“Post Budget Analysis & Markets Outlook” with Mr. Amit Khurana, CFA

Contributor: Shivam Garg, CFA

The Delhi chapter of CFA Society India organised a speaker event on 9th Feb 2018 on the topic “Post Budget Analysis & Markets Outlook” with Mr. Amit Khurana, CFA – Director, CFA Society India and Head of Equities & Research, Dolat Capital Market Pvt. Ltd. The annual budget is the most talked about event in a financial year although the practice might become redundant after five to ten years just like railways budget. The agenda for the event was to look at budget’s political message and its impact on markets.


In his presentation titled “Economics of political strategy or vice versa”, Mr. Khurana spoke about how each action in budget had a political connotation attached to it. Some are obvious while others may not be. His first point was on how the government at all international forums talks as a capitalist but acts like a leftist. Nearly sixty-five percent of the budget is about people living in rural areas and farmers. Minimum Support Price (MSP) has been revised to 1.5x of cost of production, though the method & implementation has not been made clear. Universal health care program is the biggest scheme ever announced but with meagre budget allocated to it. Tax rates have been increased and are highest in last so many years which is opposite of what US is doing. LTCG is back which brings us to a point where we have STT, STCG and LTCG in capital markets now. The question is -how do we make profits with so many taxes in this profession? There is an increase in customs duty on raw materials (Make in India) and the disinvestment target is increased to 80K Cr. More consolidation is expected in public sector like HPCL acquisition by ONGC.

Mr. Khurana next gave a summary of important items of the budget like revenue, expenditure, fiscal deficit, etc. He pointed out that nominal GDP growth which is the biggest assumption by finance minister has been kept at 11.5% and tax revenue increase has been assumed at 16.6%. The government has been very disciplined in keeping fiscal deficit number in control. At present, it is at 3.5% of GDP. Oil prices are lower but yet there is highest ever retail prices which shows government has not taken a populist approach here. Subsidies have been kept low on food and fertilizers as well. The Tax to GDP ratio is sustainable at 15-16% for a country. The government has been able to pull it up to 11-12% from 8-10%. GST is expected to bring in windfalls and hence, increase it further. Corporate earnings have not grown but still taxes have been kept high. The subsidies have been rationalized which shows a disciplined approach.

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After this, the impact of budget on various sectors was discussed. The sectors having positive impact are – Agrochemicals, BFSI, Cement and building, Consumer Stables, Consumer Durables, Capital Goods, Infrastructure, IT services, Logistics, Media and Real estate. The ones having neutral impact include – Automobile, Energy, Pharma and Power and utilities and tiles sector is expected to have a negative impact.

In the final section, several macro & micro indicators were covered and the outlook for equity markets was discussed. The macro indicators are looking positive. Inflation is under control and oil prices are still low. The government is not reversing any of its decisions unlike previous coalition led UPA government. Investments are driven by steady local money and not the hot money from FIIs. Private sector banks are amongst the best performing stocks whereas pharma is the biggest laggard. Sensex current P/E , P/BV ratios and Standard Deviation are at the highest of all times. The domestic flows have been key support at a steady 6-10K crores infusion in markets every year. EPS is expected to go higher from here. Things seem to be moving in right direction for markets with GST coming in, recognition of bad loans happening and rural economy growing. The only thing is micros are not looking so good as the earnings are not increasing. P/E ratio is highest due to increase in stock prices (P) but no movement in earnings (E). Vix index is lowest for longest periods and inflation is expected to go up as it has not grown in last few quarters.

US 10 year yield will be the most imp metric to observe in next few months. Currently it is at 2.8% and the moment it crosses psychological barrier of 3%, there will be blood bath in equity markets, simply because globally bond markets are much bigger than equity markets. Serious correction is expected in equity markets if this yield moves substantially and quickly. Movement in yields will also driven by inflation. Also, any change in Indian regime is going to bring huge correction in markets. Markets are not ready for the kind of uncertainty that a government change will bring. Worst possible scenario is a third front led govt. Volatility is expected to go up in next few quarters due to incoming elections and changing sentiments around the same



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How Fintech will Disrupt the Future ?

