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Not Chinese Army But Beijing’s Investment Policy Biggest Threat To India

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People’s Bank of China (PBoC) — China’s central bank has bought an additional stake in India’s biggest private home lender Housing Development Finance Corporation (HDFC) which has worried Indian investors and sent the alarm bells ringing.

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The fact that the PBoC purchased equity stake has been the source of intrigue as it is highly unusual for a bank to buy an equity stake in another bank as equities by nature entail betting on the unknown.

PBoC previously held 0.8% shares in HDFC and recently increased its stake to 1.01%. Indian financial laws state that a company needs to disclose shareholding changes to the exchanges at the end of every quarter if an investor’s stake crosses 1 percent.

PboC currently holds 17.49 million equity shares in HDFC. The announcement has weakened market sentiment in India after which HDFC shares fell by around 3 percent. According to a report by Mint, the additional purchase has worried the Indian Government as no red flag was raised over the development although there is no rule currently in place that bans Chinese investment in an Indian entity.

“No less an institution than a central bank of the world’s second-largest economy has bought a stake in one of India’s largest financial institutions. Normally, there would be no need for xenophobic hysteria over this but a central bank buying an equity stake in a commercial bank is highly unusual. No red flag was raised,” a source close to Finance Ministry told Mint.

HFDC’s chairman Deepak Parekh clarified that PBoC had bought the stake on behalf of China’s sovereign wealth fund SAFE. Sovereign wealth funds are state-owned investment funds which park a country’s excess cash in entities across the globe to get better returns.

The stake has been bought by the Chinese bank at a time when bad loans in China are expected to soar and HDFC stock is expected to gain 17 percent in next year according to JP Morgan. Not just China’s PBoC, but Singapore’s Temasek, Abu Dhabi Government’s Investment Authority, Norwegian Central Bank NORGES and Saudi Arabia’s Saudi Arabian Monetary Authority (SAMA) also have stakes in HDFC.

In fact, the Singapore Government holds 3.3 percent, Abu Dhabi Government and NORGES hold 1.1 percent each while SAMA has 0.7 percent stakes in HDFC. It is interesting to note that foreign portfolio investors hold 70.88 percent stakes in HDFC.

Another reason for PBoC to increase its share in HDFC is because the latter has a stake in HDFC Bank, HDFC Asset Management Company, HDFC Life Insurance and HDB Financial Securities and HDFC Securities which will allow PBoC to participate in the share of profits of all of these companies indirectly.

An important factor that might have influenced PBoC’s decision in investing in HDFC lies perhaps in China’s belief that after the lockdown is lifted, Modi Government may announce a big financial package to revive demand in the Real Estate sector boosting HDFC’s profitability.

Analysts have warned that a lot of Chinese investments, unlike others, is aimed to consolidate its geopolitical print. According to an Economic Times report — Industrial and Commercial Bank of China (ICBC) and China Investment Corporation (CIC) are said to be on the lookout for better investment opportunities in India’s financial sector and have a purse of around $600-650 million. ICBC in 2018 had set up a $200 million fund to buy stakes in India’s small, medium and micro-enterprises.

Indian conglomerates are not just worried by the Chinese investment but also by the takeover attempts by other foreign entities at a time of falling stock prices. Indian companies stand as guarantors of their subsidiaries abroad and are increasingly worried that a liquidity crunch and fall in earnings may make servicing of the debts of such subsidiaries impossible thereby allowing foreign entities to take over.

The three-month moratorium accorded by domestic banks on loan repayments has not been offered by offshore banks.

Some economic experts feel that the Indian Government can learn from its European counterparts who have tightened foreign investment rules since 2007.

“The Indian establishment too should tighten foreign investment rules especially in the backdrop of coronavirus pandemic that has halted all economic activity and prevent fear that has stemmed from PBoC’s additional investment from turning into paranoia,” an expert who spoke on the condition of anonymity told the EurAsianTimes.

Indian Government and businesses also had a major reason to worry as China’s economic print has grown exponentially in Asia and in the world and it is now looking to extend this economic print to India’s strategic areas.

Apart from China’s growing presence in India’s banking, telecom, engineering, manufacturing, education, and other sectors, the Chinese are also making strategic investments in mineral-rich states like Chhattisgarh.

Last year, the then Home Secretary and current Cabinet secretary Rajiv Gauba had held a discreet meeting with senior Government and intelligence officials to discuss increasing Chinese presence in India.

