Pramit Pal Chaudhuri, Rhodium Group

Can Xi Jinping and Narendra Modi establish an economic partnership?

Pramit Pal Chaudhuri is Senior Associate with Rhodium Group and a former Asia Society Bernard Schwartz Fellow.

Kerry Brown

China’s President Xi Jinping will be in India on September 17-19 in what is being billed by both governments as a state visit that will transform the economic relationship between the two largest Asian countries. At the heart of this expectation is the tight fit being seen between the economic agenda of Xi and that of newly-elected Indian Prime Minister Narendra Modi.

Modi’s long-term economic vision is to build the infrastructure that India so sorely lacks and then set up a globally competitive manufacturing base on top of this foundation. Among the major emerging economies, manufacturing’s contribution to GDP is smallest in India. Xi, for his part, seeks to get a foothold in India for Chinese firms who are finding infrastructure demand slowing down in their domestic market.

The investment relationship can only go up. China’s foreign direct investment into India is about $900 million, a fraction of the $750 billion it has invested overseas. Indian investment in China is about four times that. This reflects the frayed state of security relations between the two countries. New Delhi put up stiff restrictions on Chinese firms, almost solely because of suspicions on the security front.

In Modi, Beijing has at last found an Indian leader who sees no reason not to allow Chinese infrastructure investment, at least in non-critical areas. Chinese officials have already announced plans to invest $6 billion over the next few years in two industrial parks in western India. Xi [will] announce far larger numbers when he comes — if only to surpass the $35 billion in investments in India pledged by Japanese Prime Minister Shinzo Abe when Modi visited Japan earlier this month. India will also expect China to offer greater market access to Indian pharmaceutical and software firms. This will assuage New Delhi’s complaints about the $31 billion trade deficit it ran with China last year.

Xi will also see increased Chinese investment in India as a means to dampen the deep suspicion that has developed against China in the past decade in India. The two sides will probably enlarge existing confidence-building measures along their existing borders. However, the sort of strategic engagement evident in the Japanese visit will continue to be missing in Sino-Indian diplomacy.

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