Contributed by: Manish Chandak


CFA Society India, Pune organized a Speaker session on “How Fintech will Disrupt the Future” with Mr. Kunal Bajaj on 8th December 2017. Kunal is Founder & CEO of Clearfunds. Clearfunds is an online investment advisor which lets investors buy mutual funds in India at a low, flat fee, not a fat fee. Kunal has 18 years of experience in Investment Banking domain and has also worked with Goldman Sachs, Credit Suisse, J.P. Morgan and CLSA.

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Kunal began the session with a caveat that technology will ensure that all products and services which can be commoditized will be commoditized. Hence if traditional brick and mortar industries want to stay in business, they need to customize and differentiate their product offerings. Otherwise, their business will be disrupted and commoditized by technology. How Jeff Bezos of Amazon has disrupted and commoditized traditional retailers by providing products and services at wafer-thin margins. He talked about how 15-20 years back Craigslist and Yahoo used to provide directory services by listing various services like ridesharing, dating, rental on their sites. Now all those services got unbundled as various start-ups attacked different parts or services of Craigslist. This is called Unbundling of Craigslist and has spawned many unicorns.

Unbundling Craigslist

Picture.pngHe felt that banking and financial services industry (which includes banks, personal financial management, insurance, payment, asset management) across the globe is yet to get disrupted in real sense. Since disruption in financial services industry is long overdue, we might see unbundling of their product and services sooner rather than later. FinTech companies are slowly chipping away various pieces of the financial services industry. FinTech companies are leveraging technology to disintermediate the traditional financial services companies and provide better services for both consumers and businesses at dramatically lower cost and at a faster pace. FinTech companies are agile and nimble-footed whereas legacy systems burden traditional banks. It is only a matter of time before we will see an emergence of fintech “unicorns” — private companies worth over $1 billion.

In the Indian context, he talked about how Fintech companies are riding the India Stack ecosystem (includes Aadhaar, UPI, digital document storage and elocker) and how this will help in achieving India’s financial inclusion goals. He compared this transition to mobile vs Landline moment. The session was followed by Q&A session. Apart from Fintech, he also answered queries about Clearfunds, India Stack ecosystem, Bitcoin, and Blockchain.


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Case for Internationalization of the Indian Rupee

Contributed by: Priyanka Chandran, CFA

The threat to the USD as an international currency in the wake of the financial crisis, emergence of currencies such as the EUR and more recently the RMB which has been accepted in the International Monetary Fund (IMF) basket as a reserve currency raise many questions. These pertain to the evolution and development of internationalization of a currency along with the policy interventions necessary to promote this end. In light of these events, the progress made by the Indian Rupee and the merit to make the currency more international is worth contemplation.

The argument for internationalizing Rupee include benefits availed by any currency which is internationalized. These include currency gains for importers and exporters, lower borrowing costs for domestic borrowers and financial institutions and benefit of seigniorage for the government. But the bigger argument for the internationalization of Rupee lies in the progress of the Indian economy. Literature suggests that economic size, the sophistication of the domestic financial market and stable macroeconomic policies (especially low inflation) ought to be important determinants of currency internationalization, and empirical evidence is generally supportive (Chey, 2013). India has made a lot of progress against some of the parameters which was also evident in the evolution of international currencies over the last century, including the rise of the U.S. dollar in the 1920s and 1930s, the Japanese yen, Deutsche mark and the Euro more recently. This further builds a case for internationalization of INR

Some of the preliminary steps which have already been taken by Reserve Bank of India to liberalize the foreign exchange markets and develop the bond markets include allowing cancellation and rebook of foreign contracts, introduction of INR billing, increasing the FII debt limit, allowing issuance of INR bonds etc. However, some of the other steps which RBI could take in this direction could be as follows:

Liberalization of Currency Market: These would include allowing cancellation and rebook of FX contracts for foreign institutional investors (FII), relaxing trading restrictions for domestic and foreign banks by allowing them to trade in exchange traded contracts forwards and options for their own books and developing a deeper options market.

