Page 58 - bne IntelliNews monthly magazine September 2024

58 Opinion
bne September 2024
collaboration of Chinese investment and technology” – a sentiment that was recently repeated by Finance Minister Nirmala Sitharaman.
“Some have suggested that these developments indicate a shift in India’s geopolitical alignment. This isn’t unheard of: over the past couple of years, a number of EMs including Saudi Arabia and South Africa have moved towards China’s sphere of influence with their own strategic interests in mind,” says Shah.
While some observers suggest these moves could indicate
a shift in India’s geopolitical alignment, this interpretation seems premature, says Shah. The border negotiations remain fragile, and any miscalculation could reignite tensions. India remains deeply concerned about China’s military presence
in the Indian Ocean and its alliance with Pakistan. At the same time, India is equally annoyed with the US, which also maintains cordial relations with Pakistan, and incensed Delhi by agreeing to a deal to supply Islamabad with advanced
F-16 jet fighter planes last year, which has only reinforced its strategic autonomy policy.
And India is hedging its bets with China too. Part of the
talks between Modi and Putin covered an order for Russia’s advanced S-400 missile system that India has already paid for, but yet to receive, which it intends to install all along its border with China. Likewise, China has been building dozens of “border guardian” settlements in the Himalayas at the end of any traversable valley and paying people to go and live there, partly as a regional development programme, but also as a passive early warning network to protect against invading forces. The settlements have also been built on the borders with Bhutan and Nepal, according to a recent The New York Times (NYT) investigation.
Moreover, India’s membership of the Quad – a security dialogue that includes the US, Japan and Australia – along with its stringent policies against Chinese smartphone apps, reaffirms India’s ongoing mistrust of Beijing.
The slight warming in Sino-Indian ties does not negate
the advantages of aligning with the US, particularly in capturing the benefits of friendshoring. For example, India’s global share of mobile phone and semiconductor exports continues to grow, underscoring the economic benefits of this alignment. However, India’s engagement with China reflects a broader strategy seen in several EMs, which are balancing relations with both China and the West to maximise economic benefits. This approach, exemplified by India’s potential acceptance of Chinese investment in infrastructure, aims to enhance its appeal as a manufacturing hub while carefully managing geopolitical risks, says Shah.
Elsewhere, countries like Morocco and Hungary are also benefiting from Chinese investment, particularly in green technology and electric vehicles, while maintaining strong
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economic ties with Europe and the US. Hungary, for instance, has seen a surge in Chinese foreign direct investment (FDI), making it one of the top recipients globally, despite its alignment with the US bloc.
In Central Asia, the five ‘Stans, squeezed between Russia and China, have been a lot more cautious to keep China at arms- length and will search for other investors and creditors first to diversify their exposure, only accepting Chinese investment if no other viable alternative can be found.
As China’s domestic growth slows, its firms are likely to continue investing overseas, driven by the need for higher returns and the desire to bypass Western protectionist measures. For some EMs, this presents an opportunity not just for capital inflows but also for the transfer of technological and managerial expertise.
However, the balancing act could become more challenging if the US, China rivalry intensifies.
“Courting both sides could become harder for EMs if the US and China become more aggressive in pushing to exclude each other’s inputs from their supply chains. For example, if the US were to prevent goods containing certain Chinese components from being sold domestically, then firms anywhere hoping to sell to the US would have to exclude them too,” says Shah.
There are some signs that this is already happening. For example, Indonesia is attempting to reduce Chinese investment in new nickel mining projects in order to qualify for tax breaks in the US. The US has also introduced smart sanctions on Russia in December, where Office of Foreign Assets Control (OFAC) is increasingly targeting third countries supplying Russia with “priority goods” and threatening their companies with secondary sanctions.
“Only time will tell if this is the direction that fracturing will take. But for some EMs, greater Chinese investment now could prove fruitful, not only in terms of higher capital spending but through the transfer of technological and managerial know-how,” concludes Shah.
“As China’s domestic growth slows, its firms are likely to continue investing overseas, driven by
the need for higher returns and the desire to bypass Western protectionist measures”