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Is Growing Chinese Influence Hampering Pakistan FDI and Turning Investors Away?

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The Pakistan FDI is expected to rise by almost 60%, as reported by the Head of the Board of Investments in Pakistan. However, with increasing Chinese influence in Pakistan and other south Asian countries, foreign investors seem to be unsure and this may impact the Pakistan FDI. So will the Pakistan FDI rise as expected?

China’s BRI project has pumped in large financials and development to contribute to the overall Pakistani economy. Many major constructions like roads, power stations and global ports are being built by Chinese companies in Pakistan, funding infrastructure and Pakistan FDI growth.

Also Read: Pakistan Economy May Collapse Due to FATF Action

China Plays a Major Role in Growing Pakistan FDI

These many investments by China, have contributed to over 5% surge in Pakistan’s economic growth. With the current tensions between Pakistan and the US, over militancy, China aided the country financially and also strengthened ties on many fronts.

A Pakistani FDI promoter stated that foreign investors are reluctant to invest in Pakistan as there is a false perception that the Chinese authorities would enjoy extra and exclusive benefits and concessions, making at an uneven investing region. He also stated that the Pakistan FDI was not being ‘taken over’ by China. He further clarified that China did obtain soft loans but the money was being provided by China itself, and it was for the CPEC project. However, upcoming CPEC initiatives include setting up of some SEZs to promote Pakistan FDI and growth and China would not get any biased treatment.

Also Read: CPEC Project To Greatly Benefit Pakistan: Pak Media

Pakistan FDI and CPEC are Independent of Each Other

According to data shared by the Central bank of Pakistan, Pakistan FDI has been gradually increasing ever since it hit an all-time low in 2014-15. However, the CPEC project are independent and over twenty CPEC are being implemented currently. This means that these projects have either begun work or the financial deals have been closed on them.

Additionally, cases of militancy and terror in Pakistan have also sharply declined and better security measures have been put in place. Many countries are showing a peeked interest in Pakistan and thus it comes as no surprise that the Pakistan FDI is expected to continue growing as the country is welcoming investors to do business.

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China-Pakistan Economic Corridor Economically & Logistically Unstable – Experts

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China’s ambitious plan to transport oil across the Himalayas in Pakistan under the China-Pakistan Economic Corridor (CPEC) might be “economically unsustainable” and actually benefit the US in the ongoing US-China rivalry.

India-China Border Tensions Intensify As PLA Troops Occupy Heights, Build Fortifications & Install An ‘Enormous Signage’

China has pushed its way to conquer Pakistan’s construction sector with its multi-billion-dollar Belt and Road Initiative (BRI) offering it more than 40 projects. One of the ambitiously proposed projects includes an oil pipeline connecting Gwadar port to Kashgar in China’s Xinjiang province via the challenging and unstable region of Himalayas.  

Experts write — “Starting from sea level, it will have to cross the 4700-metre Khunjerab pass to reach the Chinese mainland, requiring heavy pumping equipment and significant power supply to keep the pipeline flowing.”

Pakistan Deploys Additional 20,000 Soldiers In North Ladakh On China’s Behest – Reports

Additionally, the author says that the region is prone to the periodic danger associated with earthquakes and landslides which adds to the regular costs of maintenance. The temperature also drops to as low as negative 30 degrees Celsius which would require heating technologies apart from the insulation.

Furthermore, the project is also believed to be economically unsustainable as a study formulates that it would cost approximately $10 a barrel to move oil from Pakistan to western China through pipelines, along with added $5 to deliver oil to demand centres in the eastern region.

Pakistan Deploys Additional 20,000 Soldiers In North Ladakh On China’s Behest – Reports

On the other hand, it costs just $2 per barrel to ship oil from the Persian Gulf to the east coast in China. The author says that “this translates to China losing roughly half a billion dollars per year through pipeline shipments.”

