China pledges investment commitments worth USD 20bn to India

It was a very fruitful visit.

Chinese President Xi Jinping recently concluded his three-day visit to India and developments on the economic cooperation agenda have been encouraging.

According to a research report from DBS, apart from discussions on national security, China laid out investment commitments worth USD 20bn over the next five years, support for railway development in the southern part of India, setting up of two industrials parks in western India (worth USD 7bn) and close collaboration of select Chinese cities with Mumbai and Gujarat.

Assurances were also given over better market access to India, especially pharma and farm products.

Here's more from DBS:

Private sector deals to the tune of USD 3.5bn were signed on the sidelines, with lines of credit also inked between Indian banks and its Chinese counterparts worth circa USD 3bn.

This economic collaboration will benefit both the economies. China has been through an investment boom and carries the technological know-how alongside strong domestic savings.

For India, infrastructure funding requirements remain sizeable.

While the synergies are clear, historical bilateral trends have not been strong. Firstly, China accounts for only 0.5% (~USD 300mn) of the FDI inflows into India since 2012.

This pales in comparison to Mauritius at 31% and Singapore at 18% in the same peiord.

Secondly, the bilateral trade balance is heavily skewed in China's favour.

On net basis, China is India's biggest supplier and the latter has consistently run trade deficits with the North Asian counterpart.

Exports to China (plus KH) accounted for 9.2% of India's total merchandise exports (average of past three years). India's trade deficit with China has ballooned over six times from USD 6.6bn in 2006-07 to USD 36bn in 2013-14.

Over half of India's export shipments to China have been raw materials rather than manufactured/electronic goods which carry positive multiplier effects for the country.

However, with China undergoing a structural reform-led growth slowdown back home, the impetus to swing the trade account in India's favour is unlikely to come easy.

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