Deregulation and Deeping of Bond Markets: CRISIL estimates that India will need approx USD 650 billion for infrastructure till 20201. Use of Corporate Bonds for the LAF, developing Exchange Driven markets for Interest Rate Swaps etc could help.


Increased trade flows in the currency: While RBI has a guideline in place to support exports in INR, from a more strategic point of view, it makes sense for India to have local currency invoicing arrangements mostly with countries with which it enjoys a surplus in bilateral trade. A local currency swap arrangement with countries from whom India imports will only encourage more imports.

Having said the above, the roadmap to internationalization of Rupee also has many challenges. China, runs large current account surpluses but India has generally been a current account deficit country. In view of the large current account deficit, the exchange rate of the rupee is susceptible to the influence of large capital movements, especially during crisis periods. Strong and deep bond and currency markets along with robust regulatory and settlement systems would need to be in place. Further to denominate the trades in a common currency other than USD with the adjoining countries in Asia a certain degree of financial market integration is essential. Asian countries have not yet shown the degree of integration as displayed by Europe. There is a definitely more scope for greater cooperation.

While India has a long way to go towards that road, Internationalization is not an inevitable consequence of financial liberalization, nor can a government guarantee that the steps it takes to liberalize its country’s capital account will lead inevitably to internationalization. Yet the macroeconomic situations of India do demand efforts in this direction and internationalization may lead to strengthening of the domestic financial system and enrich the menu of financial assets available to domestic and international investors.



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Financial Musings: BMC and the Development of Municipal Bond Market

Contributed by: Gaurang S. Trivedi, CFA

Every day, your morning newspaper highlights stories of inefficiencies in the running of this great city of Mumbai. Yes, the infrastructure is inadequate for the size of Mumbaikars it supports. But more glaringly, it is the institution responsible for administration, i.e. the Brihanmumbai Municipal Corporation (BMC), which has become Mumbai’s biggest cog in the wheel. Episodes of corruption, downright apathy towards the citizenry, rampant flouting of rules and regulations established, religious fundamentalism and the decay of law and order have infringed on Mumbai’s cultural heritage and reduced the financial capital of India to a state of social ambivalence. In short, Mumbaikars have become “Comfortably Numb”.

The simple fact is the city of Mumbai spanning its western and central suburbs has become too big to be managed by a Central Authority. The quicker this is realized by politicians and citizens, the lesser will be the pain in accepting the eventual changes that will manifest. We have witnessed the fate of all central economies of the world. Sooner or later, the shortcomings of centralized management lead to inefficiencies in the allocation of resources, which culminate into resentment, civic/social unrest and call for changes in the system. Perhaps, Mumbai is just about there! Resentment and calls on the need for change are the daily rhetoric of the intelligentsia as well as the gentry. However, no solutions other than workabouts of the existing system seem to be forthcoming. I propose a radical approach – Break up the BMC! Decentralize.

Now, you may have already started to think, what does the prior musing have anything to do in a finance blog? Bear with me, as I think my proposal will bring about financial innovation that may help restore Mumbai’s status as a city able to provide not only a high standard of living but also a good quality of life. The product I recommend is by no means an “innovation” from the global availability of financial instruments. However, it is a novel product for the Indian market. Municipal Bonds may be the panacea for Mumbai! How you ask? Let me take you through my thought process.

It is important to recognize the population most of the suburbs in Mumbai support, could very easily represent a city in most developed nations. The distinguishing characteristic of each such city in the developed nations is that it has its own Municipality with its own mayor, budget and elected corporators. Why not replicate the same for our suburbs? Instead of electing corporators that represent the interest of localities in a centralized system, why can’t the citizens of a suburb elect their own mayor and corporators whose exclusive responsibility should be the growth, development, generating employment, providing law and order and thereby a high standard of living and quality of life to all the “city” residents!