Meanwhile, China has been pressing the project, however, the Xinjiang province of China is already supported by a massive network of oil and gas pipelines from Kazakhstan and Russia. Many experts speculate that China’s interest in the project in Pakistan stands solely due to the Malacca dilemma that could work in favour of the United States.

India-China War: China Has No ‘Military Advantage’ Over ‘Battle-Hardened’ Indian Army – CNN

VS Reddy, a research assistant at the Nuclear and Space Policy Initiative of the ORF believes that “China has been pressing to complete the Gwadar port in Pakistan and build the China-Pakistan Economic Corridor (CPEC), allowing it to be connected overland to an Indian Ocean port.

Gwadar and CPEC allow China to circumvent the Strait of Malacca which can be blocked by rival navies in the event of a conflict termed as “Malacca Dilemma”. Many political analysts opine the Strait of Malacca situated between Malaysia, Singapore, and Indonesia connecting the Indian and Pacific Oceans could help the US gain advantage from an event of Chinese blockade in the region.

How Many Chinese Soldiers Were Killed In The India-China Clash At Galwan Valley / Ladakh?

“Since China’s economic growth is highly dependent on the sea routes for receiving energy along with other raw materials which it uses for cheaper productions which are later shipped back as finished products other continents, it could be a major blow to China,” tells Ragahvan Srivastava to EurAsian Times.

India has established a strong naval presence in the Andaman Sea adjacent to the Strait of Malacca and is regularly partnering with the U.S. and other countries in safeguarding it. “Such a presence can be translated into a formidable blockade. On the other hand, China has yet to showcase its capabilities and willingness to fight to keep this Strait open for its ships,” writes Vidya.

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Rahul Jaybhay / Vipasha Kaushal

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Economy

Indian Startups Ditch Chinese Investors & Move Towards Japan As India-China Ties Worsens

It is hard to estimate whether Japan will be able to match China in terms of investment and risk appetite as 18 of India’s 30 unicorns — private companies with a valuation of at least $1 billion — have a Chinese investor.

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With deteriorating ties between India and China, Indian startups are looking towards Japanese investors as the COVID-19 pandemic has left them high and dry. Experts wonder if Japan can match China in terms of investment and risk appetite.

With the ongoing lockdown and the fears of raging virus, businesses have resisted opening its operations fully which has led to ploughing back of past profits and earnings. While it is easier for long-established profit-making businesses to survive, though, for a limited period in such a situation, it can prove to be fatal for the startups with little or no profits to fall back on.

In April, the Indian government modified the Foreign Direct Investment (FDI) policy which would require the government’s approval for nations sharing a border with India to invest in the country. Such a move is aimed to curb opportunistic takeover, especially from China, when the country is still in the process of fighting the COVID-19 pandemic.

There is a rising sentiment against Chinese products in India due to the recent border clashes. After the troops of the two neighbouring countries clashed on the LAC in the Galwan valley leaving 20 Indian troops dead and an unknown number of Chinese casualties, people are pledging to boycott Chinese products.

“In the last 12 to 18 months, a lot of Chinese VCs or Chinese companies want to throw money at Indian companies, and that has inflated a lot of deals,” said Chua Kee Lock, CEO of venture capital firm Vertex Holdings. He further added that the decline in Chinese investment due to the new regulations means startup valuations in India will be hit harder than in other countries.

With growing ties between India and Japan, Indian startups are looking to get investors. “Japan, by any stretch of the imagination, is one of the top candidates [to enter India],” said Rakesh Mishra, founder of electric powertrain startup Entuple E-Mobility, during his presentation organised by National Association of Software and Service Companies (NASSCOM) to woo the Japanese investors.

“At this juncture, I won’t be interacting with any Chinese investors,” said Ajit Patil, a co-founder of DeepTek, a Pune-based medical startup. He raised several million dollars in funding from local investors and Japanese medical imaging company Nobori in May.