The minutes of the meeting obtained by Firstpost revealed that senior Government functionaries were apprehensive about growing Chinese presence in the Indian market given that Beijing continues to practice discriminatory and restrictive practices against Indian and western corporations.

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Beijing calls Japan’s F-35 deal with the US a big threat to China, Russia

China acknowledges that Japan is buying the US’ F-35 jets out of practicality as Tokyo needs to upgrade its ageing jets but accuses the US of hunting like wolves and not like a tiger.

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The US recently approved the sale of F-35 joint strike fighters to Japan at a whopping cost of $23 billion. China, a traditional foe and close neighbour of Japan has expressed concern of having such advanced jets in the region which could be detrimental to the security of both China and Russia.

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Chinese state media  – the Global Times acknowledges for once that Japan is buying the US’ F-35 jets out of practicality and as Tokyo needs to upgrade its current F-2s and F-15s jets.

GT also accepts that Japan could be facing pressure from China and Russia and Tokyo has rationally opted to go for the most advanced jets in the world – the F-35s to counter the dual challenge of Beijing and Moscow.

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It goes on to say – Japan has made substantial improvement in its military modernization program. The first of the Izumo-class helicopter carriers, Izumo, has marked a milestone in its transformation into Japan’s first true aircraft carrier since World War II. The other Izumo-class carrier Kaga is also under transmutation. Both ships will be transformed into light aircraft carriers on which approximately 20 F-35s can be stationed.

But light aircraft carriers have restricted combat capabilities. Due to political issues, the reformations are concerning in certain quarters because they represent “the first time” that modern Japan has had fixed-wing aircraft carriers.

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Japan is approving a strategy of taking rapid moves in carrier development. Of special interest will be any plan by Japan to develop real carriers over 50,000 tons. If they acquire a large number of F-35Cs, it will imply a new stage of Japanese aircraft carrier development.

Such a massive military advancement in Japan will bother its neighbours i.e. Russia and China. There are apprehensions that Japan will amend its peaceful constitution. This could turn Japan into an aggressive, hostile force and nations that suffered in World War II because of Japanese expansionist policy will be closely watching.

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Japan is a key defence partner of the US. It is also part of Washington’s so-called global alliance that targets China. Tokyo is also collaborating with the US by developing an anti-missile system, which will affect the strike capabilities of China and Russia and endanger its security, writes the GT.

Without self-sufficient defence capabilities, Japan is incapable of holding by itself and will only end up being commanded by the US. Although Japan has its own strategies and doesn’t want to be fully commanded by Washington, the US will unquestionably tightly its grip over Tokyo and use it against China and Russia.

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GT accuses the US of hunting in a group, indirectly referring to all the alliances that Washington has all over the globe. Japan has limited military capabilities and is only capable of integrated combat with the assistance of the US, the report says.

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Africa emerges as a new battle ground for India and China for trade, commerce war

India sees this initiative as an effort by China to flex its economic muscle and extend the reach of its influence. “However, India’s engagement with Africa is not limited to trade and commerce.

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Post the border clashes, India and China are striving to create a robust influence in Africa through humanitarian aid and investments. However, with the countries adopting different outreach strategies, analysts suggest that competition between India and China is unnecessary as there is room for both to make their presence felt. 

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According to Maria Siow, a China-based journalist and analyst, India’s renewed focus on Africa is a result of China’s growing footprint on the continent, not just in terms of trade and commerce, but also Beijing’s rising maritime interests.

China’s Belt and Road Initiative aims at connecting Asia with Africa and Europe through land and maritime routes which would enable regional integration and growth in trade and commerce.

Recently, Chinese Foreign Ministry spokesperson Zhao Lijian said during a press conference that a total of 44 African countries and the African Union Commission have signed cooperation documents with China on the Belt and Road initiative.

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“It is a vote of confidence in China-Africa cooperation from our African brothers,” he added.

India sees this initiative as an effort by China to flex its economic muscle and extend the reach of its influence. “However, India’s engagement with Africa is not limited to trade and commerce.

The Indian diaspora, for instance, has been a major force in several African nations’ pursuit of prosperity and political participation,” said Swaran Singh, a professor at the Jawaharlal Nehru University’s School of International Studies.

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India and China stand far apart in terms of the size of their economies. India’s US$2.7 trillion versus China’s US$14 trillion which acts as a roadblock for New Delhi to make further inroads in African nations.

According to United Nations trade data, 39 African countries imported more than US$71 billion worth of goods from China in 2017 and only US$21 billion from India.

