here.

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