With Indian and Chinese armies in eastern Ladakh calling a truce and agreeing to withdraw to their earlier positions, will business ties between the two Asian giants be back to normal? All eyes are on a clutch of Chinese investment proposals worth $2 billion that had been stranded. A key proposal is the one by China’s Great Wall Motors (GWM), which had last year announced its entry into the Indian passenger vehicle market, to take over the manufacturing facility on General Motors in Talegaon, Maharashtra. The proposal, subject to requisite government and regulatory approvals, has become a test case of the government’s stand on the subject.
At the height of the border tensions, India framed various policies targeting China, including blocking the nation from participating in government tenders, compelling any Chinese company investing in India to seek approvals and banning dozens of Chinese apps. The foreign investment rule change by the government said investments from an entity in a country that shares a land border with India would require government approval, markedly halting investments flows from China.
The issue concerning GWM’s proposal is more complicated since it involves an American auto company, GM, which had ceased its manufacturing operations in India. It stopped sales in the Indian market back in December 2017. Under a binding term sheet signed in January 2020, the Talegaon facility was to be transferred to GWM. The facility has a manufacturing capacity of 130,000 units per annum.
Plans gone awry
The takeover so far had been derailed first the Covid-19 pandemic and the lockdowns that followed. What made the situation even more difficult for GWM was the faceoff between the armies of the two countries. With anti-China sentiments running high, GWM’s plans had almost gone out of the window. The Maharashtra alliance government, led by the Shiv Sena, also decided to freeze all investments from China. The last thing the BJP and Shiv Sena dispensations could contemplate was to allow a Chinese auto brand to set up shop in India, especially when the call of Atmanirbhar Bharat was getting louder by the day.
Meanwhile, GM decided to go ahead with its plan to exit India, which will involve shutting down its Talegaon plant and offering a severance package to the workers. The American auto giant reportedly offered 75 days of salary to the employees as severance. However, the plant employees union turned down this offer.
The state government had also dug in its heels by refusing to give permission to GM to close down the Talegaon plant, forcing the latter to threaten pursuing legal options. The state government’s stance was understandable in the context of huge job losses following the pandemic. Having over 1,500 workers from an automotive plant lose their jobs and out on the roads makes for bad optics. GM, however, has slammed the decision to deny permission, calling it a ‘betrayal of Maharashtra’s investor-friendly image’.
It would have been perfect had GWM taken over the facility, as well as the workforce. But this was pre-empted by the situation in the border. As for GM, it was not going to wait forever: the American company had already sold its other facility in Halol, Gujarat, to another Chinese automaker, SAIC Motor Corp, which is going strong with its MG (Morris Garages) range of SUVs.
At one stage, it appeared that GWM’s plans would hit a wall permanently. It would also mark the closure of yet another automotive plant in India, following PAL-Peugeot and Daewoo two decades earlier and, in more recent times, Hindustan Motors and Eicher-Polaris. Both GM and GWM were hoping that both India and China would bury the hatchet and move on and the project may get clearance at the highest levels. It appears that this might happen now.
Official sources now reveal that the government may now start vetting the greenfield investment proposals from China, but “only clear those sectors, which are not sensitive to national security”. The government may also look to clear some other brown-field projects – new investments in existing projects – that are not a risk to national security after the first round of clearance to new investments. However, it is unlikely that the government will consider allowing investment from Chinese firms in certain sectors via the ‘automatic’ route, or without government scrutiny.