Why is India afraid of Chinese BYD’s $1bn investment offer?

The government should not hide behind security concerns and facilitate the entry of Chinese EV maker BYD, which has proposed to invest $1bn to expand its operations in India

When a multinational company (MNC) with cutting-edge technology proposes a $1bn investment, the host country is usually delighted. But the Indian government is reported to have rejected the $1bn investment offer from BYD, a Chinese electric auto company that, in 2022, overtook Tesla to become the biggest electric car company in the world.

BYD is also a top contender in electric batteries, where it doubled its market share in 2022 to become the third largest in the world. It looks set this year to take second position, behind only market leader CATL (Contemporary Amperex Technology) of China.
Why did the government reject BYD’s application? Reports suggest that security issues were flagged. Since 2020, when there were border clashes between Indian and Chinese troops in Ladakh, India scrutinises every Chinese investment proposal in detail before clearing it for security. However, it is difficult to understand how a car and battery company will threaten security.

BYD is the world’s largest e-auto company with factories in the US, Canada, Brazil, France, Hungary and a small assembly line in India, too. In other countries, it sells without having production facilities.
The US was the first to flag security risks from Chinese companies. But it has not stopped BYD and other Chinese auto companies like Nio and Xpeng (Guangzhou Xiaopeng Motors Technology) from selling cars in the US. Nor have European countries kept out Chinese auto companies. What security threat does India perceive in Chinese cars that the US and Europe do not?
Strategic sectors
Security is, indeed, an issue in telecom, the internet, semiconductors and some strategic and defence materials. It makes sense to keep Chinese companies out of these areas. But why on earth should they not be allowed to manufacture cars? The auto industry caters to millions of homeowners, not to government agencies.
Alarmists fear that Chinese equipment is fitted with sensors to act as spying devices. All modern autos have sensors, especially those that aspire to promote self-driving. But that does not make every car with sensors a spying device. No evidence of hidden spying sensors has come from any of the countries where BYD sells cars. This is no argument for keeping out BYD.
It would be economic suicide for the world’s largest e-car company to become a spymaster. This would instantly crash all its multinational ambitions.

BYD’s battery technology is regarded as the world’s best. India needs such firms to lift the entire level of technical progress (Photo: Reuters)
In any case, BYD is already assembling and selling cars in India on a small scale without raising security concerns. Nobody thinks these are full of spying instruments. How can the mere upscaling of production become a security risk?
BYD is not owned by the Chinese state or affiliates. The largest shareholder is Warren Buffett, the famed US investor. It also has a joint development project with Toyota. It is difficult to imagine Toyota agreeing to a major research and development (R&D) joint venture if it had any inkling that its Chinese partner would be a security threat.
Cutting-edge tech
After the 2020 incursions by China, it can no longer be treated just as a normal economic partner. We must exclude investments that represent security risks. But it makes no sense to keep out an investor with global scale and world-class technology. BYD’s blade technology for batteries is regarded as the best in the world. India needs such companies to lift the entire level of technical progress.
In the auto industry, India invited all the big companies in the world in the 1990s to come in. These MNCs came and interacted with Indian auto ancillary producers. That collaboration helped make Indian ancillaries world class. We need a similar outcome with BYD.
The rules say that BYD has to have an Indian partner. The partner is Hyderabad-based Megha Engineering and Infrastructures. News reports say officials fear that the Indian partner is a dummy controlled by BYD and, hence, not eligible.

Indian Army personnel in Ladakh. After the 2020 incursions, India has excluded investments from China that represent security risks (Photo: ANI)
It should be possible to negotiate a way out of this hurdle. If necessary, BYD should get a new Indian partner. BYD needs the Indian market as much as India needs BYD as a producer.
US treasury secretary Janet Yellen recently visited China to make it completely clear that the US wanted to keep building relations with China, not excluding it from global economics. “The world is big enough for both of us,” she declared.
Yellen emphasised that the US seeks to de-risk relations with China, but not to decouple relations, which would be disastrous for both countries. India needs a similar approach.
This article was originally published by The Times of India on July 27, 2023.

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