By : SHWETA BHANOT MEHROTRA
Investments from China in the automobile sector are expected to come under the scrutiny of the Indian government, according to reliable sources in the industry. This is in light of the current political situation between India and China, following which the Maharashtra government announced that it has put on hold the Memorandum of Understanding (MoU) with Chinese auto makers Great Wall Motors (GWM) and PMI Electro Mobility Solutions (joint venture with Foton).
When contacted, GWM India did not comment on the status of the MoU. However, TURN OF SPEED has learnt that GWM has not yet received any communication from the Maharashtra government regarding the MoU being put on hold. It has also come to light that, Maharashtra government and GWM are yet to decide on the terms and conditions of the agreement. According to industry insiders, in GWM’s case, there could be a potential delay in obtaining clearances from the Competition Commission of India (CCI) – India’s competition regulator and antitrust watchdog.
A well-placed industry source claimed that, not just GWM, the government may potentially scrutinize the existing investment by MG Motor India, which is owned by Shanghai Automotive Industry Corporation (SAIC), a Chinese state-owned company. MG Motor India has already invested INR 2,200 crore in acquiring the erstwhile General Motors’ manufacturing plant in Halol, Gujarat. In December 2019, the company said it plans to invest additional INR 3,000 crore in the country. The current capacity of its Halol plant is 80,000 units per annum. MG Motor India declined to comment.
Early this year, another Chinese company, Haima Automobiles, announced a tie up with Bird Electric to launch an Electric Vehicle (EV) in the sub-INR 10 lakh price range. When asked about the developing situation between the two countries, Rony Abraham, Executive Vice President, Bird Electric, said, “We would not want to speculate on the situation right now on how the trade is going to be. We would want to observe the market for things to cool down.”
Abraham added, “If you are looking at FDI investment and the new rules, then it is category-based and cannot be generalized. If the intent of the investment is to acquire and take a controlling stake in a sensitive area, then the government should scrutinize it. At the same time, when we are talking about the same country receiving investment, promoting ‘Make in India’ and creating job opportunities, and there will be no controlling stake and no threat to our economy, then we should have a balanced view on what the country needs in the short, medium and long-term.”
However, industry sources tell TURN OF SPEED that all Chinese players looking to enter India, and the ones already here, have put their plans on hold and will wait until the policy parameters become clear. Sources further indicate that Chinese companies do not route investment directly into India, but route it through a company in Hong Kong, a tax haven. Now, all investments coming from Hong Kong have been put under a scanner by the Government of India.
On June 15th, 2020, the Maharashtra government signed three MoUs with Chinese companies for a total investment of INR 5,020 crore, including GWM (worth INR 3,770 crore), PMI Electro Mobility Solutions (INR 1,000 crore) and Hengli Engineering (worth INR 250 crore) in the state. The companies were to invest in manufacturing plants in Talegaon, an industrial belt near Pune, Maharashtra. However, these plans have now been put on hold by the state government.
Confirming the status on the MoUs, Subhash Desai, Maharashtra's Industries Minister stated that "Status quo will be maintained on the MOUs with the Chinese companies for the moment. This does not mean that they have been rescinded or cancelled. In fact, further developments on the same are awaited." The Minister added that the Maharashtra government is “awaiting clear policy directions from the Union Government, on these three projects collectively worth Rs 5,020 crore, in the wake of the currently changed environment in India.”
Following a violent dispute between the soldiers of the two countries in the Galwan Valley in Eastern Ladakh, many Indians, including leading political parties of India, have been campaigning against Chinese products and investments coming from the country. As a result of which, the current investments, including the ones in the auto sector, by the Chinese companies, are likely to be reconsidered. A senior executive from the automobile industry stated that the press release by GWM vis-à-vis the MoU signing had also been engineered by the Chinese government to show the world that it was “business as usual” for them. He further went on to say that the decision of the state and central government is in the right direction.
Expressing his views on the current situation, an auto analyst, on the condition of anonymity said, "The Chinese companies may face some hostility in the immediate future, but in the medium and long-term, it will be the consumers who will decide winners and losers. He added that this has been a knee jerk reaction from the consumers and the government to Chinese investments in the auto industry, and that it doesn’t help the overall investment climate.
In April, this year, the government announced certain amendments to India’s Foreign Direct Investment policy, wherein investment of entities in the country that share a land border with India would now require government approval. This means they cannot go through the ‘automatic route’ anymore. The rule also applies to investments routed via Hong Kong. The government made amendments to curb “opportunistic takeovers” of domestic firms following the COVID-19 pandemic. With the rising tension between India and China, government rules have now become more stringent.
Kushal Kumar, Founder Erudite Legal, practicing Supreme Court lawyer adds, “Even after episodic border clashes with China, India has frequently been expanding its trade relations in the past few decades ending up with a huge ‘trade surplus’. Chinese companies have already captured India’s phone market and are now eying India’s automobile industry with a successful entry in the market. It is to be noted that China, though its state-owned and private business ventures, has been massively investing in state owned and private Indian projects including budding start-ups.”
Kumar further says, “With the changing trade dynamics in the international scenario it becomes vital for India to make changes in its trade laws and foreign direct investment policies to achieve the goal of a sustainable economic development and strengthen trade relations with the other countries such as the United States, which is India’s biggest trade partner. He further explains that the pandemic has thrown open new struggles and opportunities for the country and that “there is a great need for economic reforms in terms of foreign investment from countries in other parts of Asia and around the world.”