In the current system, we do elect corporators, but they have limited voice in the functioning of the locality they represent. The power of decision-making rests with a central body of elected corporators, who may have no idea about the needs and preferences of the citizens living in distant suburbs. Most decision-makers may have never visited a suburb for which they may have sanctioned budgets. Such a system breeds favouritism, leads to faulty economic resource allocations, and entrenches corruption. Furthermore, the central decision makers are accessible, for all practical purposes, only through local corporators, thereby building a fence around themselves and their decisions. Transparency and accountability get buried in centralized systems.

Now think of the alternative, i.e. break-up of the “BMC. In this system, each suburb duly demarcated by its geographical jurisdiction (no different from the current scenario) will be governed by its own “Municipal Corporation”. The residents of the geographic unit (i.e. suburb) will elect their own mayor and corporators to manage the activities of the geographic unit. To make it effective, the elected representatives must necessarily be residents of the geographic unit. These elected representatives will be entrusted with the economic development and welfare of the geographic unit. As such, the process of budgeting of revenues and expenses will become more objective. Objectivity will lead to greater transparency and accountability in this system. Focus on economic development will lead to “marketing” of the geographic unit to potential businesses for setting up their operations leading to local employment. Furthermore, like any business or governmental entity, the geographic unit may tide over its budgetary imbalances via financing of such deficits.

Enter “Municipal Bonds”. Globally, Municipal Bonds are tax sheltered instruments i.e. the return provided by them is tax-free. Naturally, because of this characteristic, their coupon will also be lower than other taxable fixed income instruments. The coupon and principal of Municipal Bonds are backed by the taxing authority of the Municipality (geographic unit). All the taxes that are included in monthly maintenance charges of your residence are the sources of income for the Municipality. In exchange for this income, the Municipality will incur expenditures on the maintenance of infrastructure, marketing for attracting new businesses to set-up operations in the area, supporting municipal schools, compensation for municipal employees, and other incidental expenses to ensure smooth functioning of the municipality and provide good quality of life. By having a relatively clear knowledge of the sources of income, the budgeting (monthly, quarterly, annually) becomes relatively easy. Any shortfall, i.e. deficit, can be financed by the issue of Municipal Bonds. The cost of such financing will be usually lower than competing alternatives such as bank loans, commercial paper, etc. Moreover, the period of maturity is longer, thereby ensuring the municipality of long-term source of funds.

It is important to note here that the purpose of this treatise is not to provide a primer on Municipal Bonds. For the interested reader, insightful information on Municipal Bonds can be found here:





Now, you may appreciate the interconnection between the break-up of the BMC and the development of the Municipal Bond market. Yes, Municipal Bond market development can also be augured in the current centralized system, but the need for transparency and governance that will be required by the Credit Rating Agencies to grade these bonds will be a herculean task. To become part of investment portfolios, these bonds must pass the minimum investment grade barrier. This may not be attainable if the inefficiencies entrenched in the current system are continued.

The older generations of Mumbai may be tolerant of the system as they not only grew up with it but also fostered it for aspirational needs. However, the majority of the younger generation of Mumbaikars, like their counterparts in the developed world, if given the choice, would prefer a work-life balance; a result of aspirational needs of the middle-class families being met at a rapid pace. Mumbaikars, in general, are fed-up with the deterioration in quality of life wherein the daily commute for earning their keep is a grind and takes a heavy toll on health.

The breaking up of BMC into its various geographic units may perhaps be the best solution for Mumbai. It will be fortuitously associated with the development of a financial product that has the risk characteristics to suit investors and employment generation potential for the financial services industry as well as other industries interested in setting-up or growing businesses in the city. If this model is replicated pan-India level, India can have a robust Municipal bond market and help deepen its capital markets, particularly the fixed income market, a long cherished goal!


