India invites Chinese companies to invest in highway projects

Willing to address concerns over SEBI cap on foreign investment

India on Wednesday told China's biggest investment and engineering companies that it was open to greater Chinese involvement in highway projects, even in border areas.

The Indian Government was also willing to address Chinese concerns over cap on foreign investment under Securities and Exchange Board of India (SEBI) regulations by looking into the possibility of negotiating an economic cooperation agreement in future, Minister of Road Transport and Highways Kamal Nath told Chinese officials.

On Wednesday, Mr. Nath held meetings with officials from some of China's biggest investment firms, encouraging them to step up investment in road projects. He said India had no opposition to Chinese involvement in highway projects in the northeast and Jammu and Kashmir, where India recently awarded a project to a Chinese joint venture. India has recently voiced concerns over Chinese projects in Pakistan-occupied Kashmir, citing security reasons.

“The Government of India cleared [the project in Jammu and Kashmir] from a security point of view,” he said. “We have no such concerns…We awarded the contract because Chinese involvement is in terms of investment, project management and technology. They were not sending people there to dig roads, so there was no issue.” Some of the concerns of Chinese firms looking to invest, he said, revolved around a 10 per cent cap in investment for publicly-traded companies under SEBI regulations. Since many of China's players in the sector are State-run, such as the China Investment Corporation (CIC), the State-run sovereign wealth fund, and the Social Security Fund (SSF), they would be regarded as under the same ownership.

Singapore experience

India worked around this problem with Singapore, where Temasek Holdings and the Government Investment Corporation (GIC) sought involvement in projects.

Under an economic cooperation agreement, India agreed to treat State-owned entities as independent investors.

Negotiating a similar agreement with China, Mr. Nath said, was a possibility. “I will take back [their concerns] to our government,” he said. “[But] it is for ministries concerned and for the Prime Minister to address this issue at an appropriate level.”

Mr. Nath said Chinese engineering firms had “recognised that there are huge opportunities in India,” and were “surprised” that India had awarded as many as 188 highway projects with a combined length of 7,500 km this year.

Another concern often voiced by Chinese firms involves visas for workers. Indian officials had earlier this year instituted a one per cent cap for Chinese workers, to limit the number of unskilled labourers on infrastructure projects and to get Chinese firms to hire locally.

Indian officials said they had now instituted a new visa regime to issue employment visas only for skilled workers, doing away with the one per cent cap. The process had been streamlined, officials said, reducing the number of Chinese workers on projects as well as limiting involvement at technical and management levels.

Japan moves to weaken yen

TOKYO — Japan on Wednesday stepped into the currency markets for the first time since 2004 in a bid to stem the yen's appreciation against the dollar and help safeguard a faltering recovery.

The strident move came a day after Prime Minister Naoto Kan reaffirmed his leadership in a ruling party election victory over Ichiro Ozawa, a heavyweight political rival seen as more likely than Kan to take firm action.

The yen fell to as low as 85.52 to the dollar following the yen-selling intervention, which was triggered by the Japanese unit's earlier surge to a fresh 15-year high of 82.86.

Kan said the yen had "reached the stage where we could not leave it untouched. So, we intervened."

Earlier, Finance Minister Yoshihiko Noda pledged further steps after weeks of trying in vain to talk the yen lower through verbal warnings.

A strong yen puts many Japanese exporters at a disadvantage against foreign rivals as it erodes their repatriated earnings and competitiveness.

Officials did not reveal the size of the intervention but Dow Jones Newswires cited traders saying Tokyo likely sold at least one trillion yen (11.7 billion dollars) during the day.

Authorities continued selling yen into European trading and were prepared to extend the operation into the US session, officials said.

A senior finance ministry official said Japan would step into the market in Tokyo Thursday if needed, Jiji Press reported.

Noda said the move was made unilaterally, but added Japan had been in touch with foreign governments amid qualms from Europe and the United States that exchange rates should be kept free-floating.

"Our country's economy is still in a very severe situation with continued deflation," said Noda. The yen's rapid appreciation "harms the stability of the economy and finances. We cannot tolerate it."

But one top US lawmaker labelled Japan's intervention "deeply disturbing".

