As political risk rises in China, India stands to gain


A lot can happen in a fortnight, and Didi Chuxing exemplifies this rather well. Once a poster boy of the technology-led revolution that the Chinese society has witnessed in the last decade, Didi is now facing probes by half a dozen investigators. The all-powerful Ministry of State Security, in a rare show of a very public investigation, stationed its officers on Didi’s premises. This indicates the fact that the investigation will be both protracted and exhaustive, further denting the company’s prospects and eroding shareholder value.

The Didi saga will hit investors’ appetite for exposure to Chinese companies, including blue-chip ones. The once-insatiable hunger of global investors to get a chunk of the ever-growing market in China has now been tempered by a realization that the political risk in the country could make even good investments go wrong. Political risk – which is a barometer of how much do extraneous factors driven by political decisions impact investments – is a part of any cost-benefit analysis for overseas investments. But the unprecedented crackdown on Didi, all because it chose NYSE and not the Hong Kong exchange to list, must serve as a grim reminder to the pitfalls of investing in China. There are 20 companies that are waiting to list on NYSE this year alone and another dozen which are in the pipeline for next year. The Didi probe has already made Chinese medical data group LinkDoc shelve its listing plans, at least in the near future. There could be more casualties as the probe intensifies. Such turmoil should lead to a larger push towards alternative investment destinations like India.

In the post-pandemic world order where calls for de-coupling have seen companies moving to alternate locations, the Didi episode could be an important inflection point. India, which is yet to come out of the woods due to the economic impact of the coronavirus pandemic, must grab such opportunities. India’s ability to act as a pivot to China’s over reach in Asia rests on its economic muscle. To build on the same, it needs game changing decisions and reforms, which will usher in the high growth era. To move the needle, perception also plays a key role. It is important to change the perception regarding India and promote it as an ideal investment destination. Big ticket decisions related to manufacturing, coupled with a renewed focus to push India as a country where rule of law prevails is a key starting point. This, though, is still the easy part. The tougher part is to promote consistency and predictability, which will require putting an end to the contentious corporate tax disputes. These have been a legacy of the UPA-era retrospective law, but the present Govt has dragged its feet on closing them. Vodafone, Cairn and other such tax disputes need to be settled; more so since the courts have upheld the companies’ argument. This alone will create the perfect ‘India differentiator’ to China’s legal and judicial system.

India’s geo political destiny is intrinsically linked to its economic prospects and for this it needs to be seen as more welcoming than its Himalayan neighbor, especially as China’s actions against its home-grown tech giants like Alibaba and Didi Chuxing are set to intensify.

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Disclaimer

Views expressed above are the author’s own.



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