Could Investment Earmarked for China Head India’s Way?

A recent report by the American Chamber of Commerce in China found that 60% of the surveyed American companies in China “feel less welcome.” This is up from 41% who felt that way at the end of 2013.

There has been no shortage of headlines of action taken by Chinese authorities lately against foreign companies. Will this trend force foreign investors to re-evaluate where they direct their investments?

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Half of the surveyed companies in the report feel foreign firms have been “singled out” in recent antitrust and corruption actions by the Chinese government. The Chinese see these claims as baseless. But the recent jailing of a British and an American passport holder for illegally buying information on people has sent a chill through the investment community. Especially since the couple ran a company in the risk-management area collecting company information to assist in M&A activity. These types of laws are selectively enforced and can be a bit vague. Even data on a potential joint venture partner can be sensitive as in many cases the partner is a state-owned enterprise (SOE).

The State Administration for Industry and Commerce (SAIC) has been busy lately investigating a number of foreign companies on antimonopoly laws. Companies like Mercedes-Benz and Microsoft have recently been investigated. In Microsoft’s case, it seems to be related to the use of verification codes as an antipiracy tool. The singling out of a foreign IT company is especially interesting given the number of restrictions—and in some cases outright bans—on many foreign IT companies’ participation in the Chinese market.

China is a tough market, for a number of reasons. In the past, many foreign companies felt they could not ignore this market due to its size and growth rates. Will some of these more recent Chinese government actions give foreign companies a new reason to question investments into China?

These developments in China are happening in parallel with potentially positive developments in India. Now, India has its own set of challenges, but the new government of Narendra Modi has raised expectations of positive economic reforms in India that could make life easier for foreign investors. Cutting red tape, streamlining regulations, and opening up closed sectors of the economy would go a long way to making India more competitive with China.

In the view of most players in Asia, India is a couple of decades behind China on the economic development side. This certainly gives India plenty of headroom to grow, but in the past the government and the bureaucracy has been the brake on what otherwise could be a very interesting market. Prime Minister Modi’s first budget has been viewed as quite conservative, lacking the bold reforms that many were looking for, but it is still the early days.

It will be hard for companies to ignore the Chinese market given its size and continuing growth, but India could potentially offer an alternative if companies do not feel welcome in China. India has the size, the upside potential, and a growing middle class that given more open policies could attract some of that “big market” money that has long been monopolized by China.

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