“African governments are therefore aware that in spite of their rapprochement with India, China remains the most important – and at the government level, the most trusted – development and investment partner on the continent,” said Lin Minwang, the deputy director of Fudan University’s Institute for South Asian Studies.

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Nevertheless, India has not made huge loans to African countries and thus avoided being a major part of the serious debt problems facing by many African countries today.

However, it is expected that India’s investment in Africa will become more valuable especially in Africa’s health care and pharmaceutical sectors. Sizeable investments have already been made in oil and gas, mining, banking, pharma, textiles and other sectors in African countries under the strategic initiative, “Focus Africa” by the Government of India launched in 2002.

Zhang Yongpeng, a senior research fellow at the Chinese Academy of Social Sciences’ Institute of West Asian and African Studies noted that even though India posed a challenge to China’s strategy in Africa, for instance in bidding for commercial projects, the economic threats were not daunting for now.

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African nations are unwilling to choose between China and India because of the accruing benefits and investments from both nations. Also, the African governments are avoiding being dragged in conflicts, especially during the ongoing trade and diplomatic tensions between the US and China and the border tensions between India and China.

“India tends to have largely positive perceptions as a fellow Global South democracy. China can sometimes be more controversial, for example, due to the recent ill-treatment of Africans in Guangzhou,” stated Cobus van Staden, a researcher at the South African Institute of International Affairs.

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India refuses to review RCEP decision over China’s border hostility – Reports

Last year, India backed out of the RCEP agreement citing its negative effects on “farmers, MSMEs and dairy sector”. “The present form of the RCEP Agreement does not fully reflect the basic spirit and the agreed guiding principles of RCEP.

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India is firm on the decision to not become a member of the RCEP (Regional Comprehensive Economic Partnership). The Modi government is reportedly “not reviewing” its decision on RCEP due to the presence of China as a member.

According to the sources, India has decided it won’t join any trade agreement including RCEP where China is a member as matters have turned worse for India, especially after the border stand-off with China.

Last year, India backed out of the RCEP agreement citing its negative effects on “farmers, MSMEs and dairy sector”. “The present form of the RCEP Agreement does not fully reflect the basic spirit and the agreed guiding principles of RCEP.

It also does not address satisfactorily India’s outstanding issues and concerns. In such a situation, it is not possible for India to join the RCEP Agreement,” PM Modi had stated at RCEP summit in Bangkok. The summit included China, Japan, Australia, New Zealand, South Korea, and the 10-nation ASEAN grouping.

“There is no question to join the pact now that the prime minister has given a clarion call to a self-reliant or ‘atmanirbhar’ (self-reliant) India,” said an official who refused to be identified. The comments came after Thailand said all member countries have decided to sign the trade pact by the end of 2020 without India, and the deal may come into force by the middle of next year.

According to Chinese state mouthpiece, Global Times (GT), this is a method of venting of irrational emotions after a recent deadly border conflict in the Galwan Valley.

“India’s years of hesitation toward the RCEP are essentially due to the country’s weak manufacturing sector,” it said. “After the deadly border conflict in June, India’s diplomacy has entered an irrational state of anger.

It is expanding its emotional approach to many other aspects of relations. Using border tensions with China as an excuse for its latest RCEP rejection is just another example. If India continues this irrational approach, it would not only harm regional interests but would not benefit India’s own long-term interests,” it added.

It further criticised the Indian media for calling RCEP as “Chinese-dominated” and “Chinese-backed” trade deal.

Despite China’s belligerence, no other country has shown any hesitation for signing the RCEP agreement. “For countries such as Australia, South Korea, Japan and New Zealand it will be difficult to have inner coherence between geopolitics and trade,” said Rajiv Bhatia, a veteran diplomat.

Vietnam, which is now the ASEAN chair has said that it will continue to urge India to join the RCEP “whenever it feels comfortable”.

Amid soaring tensions in the South China Sea when the Chinese ship attacked and sank a Vietnamese boat near the Paracel Islands, it is still going to go ahead with the RCEP deal. Similarly, Australia, which has blamed China for the origins of Covid-19 and its growing military aggression, also seems clear about joining the RCEP.

China’s advice to India is that while facing a “more powerful neighbour”, it is imperative for India to properly assess its situation and rationally reduce its rivalry toward China to develop favourable economic and diplomatic strategies, rather than “irrationally heating up nationalism and blaming China when it encounters unsatisfactory situations”.

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