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India should attract Chinese investment even while checking it strategically

Without making big national headlines, China’s Gland Pharma launched the biggest initial public offering (IPO) of shares in Indian pharmaceutical history of ₹6,500 crore in November. This was oversubscribed more than twice, despite calls for boycotting everything Chinese after the Ladakh clash last summer when 20 Indian soldiers died.

Gland Pharma’s issue price was ₹1,500. Far from being shunned by Indian investors, the share price has now shot up to ₹2,425. The company has eight factories in India and dozens across the world. It makes drug formulations for consumers as well as active pharmaceutical ingredients (APIs) needed by Indian pharma companies. India imports most APIs from China, and has recently announced a productivity-linked scheme to increase API production in India to reduce dependence on China. This may sound anti-Chinese but it must, in fact, include attempts to attract Chinese investment in APIs in India since they have some of the best technologies. Seen in this light, Gland Pharma’s success in India is welcome. We need more such investments, not boycotts.

Analysts talk of a new 21st-century Cold War between the US-led West and China, like the 20th-century one against the Soviet Union. To be sure, there are political similarities. The West views China as a potential hegemon and threat to its very existence. But while the Soviet Union was categorically communist, China is mainly capitalist. Its government provides financial and research and development (R&D) support to the private sector, in return for complete political fealty.

Alibaba owner Jack Ma is currently in serious trouble for criticising the Chinese government’s attempts to regulate the fintech sector. Beijing has pledged to crack down on large internet monopolies, ironically something that Western democracies are doing too.

Private innovation and enterprise remain the core of China’s market system, notwithstanding the supremacy of the Communist Party. China has followed the earlier policy of political autocracy plus export-oriented capitalism forged by the miracle economies of South Korea, Singapore and Taiwan in the 1960s.

Cold War 2.0

For that reason, the 21st-century Cold War with China will be very different from the old one with the Soviet Union. The EU and China have reportedly just clinched a wide-ranging trade and investment deal, covering issues including patents, environmental issues and labour rights. The US has increased imports from China despite Trumpism and the ban on Huawei’s 5G equipment. Neither the US nor Europe talks of a boycott of Chinese goods, unlike Indian jingoists.

The lesson is clear. India must join hands with the West — one example being the Quad (Japan, South Korea, Australia and India) — to check military and strategic threats from China. After the summer clash in Ladakh, the Chinese military threat must be given high priority. India must build up its own industrial and economic muscle, a precondition for effective defence.

Like the West, India must be wary of Chinese hacking, Chinese equipment is full of spyware, and supposed Chinese investors looking for military and technical secrets. India should, therefore, draw up a security list of sensitive industries and equipment where Chinese participation through trade, takeovers or investment will be banned.

But outside this list, trade and investment should not just continue but be encouraged. The ‘atmanirbhar’ strategy of becoming a global manufacturing hub cannot work without massive imports of components from China. Like the US in the 20th century, China is now the world’s largest source of surplus savings available for global investment, and has also become a major source of new technology, especially in solar and battery technologies of especial interest to India.

Just as many India intellectuals and politicians opposed strengthening economic ties with the US in the 20th century for fear of being dominated, so too do many today oppose stronger links with China. That is short-sighted jingoism, cutting one’s nose to spite one’s face. India needs capital and technology from the best sources in the world, and that includes China. We must take security precautions, of course, but not throw out the baby with the bathwater.

India has banned TikTok and more than 100 other Chinese smartphone apps. This is not just a security or data precaution. It is a clear diplomatic message that India is retaliating against China’s transgressions in Ladakh. But it is a carefully calibrated diplomatic move, not the outright boycott demanded by ultra-nationalist jingoists on TV.

India now has over a dozen ‘unicorns’ — startups with no stock market listing, funded entirely by private funders, valued at over a billion dollars. These harness the best innovations, democratise India’s industrial base, and represent the future of capitalism.

Knock, Knock. Kaun? Yuan

Indian founders typically have small stakes in unicorns, and the main shareholders are foreigners, mostly Americans and Japanese, but also several Chinese investors like Ant Financial and Alibaba. We need such foreign investment, including the Chinese part.

US companies like Facebook have created special shares giving founders huge voting rights, sometimes 20 or 30 votes per share. This ensures that the founders are not easily ousted by rich foreigners. India needs a similar policy, encouraging unicorns to get foreign funding while protecting the control of the Indian founders. That will be especially important in unicorns funded by Chinese investors.

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