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Non Consensus Investing

Speaker: Ms. Rupal Bhansali, CIO, International and Global Equities Portfolio Manager, Ariel Investments

Moderator: Sunil Singhania CFA, Global Head Equities, Reliance Capital Ltd.

Contributed by: Jainendra Shandilya CFA

The 8th India Investment kicked off on January 12, 2018 and  Rupal Bhansali hogged the limelight by slicing and dicing the myths associated with investing. The theme of her presentation was Non-Consensus Investing and she stated that the best things in the world are simple and smart, like the Apple of Steve Jobs. There have been people who dared to pick winner far from the consensus and the classic example was of Billy Beans of Oakland Athletics. The advantage of non-consensus investing is high return at lower risk; however, one must understand that this is possible only when one is correct and proves the consensus wrong. She started her presentations with a classic example of Blackberry, how this tech company, once a darling of growth investors, lost out in the race of investing. Blackberry had the advantage in terms of technology as during the era of 2G mobile telephony, the bandwidth was not sufficient to process too much of data along with voice calls. Blackberry did a fine job of compressing data and that allowed its users to communicate seamlessly without bothering about call drops, etc. The technology, however, moved forward with the migration to 3G and 4G and this advantage did not remain unique to this instrument. The share price of blackberry, which rallied to around 900 percent during its heydays, soon lost momentum and also the charm. The stock price lost so much that it is unlikely that stock will reach its high watermark of yesteryear. Why investors lose out on this kind of stock is they try to see the performance of the stock in its financials which is a lagging indicator of a stock performance. The share price of Blackberry and Nokia performed very well during their heydays, however, they are not in the race now. What about Apple? “Apple is no longer a technology company and maybe it will also have the same fate at some point of time”, feels Bhansali. The reason why Apple does not look promising is there is nothing in it that is unique to its platform. Almost all the top apps used worldwide, viz. Uber, Snapchat, Facebook, Spotify, etc. are also available on other platform. The fast charging technology, wireless charging, etc. is not in the domain of Apple. In other words, it is no longer ahead of the curve -inventing the way it did before.

She picked up another winner from her portfolio and showcased how the myths associated with stocks needs to be debunked to get ahead of the curve. The example of Michelin  Tyres was a case in point. The myths associated with tyre industries are they are a low tech commodity, have high sticker price, have low ROIC and especially so in a declining car sales world. “If this was really true, why did Chinese not flood the market with Chinese tyre”, asked Rupal. The fact is a non-consensus investor would look at tyre stock as high tech and differentiated product and it’s a value for money. Also, tyres can’t be reverse engineered as the process used by each company remains unique to itself. Normally, a tyre is supposed to serve two purposes; one it should grip the road well and at the same  time, it should not be too heavy to be a drag on fuel efficiency. By its very design, therefore, there is trade-off between road grip and fuel efficiency. Michelin, through its design and innovation, was able to provide solution to the car industry and therefore it is the favourite of big auto companies such as BMW, Mercedes, Audi, to name a few. The result of this strategy is evident from the 2X return of Michelin stock compared with the whole tyre industry.

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Microsoft is another stock that proved consensus wrong. Normally, consumer staples are consensus favourite, however, market never looked at Microsoft as consumer staples. What Microsoft does is to provide us software constantly and this is what we consume in our day to day life. “I can live without shampoo for a day but not without software”,  she asserted. The result was, Microsoft outperformed the consumer staples industry(Proctor & Gamble) by 3.7 times over a period of a little over five and a half years. Though many in the audience felt it is not the right comparison as Microsoft has underperformed other “consumer tech” companies of the famous FAANG group. In investing it is very important to understand quality. Upset victory over consensus can only be gained by buying quality, however, investors should avoid misunderstanding quality. Both Blackberry and Nokia could have passed for quality due to their past successes, however, investors should understand that as consumer electronics such products could be either hit or miss. She went on to show how avoiding loss is very important in the initial years of bad results and the example in this case was her own performance viz-a-viz the MSCI EAFE Index for 10 years since 2001. From a casual look at her performance it would  seem a very lacklustre performance compared to the index, however, what transpired at the end of the horizon was her portfolio beat the index by a significant margin of 3.6 percent. All this was possible due to compounding of high initial performance where her portfolio lost less than the index did and thereafter the index could never catch up. In all, a $100 invested in Rupal’s portfolio could have grown to $234 in those ten years, whereas the same money could have grown only to $167, notwithstanding the very depressing results of 2008. Rupal stated that her book chronicling all her investing story will be out by September 2018. As her clients will be expecting another stellar performance from her, her fans will wait for her magnum opus.

