What are the Opportunities for Indian Companies in China

18 Jun 2020 Read 231 Views

A growing stream of Indian companies is on the lookout for new opportunities in emerging markets. Over the last two decades, China has consistently opened up its economy and has softened and lifted restrictions on foreign investment. The FDI in China for 2019 was $137 billion, climbing a notch by 5.8% from the previous year.

China is one of the world's largest recipients of foreign direct investment. The most attractive factor is the large consumer base of 1.3 billion consumers in China. This is a robust trajectory for growth, with ever-increasing consumer spending.

As the country moves into the next phase of economic reforms by permitting more investments of foreign ownership of securities, insurance, and fund management firms, making the market more accessible to the outside world. China has transformed an export-driven and rural country into a global manufacturing hub and technology superpower. 

Here are some of the significant influencing factors that make China a viable FDI destination for India Inc

Competitiveness -

China has surpassed India and other emerging countries when it comes to nurturing the elements necessary for business growth. Integrated infrastructural development has been a key driver in making China a conducive set up for business. It also boasts of a healthy workforce, both in terms of numbers and aptitudes. These factors have dramatically lower transaction costs and increase profits, allowing investors to earn robust returns.

  • Regulatory Environment -The organizational set up of the Chinese government promotes investment in both commercial and entrepreneurial activities. Incentives like tax breaks, low-cost loans, subsidies ad grants provided by the Government are another attraction to the foreign players. These government-sponsored inducements have a cascading effect of ultimately boost profitability and help businesses succeed quicker.

  • Stability - Political and economic stability are also responsible for an influx of FDI.

  •  Local Chinese Market and Business Climate - China's population size are sufficient to make a famous country for investors to commit capital to higher-end industries like healthcare, information technology, engineering, and luxury goods. 

  • Openness to Regional and International Trade - Export-friendly policies like international free trade agreements promote FDI in China, especially for enterprises with substantial market share outside the local Chinese market.
     

An Opportunity Too Big To Ignore

Indian companies operating in China have a presence across multiple industries, such as manufacturing, healthcare, and financial services. Shanghai is one of the popular investment destinations for Indian companies, while the other provinces where operations are clustered include Beijing, Jiangsu, Guangdong, and Zhejiang.

Some of the sectors that should open up for Indian companies 

Pharmaceutical  

Dr. Reddy's, Aurobindo Pharma, Cipla, Sun Pharmaceuticals Industries, have already seen China as a big opportunity and have forayed into the market and have already established its either in the form of a joint venture (JV) or independent manufacturing capabilities. The Indian pharma companies need to focus on the production of vaccines, cell therapy drugs, and large scale cell culture products.

The Indian firms seek partners that can make tangible business contributions, safeguard IP, ensure operational control, and manage talent. China's recently revised drug laws will permit the entry of Indian generic medicines in the country, thereby strengthening India Pharma Inc's foothold.Moreover, with policies like Made in China 2025 and Healthy China 2030, the Chinese are also trying to attract global players to its soil to set up their base in the country. 

Insurance

The Chinese financial industry is making headway in its liberalization plans with the insurance industry is witnessing a thrust on opening-up. The Chinese insurance market has seen a robust growth driven by increasing penetration in health insurance, rising demand for protection-typed life insurance, and expanding sales through new distribution channels. The licensing requirements for foreign investors have been eased. They no longer have to meet the criteria of having more than 30 years of experience in insurance.

Entertainment  

The entertainment industry in China has a buffet of opportunities to suit every investor palate encompassing cinema, literature, art, fashion, internet, and gaming. Performing at a much faster rate than the overall economy, the entertainment sector is thought to contribute at least 5 percent to China's total GDP.

The Chinese love affair with Bollywood has been brimming over the years. Some attribute this success to the script of these movies, replete with themes that resonate the values in China – the education system, women's rights, relations within families, and domestic violence. There is a deep connection between Chinese audiences and Indian movies. Every overseas video currently made can be exported to China; it is easy for distributors to get an import code from the China government. 

Securities, futures and fund management 

China has been pressing for the opening up of its financial industry to attract more foreign players and influx of funds into the security market. 

Cloud Computing Sector

China will eventually open up its rapidly growing domestic market for cloud computing services, which its Indian counterparts covet to move in. The Chinese Premier Li Keqiang has planned to implement and set up a liberalization pilot in one of the country's free trade zones to open the cloud computing market to foreign companies. Indian IT companies should seize this opportunity and venture into this rewarding sector.

An Economic Force To Be Reckoned With

China will inevitably face domestic challenges as it initiates global economic reforms. However, its changing economy promotes a new scenario of opportunities for potential growth in the coming years. The opening up of market access and the introduction of new policies that encourage foreign investment have contributed to improving investor confidence. Foreign investor's exclusion of China from their portfolio would result in a risk of missing out on the massive potential of this rapidly expanding market.

About the Author: Bernadine | 30 Posts

An MBA Finance graduate, having worked in the Telecom and Banking sector as a Risk and Compliance Manager. An avid blogger with a penchant for traveling

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