China’s offer to India

India’s transport infrastructure has become the target for foreign policy initiatives by both Japan and China as they manoeuvre against each other and in the wider Asia region.

During the Chinese President’s visit to India last week, China promised to invest possibly US$50bn or even US$100bn in a mix of ports, railways and logistics terminals including an offer to help to build a number of high-speed rail lines. This followed a similar outline agreement between Japan and India last month which outlined a wish for Japanese corporations to invest US$35bn in the Indian rail network.

The headline rail projects are primarily concerned with passenger traffic although rail freight investments are high on the list. The Indian minister for railways in July expressed a hope that India will become “‘the largest freight carrier in the world’, having already passed the annual total of a billion tonnes of freight a year. The problem is that the Indian rail freight infrastructure is as undeveloped as the passenger side of the operation and is unable to cope with the immense demand.

The issue of ports is even more fraught. Indian ports are short of capacity and are often in-efficient. The country desperately needs to expand its ports sector and reduce the costs of marine transport if the Indian economy is to continue to grow at any sustainable trajectory. Certainly Chinese ‘State Owned Enterprises’ have been investing in ports in the Indian Ocean, for example this week announcing the start of a new facility in Sri Lanka. However such developments are viewed with deep suspicion by the Indian Government which sees them as an attempt to expand Chinese influence in the Indian Ocean. This makes it all the more remarkable that India would entertain heavy investment by China within India itself.

What India hopes to achieve is the sort of infrastructure transformation that China has experienced over the past 20 years. Yet it is easy to forget that much of the growth of the Chinese port sector was delivered in joint ventures with Hong Kong, Singaporean, Danish and British terminal operators. The potential for collaboration with these companies is quite possible for India but has been blocked by Indian politicians and local businessmen.

It is also unclear that China’s railways are necessarily a good model to follow. Whilst China has gained access to outside technology as a result of joint ventures with Japanese, French and German railway equipment manufacturers its rail network appears to suffer from significant problems, not least the economic effectiveness of investment in the system.

India’s infrastructure problems are not caused by a shortage of investment. Rather it is that the government is a barrier to the implementation of that investment, and as yet this shows little signs of changing. Therefore it appears that these offers of money from China, however vast, are just political gestures.