  • JS
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The Other Half of Macroeconomics and The Fate of Globalisation

Speaker: Richard Koo, Chief Economist,  Nomura Research Institute

Moderated by: Navneet Munot, CFA, Director, IAIP and CIO, SBIMF

Contributed by: Ishwar Chidambaram, CFA, CIPM

Mr. Richard Koo began his enthralling presentation with some insights into Donald Trump’s Presidency. He said that Trump won the White House by focusing on “middle USA”- the geographical area between the USA’s Atlantic and Pacific coasts. This region has for long been neglected by successive administrations. Trump merely filled that vacuum. Richard asserted that Trump is having a profound impact on the forex markets, as he is speaking about US trade imbalance. Despite popular opinion to the contrary, Trump’s macroeconomic policies are actually sound, as he is focused on infrastructure spending. The US is beset with problems, as dollars are not flowing from financial sector to the private sector. Nobody is borrowing, even at zero rates! Everyone is simultaneously engaged in repairing their balance sheets, leading to a phenomenon which Richard termed as “Balance Sheet Recession”.

He lamented the fact that most textbooks and theories focus only on the situations wherein borrowers exist in the market- this is the scenario where the private sector is maximizing profits.  However, the case where borrowers are absent is largely neglected. This is the situation where private sector is minimizing debts. All advanced economies are currently witnessing this situation, wherein private sector borrowers have vanished post the 2008 financial crisis.

Ideally the Monetary Base, Money Supply and Bank Credit should move together. But in the US today, they have decoupled. Despite the relentless injection of liquidity by the US Federal Reserve, Bank Credit has increased only 30% in past 9 years, which is practically nothing! The situation is worse in Europe, where Credit has increased only 1% over the past 9 years, while in UK it has actually fallen. Similarly, in Japan, Governor Kuroda increased liquidity, but it had zero impact on Bank Credit. At the same time the monetary base has grown by 4.6x, 3.52x and 6.84 in the USA, Europe and UK. In Japan the same has increased 3.43 times between 2013 and 2017. These grim statistics lead to only one inescapable conclusion- namely, there is a big disconnect between Monetary Policy and the Real Economy. This can be seen further in the fact that, theoretically, increased printing of currencies by the developed economies should increase the supply of the currencies leading to a fall in their value; but this did not happen as Credit did not increase.

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Alluding to India and China, Richard was relieved that they are not facing Balance Sheet recession. In the case of Japan, however, its nominal and real GDP never fell below the peak of the bubble, as the Japanese Government acted as the borrower and spender of last resort. Hence the Japanese private sector had income to pay off their debts and corporates were able to repair their balance sheets. Hence if the private sector is minimizing debt then the Government has to act as borrower of last resort. But, perhaps ominously for Japan, 27 years after recession the private sector is still not borrowing money. This is because deleveraging is very painful. The USA’s experience is likely to be similar, as nominal GDP fell by 46% in US, whereas Japan’s nominal GDP did not fall post the bubble.

Referring to the absence of borrowers in USA,  Richard posited that Return on Capital is higher abroad than at home for US and Japanese companies. This presents a peculiar problem, as modern credit policy only works if there are borrowers. If there are better opportunities abroad, then monetary policy loses its effectiveness.