"China is not the only country with a predatory exchange rate policy," said Democratic Representative Sander Levin, who chairs the powerful House Ways and Means Committee that has power over taxes and trade policy.

The Bank of Japan indicated it would leave the extra supply of yen sloshing around the money market to bolster lending and weaken the currency, instead of adopting mopping-up policies usually deployed to prevent inflation.

On the contrary, Japan is looking to end years of damaging deflation.

A strong yen makes imports cheaper, prolonging a cycle of deflation that sees consumers defer purchases in the hope of further price falls.

The central bank has come under government pressure to do more to combat the strong yen and recently expanded a multi-billion-dollar loan scheme.

A recent government survey suggested many companies were considering moving production overseas if the yen stayed high, casting a shadow over the nation's recovery.

"Japan needed to intervene in order to try to prevent the yen rising to levels that would push exports lower and send the economy back into recession," said Macquarie Bank's Richard Jerram.

News of the intervention also initially sent the dollar higher against other currencies including the Korean won and Chinese yuan.

Analysts say the region's central banks now have a stronger argument to weaken their currencies and boost the competitiveness of their export sectors, complicating efforts to encourage China to further loosen its currency.

Wednesday's move buoyed Tokyo shares, with the Nikkei index ending up 2.34 percent. Electronics giant Sony jumped 4.09 percent. Toyota Motor soared 3.82 percent.

"Further intervention is likely over coming days and weeks," said Mitul Kotecha, head of global forex strategy with Credit Agricole.

But analysts question how effective Japan's actions will be in the long term, given global moves to keep domestic currencies weak and continuing expectations for further monetary easing in the US.

And while the yen is at 15-year highs on nominal terms, it is still below its 1995 peak when adjusted for price changes and compared to a basket of currencies used by Japan's largest trading partners, say analysts.

The currency hit an all-time high of 79.75 to the dollar in April 1995.

Exports in Aug up 22.5%; trade gap a concern

Exports grew by an annual 22.5 per cent to USD 16.64 billion in August on improved global demand for Indian merchandise, giving policy makers confidence about achieving the USD 200 billion target for the fiscal. Imports jumped at a higher pace of 32.2 per cent to USD 29.7 billion in August, leaving a trade deficit of USD 13.06 billion, which is a cause for worry. "Things are going so far according to our plan and we should be able to reach over exports target of USD 200 billion," Commerce Secretary Rahul Khullar told reporters here.Expressing optimism, exporters body FIEO said that with this growth rate, exports would even surpass the USD 200 billion target and reach USD 210 billion. Meanwhile, industry reported a 13.8 per cent growth in July, beating by a wide margin the market estimates of a single digit growth.However, the rate of "heady growth" witnessed in the first quarter of the year has clearly decelerated, Khullar said. He said while there is a marked improvement in exports during 2010-11 over the previous year "you are well below the USD 17.8 billion which was achieved in August 2008-09".With imports rising on the back of 8.8 per cent economic growth in the first quarter of the fiscal, ballooning gap between exports and imports (trade deficit) remains the main area of concern for the government. For the April-August period, the trade deficit aggregated USD 56.62 billion with a monthly average of USD 11.2 billion.The year may end with a trade gap of USD 135 billion. "The gap will be very very large, even compared to USD 118 billion, that we had two years ago." During April-August this fiscal, exports posted a growth of 28.6 per cent to USD 85.27 billion on a year-on-year basis. Imports during the period grew by 33.1 per cent to USD 141.89 billion.The sectors, which registered a healthy rate of exports growth during the first four months of the current financial include cotton yarn and fabric (41 per cent), gems and jewellery (28 per cent), iron ore (84 per cent), chemicals (23 per cent), engineering (40 per cent) and petroleum, oil and lubricants (POL) (50 per cent). However, segments like readymade garments, handicrafts, handlooms and carpets are still in a bad shape, he said.During April-August 2010-11, segments that witnessed a good growth rate include POL, which was up 31.7 per cent, fertilisers (79 per cent), vegetable oil (67 per cent), coal (43 per cent), iron and steel (64 per cent), gold (27.7 per cent) and machinery (20 per cent).