Sometime in late 2010-11, China overtook the UAE to become India's biggest trading partner, as Indian companies stepped up imports to fire their plants and factories. There are early signs that this Chinese exports-dominated $60-billion trade relationship may now be progressing to the next stage - getting investment-focused - with China stepping up investments.

Though foreign direct investments from China are minuscule compared to total inflows into the country there are cases that suggest that this could change soon.

In late 2009, China's largest automobile conglomerate, the $34-billion SAIC Motor Corp, spent $500 million to buy a 50% stake in GM India. A Ficci executive says at least four Chinese automakers have recently shown interest in investing in India.

Planning Commission Member Arun Maira says he sees serious interest among Chinese power and telecom equipment companies to set up manufacturing facilities in India, to locally make what China currently exports to India. These exports have grown substantially from $11 billion in 2005-06 to $40.8 billion in 2009-10. "Chinese are now willing to recognise the trade imbalance and its nonsustainability. We could see the beginning of the Chinese investment era in India," says Rajiv Kumar, secretary general, Ficci. Jahangir Aziz, chief economist, India, JPMorgan, agrees.

Most business ties between two countries follow a certain growth trajectory, he says. It starts off with trade and as it grows, FDI begins to take off. First, it is spearheaded by the diaspora, and then others latch on. Banks join the rush soon after, following their clients into the two countries. "Our bilateral trade has reached that critical point when it is starting to make sense for Chinese companies to manufacture in India rather than import," says Aziz.

The government numbers look grim. Of the nearly $190 billion FDI that came to India between 2000-2011, just $53.8 million came from China. This is a tiny number, especially because through this period, Chinese investments around the world surged. Between 2006-10, China's outbound overseas direct investment into nonfinancial sectors crossed $216 billion.

Govt Data Misleading

The amount of Chinese investments in India has been low but government data might also underestimate its magnitude. For example, some investments from China may have been routed through Hong Kong or Mauritius. SAIC Auto's investment was routed through Hong Kong.