Devonshire-Ellis: China Likely to Gain from Indian Problems

December 1, 2008 Posted by China Briefing Reading Time: 2 minutes

Dec. 1 – China is likely to gain in increased FDI as a result of last week’s terrorist attacks on India says Chris Devonshire-Ellis, senior partner of Dezan Shira & Associates. “If foreign investors have been looking at India as a financial benchmark to China’s increasing manufacturing costs, then a slightly higher China price will not affect the decision in India’s favor,” he says. “Global manufacturers want stability and China will benefit from India’s security problems in the short term.”

His comments come as India begins its mop up operations in the wake of last week’s attacks. Several key ministers have resigned, along with the nation’s head of security. “I believe India will now adopt a stricter approach to security similar to the Homeland Security Agency that the United States deployed after the September 11 attacks. It is remains difficult in India right now to enact legislation – state elections are being held at the moment with a national election due in May,” Devonshire-Ellis says. He thinks that the past few administrations have been hampered by not having a clear mandate to work – recent governments have been coalitions – and this has “slowed down Indian progress and made the country overly bureaucratic. Problems obviously exist on a basic security level and it will take a while for these to be put right, they need assistance and advice both from the U.S. and Chinese administrations in this regard.”

Word is already out from Indian tourism chiefs not to boycott the country. “If people are thinking of canceling their stay, we are requesting that they only postpone,” Kiran Kurundkar, the state director of tourism, said. “If they cancel, everything comes to a halt and the extremists have achieved their aim.”

“It’s probably not a good time to visit Mumbai right now except for urgent business trips,” says Devonshire-Ellis. “Security across India, and especially in the key cities such Mumbai and Delhi will now be very tight, until it is improved across the board, a risk will remain.” It may take up to a year for India to properly organize what multinationals would consider as adequate security. “We are seeing India-based clients starting to ask about the logistics of moving production lines to China and Vietnam and increasing manufacturing capacity in these countries for the time being. However, the fundamentals of Indian growth remain strong and are not affected by the current situation,” Devonshire-Ellis states. “We believe that Mumbai will bounce back.”

For the moment however, it would seem that multinationals are re-focusing their Asian development strategy elsewhere.