Next, he presented the three stages of economic development, namely- Stage 1 wherein most workers are in rural areas and wages are flat; Stage 2 where workers are mainly in cities and wages are upward sloping (Golden Era); and Stage 3 which is the pursued World where ROE abroad is greater than ROE at home. All developed countries are at Stage 3 currently. Policies like printing money, etc. are all based on Golden Era rules, and are not applicable to developed economies. Instead Fiscal Policy assumes greater importance in such cases.

Finally, referring to the Fiscal Cliff, Richard said the reason for USA’s relative outperformance is that the Federal Reserve was the only Central Bank that told its Government not to cut the deficit. Still the Fed appears to be behind the curve on asset prices. Its Financial sector is flooded with money (due to Balance Sheet recession) wherein:

  1. Households stop borrowing
  2. Companies are deleveraging, and
  3. Government is printing money


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Geopolitical Landscape in Asia as China Expands and America Retreats

Speaker: James McGregor, Chairman, Greater China, APCO (Beijing) Consulting Company Ltd.

Moderator: Jayesh Gandhi, CFA, President, IAIP

Contributed by: Chetan Shah, CFA, Secretary, IAIP

There are stark differences in the boards of Chinese and US companies. According to James Mc Gregor, the Chinese boards talk more about opportunities and are ambitious. While those at US talk more about risks and downside. The same things echo at the national level.  China under Xi Jinping wants to overtake other nations at the world stage, take a path of its own, away from those prescribed by the west, and propagate its own development model across the developing world. Through the Belt and Road Initiative, it is offering funds for infrastructure projects at commercial rates. It has taken Hambantota port in Sri Lanka at a strategic southern location on a 99 year lease. In Kazakhstan it has committed to 51 projects around Khorgos International Centre for Boundary Cooperation (a dry port and free trade zone) that opens the door to the West. In Pakistan it has committed large sums to build roads, rails, industries and stabilize the economy. In the last 20 years it has done similar things on the African continent building infrastructure for natural resources. It has convinced leaders there that the Chinese model of development could be easily adopted by them. It has invested into education and offered scholarship to students as a result of which more Africans go to Chinese universities than to the US. While countries joining OBOR will improve their infrastructure, it will help utilize China’s own huge capacities in industries like cement and steel. In Asia China controls around 2/3rd of the South China Sea having built thousands of acres of land and islands. In Malaysia it has 20% ethnic Chinese to cater to. The generals in Thailand prefer closer relationships with China. China is working on a high-speed train from Kunming to Singapore involving 154 bridges, 50,000 workers and around $7bn investment. Chinese leaders have spelled out the “Made in China 2025” vision which includes attaining global leadership in areas like artificial intelligence, cloud computing, bio-pharmaceuticals, new materials etc.

There is a shift of power from the collective opinion system, with 9 member standing committee, in the past to single person in the party. This has been possible due to Xi Jinping’s own background, dissatisfaction over excessive corruption in the past, debt fueled expansion, ageing population and middle-income trap for the nation. Besides there is spin of story with hostile forces surrounding China, greedy MNCs exploiting its people, Japan stealing islands and so on.

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US on the other hand seems to be in undo phase politically. In order to “Make America Great Again” and bring in more jobs, it is pulling out of blocks like TPP (Trans Pacific Partnership). TPP forms nearly 30% of the Global GDP. Little does the US realize that China will gain out of such moves? Of the $3.5T of cumulative trade deficit with China over last few years, nearly 50% of imports come from American companies with 450 factories in China. James added the Chinese proverb “fu bu guo san dai” which means Wealth does not pass three generations. In this case the USA is seeing third generation post World War 2.

At this juncture India has a good opportunity to tap into. Though the international investment in China is huge, investors have currently become exhausted with China and are looking out for similar destinations globally. India emerges as a good continent “rising from the ocean”. There is a huge opportunity for India. It depends how quickly it opens up to foreign investments.

  • CGS


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