That Chinese red-carpet could trip up Indian CEOs

When the Chennai-based automotive giant Sundram Fasteners wanted to set up a factory in China’s Zhejiang province, local officials didn’t just roll out the red carpet, they even named the road after Sundram.

When steel magnate Laskhmi Mittal’s son Aditya Mittal visited a plant site in China, he recalled some years ago, a Communist Party official accorded him a figurative “red-carpet treatment” by giving Mittal’s car exclusive access to a highway that hadn’t yet been inaugurated. “Then I get to the plant site,” Mittal noted, “but I don’t see any land. I see houses, lots of houses - a village. And I say, ‘Where’s the land?’ And the party secretary says, ‘Right here. In 90 days, everyone will be gone.”"

Such anecdotal evidence of the ease of doing business in China are legion, to the point where foreign business executives seeking a foothold in China often experience what’s been called the “slobbering CEO syndrome.”

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[caption id=“attachment_92517” align=“alignleft” width=“380” caption=“If there’s one lesson that India can take away from similar negotiations between the US and China as part of the Strategic Economic Dialogue, it is that it has thus far served to advance the strategic interests of only one country: China. Dibyangshu Sarkar/AFP”]  [/caption]

“China is such a magnificent country,” they gush when they meet Chinese leaders. “I’m so impressed with China’s progress… Your leadership is so inspiring.”

Desperate to get a piece of the China action, they end up allowing themselves to fall for what journalist-turned-business consultant James McGregor refers to as China’s “brilliant use” of its mammoth size and thousands of years of cultural history (and “manipulative political pageantry”) - and lower their guard enough to sign unwise deals.

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It’s a fair bet that as Indian policymakers initiate a Strategic Economic Dialogue with China in Beijing today, and as Indian corporate titans line up for the China-India CEOs Forum, they will experience a sense of awe that China induces in visitors.

It’s hard to say if they will “slobber” in the way that other foreign CEOs and leaders have done in recent years, as they came courting deals or agreements that they believed would advance their interests. But the likelihood that they will end up lowering their guard enough to sign unwise deals is a very real risk.

Consider the Strategic Economic Dialogue. These talks are intended to reflect the heightened level of trade between China and India in recent years - and the fact that increasingly on the world economic stage the two countries appear to end up working in tandem. Thus, for instance, the BRICS countries, including China and India, made much of their intention to “save Europe and the world” by buying European sovereign bonds - although, of course, after some grandstanding, they didn’t put their money where their mouths are.

The elevation of the bilateral trade dialogue - and investing it with the aura of a “strategic” element - is intended to symbolise the enhanced profile. But in the end, only a consideration of whether it brings about the intended results will decide whether it truly advances our strategic interests.

For instance, the terms of the bilateral trade are heavily weighted in China’s favour, and as an Indian bureaucrat bemoaned recently, the Chinese are deaf to India’s entreaties to redress the trade imbalance. Unless any meaningful steps are taken in that direction during the Strategic Economic Dialogue, it can only be said to be advancing China’s strategic interest at the cost of India’s.

The SED is also intended to enhance macro-economic policy coordination - and to explore the possibility of teaming up to address common challenges in economic development. It’s also possible that Chinese officials will press India to provide China with market economy status as a symbolic way of acknowledging China’s imminent ascendance as India’s largest trading partner.

Yet, if there’s one lesson that India can take away from similar negotiations between the US and China as part of the Strategic Economic Dialogue (as it was called before it was upgraded to ‘Strategic and Economic Dialogue’), it is that it has thus far served to advance the strategic interests of only one country: China.

As US Ambassador to China Gary Locke wailed recently, China’s business climate is leading to “growing frustrations” among business and government leaders abroad, planting “seeds of doubt” in the minds of investors.

An international lawyer who has spent years helping foreign companies invest in China noted last year that the Chinese government’s current attitude towards foreign businesses was “ We don’t need you.” When the businesses came to China, Chinese officials rolled out the red carpet. Having sucked them of their Intellectual Property Rights, they are now busy pulling the rug from under their feet.

Invoking blatant mercantilist trade principles and practices, China has quite simply eaten America’s lunch over the past three decades, a process in which US companies have shamefully been complicit.

As this commentator notes, China has “deliberately and successfully exploited Europe and America’s wealth to leverage its own development.” It’s not so much a conspiracy as a “brilliant executed plan” and the bottomline, he adds, is that “China’s strategy worked.”

Even erstwhile imperial powers with enormous leverage over China could not face up to China’s mercantile muscles. Indian policymakers and CEOs stand even less of a chance.

That’s the sobering lesson for Indian CEOs and economic policymaker as they sit across the table and discuss ways to enhance bilateral trade and shape the strategic economic dialogue.

Slobber if you have to, but don’t sign unwise deals that let yourselves - and India - down.