Toppan Printing, a Japanese commercial printing company joined a $15 million funding round for Medikabazaar, an online shopping site for hospitals making it Toppan’s first investment in an Indian startup.

“Many parts of Southeast Asia and India are ahead of Japan in going digital,” said Hiroshi Eguchi, who leads strategic investments at Toppan. “India is also attractive as a market,” he added.

However, it is difficult to estimate whether Japan will be able to match China in terms of investment and risk appetite. According to Gateway House, a Mumbai-based think tank, 18 of India’s 30 unicorns — private companies with a valuation of at least $1 billion — have a Chinese investor.

Another Japenese fund, SoftBank is one of the biggest investors in Indian companies like Paytm, Oyo and Ola with about $10 billion in investments.

“There are many companies that make large acquisitions but a better approach may be to find success through various investments,” said Takeshi Ebihara, general partner at venture capital firm Rebright Partners, said during the NASSCOM event.

Analysed By Smriti Chaudhary. Invaluable inputs from Nikkei Asian Review

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Asia Pacific

India-China Standoff: Decrease Border Tensions Or Face Business Losses – China Warns India

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China has warned India of repercussions in business and has threatened the possibility of being replaced by other Southeast Asian markets “if the boiling nationalist sentiment continues unchecked in India”.

10 Indian Soldiers Released By China; ‘No Indian Troops’ Under Chinese Custody Now

China’s state-run newspaper, Global Times (GT) which runs at the hands of the Chinese Communist Party has warned that the growing anti-China sentiment in India following the Himalayan brawl at the border in Ladakh may harm the business ties between both the Asian economic giants.

“If the boiling nationalist sentiment continues unchecked in India, it may lead to serious consequences in extreme cases, which would only weaken that market’s appeal to the outside world, making it easier to be replaced with other Southeast Asian markets,” writes the Chinese daily.

India’s anti-China sentiment

Post the violent border clashes in the Galwan valley of Ladakh where 20 Indian soldiers lost their lives to Chinese troops, the Indian countrymen stood up in nationalistic fervour against China by launching a campaign to boycott Chinese products. 

Indian netizens trended hashtags like #HindiCheeniByeBye, #MadeInIndia and #BharatVsChina on Twitter and made repetitive calls for the absolute boycott of Chinese goods and rather opt for domestic brands.

The Indian Prime Minister, Narendra Modi had previously led a campaign called “Vocal for Local”, however, experts believe that it was not even remotely connected to the latest situation with China.

The Smartphone Scenario

On Wednesday, the Chinese Smartphone giant Oppo cancelled the live stream launch of its flagship 5G smartphone in India amidst the intensifying calls for boycotting Chinese goods in the nation.

In India, 4 of the top 5 players in the Smartphone business are Chinese brands. While Xiaomi remains at the top position conquering almost a third of the market, Oppo stands at fifth position and has shipped about 3.5 million devices in the first quarter of 2020.

“In order to ensure the safety of their capital and personnel, it is essential for Chinese companies to take precautions for a worst-case scenario and consider placing their India investment and production plans on hold until the border crisis between the two neighbours is resolved,” advises the GT to Chinese manufacturing giants.

However, OnePlus, another China-based smartphone maker with prices higher than the top five selling brands witnessed its latest model being sold rapidly in India on Thursday, despite the repeated calls for a boycott.

Indian Government at the rescue?

While maintaining the warning for India to quit the anti-China fever, the GT goes on to ask the Indian government to “offer the necessary protection for all Chinese personnel, as well as all Chinese businesses and their assets in the country.”

Earlier in 2017, Indians had destroyed some mobile outlets to showcase their support for Indian army amidst similar troubles with China at the border.

The GT presses the “people to show rationality in the face of the border tension so as to maintain the stability of bilateral economic and trade ties.”

Meanwhile, it continues to clear the air about repercussions as, it says that “But if they (Indian government) fails, then it would also be the people who will bear the negative outcomes, and, Indians may suffer more losses than their Chinese neighbours.”

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