By Mr. Kung Chan and Mr. Zhou Chao
Earlier this year, the American investment consulting group the Hindenburg Initiative Research and Reporting made headlines by releasing a research report claiming the prominent Indian entrepreneur Gautam Adani’s company, the Adani Group, of fraud and stock price manipulation. This report sent shockwaves through the financial sphere. Subsequently, companies linked to Adani experienced a prolonged dip in their stock prices, causing the combined market capitalization of these publicly listed entities to drop by more than USD 150 billion at its lowest ebb. Swiftly responding to this crisis, the Adani Group took proactive steps to reduce its debt and actively sought investments from foreign entities, notably securing support from the Qatar Sovereign Fund. These astute maneuvers resulted in a noteworthy resurgence in the market valuation of Adani Group companies, witnessing an uptick of approximately USD 40 billion.
However, after the dust seemed to settle, the Organized Crime and Corruption Reporting Project (OCCRP) published a new investigative report in August, revealing that Nasser Ali Shaban Ahli from the United Arab Emirates and Chang Chung Ling from Taiwan had been trading Adani Group stocks worth hundreds of millions of dollars for years. OCCRP noted that these two individuals had long-standing business dealings with the Adani family, serving as directors and shareholders of Adani Group companies. They also had significant connections with companies under Vinod Adani, the brother of Gautam Adani. OCCRP’s documents showed that Chang and Ahli had spent years trading Adani stocks through offshore shell companies to obscure their tracks and earn substantial profits. As of March 2017, Chang and Ahli’s offshore companies had invested USD 430 million in Adani company stocks, constituting 100% of their investment portfolios.
Simultaneously, both individuals were paying Vinod Adani’s companies for investment advice through their management firms. These allegations further fuel suspicions of internal corruption within the Adani Group. The Securities and Exchange Board of India has initiated a review of the group, and the latter announced its withdrawal from a series of infrastructure projects launched by the Indian government. As it stands, this massive conglomerate is embroiled in a predicament with an uncertain future. However, a review of the Adani Group’s development journey reveals that Indian companies like the group have already posed a significant challenge to the continuous advancement of China’s Belt and Road Initiative (BRI).
The group’s more remarkable achievements perhaps lie in competition with China. In July 2022, a consortium led by the Adani Group won the privatization tender of the Haifa Port in northern Israel and completed the acquisition of the port along with the local logistics company, Gadot, for USD 1.15 billion. Adani Group also outbid China in a tender for the Colombo Port in Sri Lanka. In August 2016, under pressure from India, Sri Lanka changed the permanent land use rights given to China in the Colombo Port City project from 20 hectares to a 99-year lease. In summary, large Indian multinational corporations like Adani will continue to be key competitors to China’s BRI in the present and future, with their impact expected to persist and strengthen.
To begin with, Indian enterprises are poised to receive substantial backing from Western nations, led by the United States, on a global scale. Within the Western world, China’s perceived role as the foremost geopolitical challenge has spurred actions aimed at constraining and managing its ascent. This has evolved into an unwavering strategic priority for the U.S. The European Union’s “risk mitigation” strategies, coupled with strategic maneuvers by Japan, South Korea, and various Southeast Asian nations, underscore the collective determination of the U.S. and its allies to actualize this overarching strategy. Given India’s active engagement in geopolitical competition with China, it emerges as an ideal ally for the U.S. to advance its Indo-Pacific strategy.
Earlier this year, the U.S. and the EU solidified their economic, trade, and technology collaborations with India through a series of agreements and memoranda of understanding. These agreements significantly bolstered economic, trade, and technological relations. In particular, the U.S. has granted India access to pivotal domains such as aircraft engine technology. It is conceivable that India will continue to receive an array of technology transfers and support from the West in the foreseeable future, especially in critical sectors such as energy transition. This will further elevate India’s standing and competitiveness in the technological arena, positioning it favorably in the ongoing technological rivalry with China.
Furthermore, many nations situated along the BRI regions are displaying a noticeable degree of caution regarding China, primarily due to geopolitical considerations. Consequently, they are increasingly open to embracing Indian influence as a means to hedge against potential risks stemming from heavy economic and trade reliance on China.
Illustrating this shift, in May of this year, Karan Adani, the CEO of Adani Ports and Special Economic Zone Ltd. (APSEZ), a subsidiary of the Adani Group, convened a meeting with Vietnamese Prime Minister Pham Minh Chinh in Hanoi to deliberate on investment opportunities in Vietnam. Following the meeting, a statement issued by the Vietnamese government expressed the country’s willingness to create a conducive environment for Indian enterprises, including the Adani Group, to invest within its borders. There was a particular aspiration for the Adani Group to lead investments in Lien Chieu Port, situated in the central Vietnamese city of Da Nang. In addition, the statement highlighted the Adani Group’s commitment to long-term investments in various sectors within Vietnam, encompassing ports, logistics, energy, and technology. The potential total investment could reach up to USD 10 billion in the future.
Evidently, in countries that China traditionally views as integral to the BRI, there is now a discernible shift toward perceptions of geopolitical competition. Many of these nations are actively seeking enhanced collaboration with India across diverse sectors, spanning physical infrastructure to financial development. This transformation is poised to bolster the presence and influence of Indian businesses within these domains while contributing to the gradual displacement of Chinese counterparts from relevant sectors.
The fundamental trajectories of the Indian and Chinese domestic economies imply that Indian businesses will pose a formidable challenge to China’s BRI. According to a report by a research team from Nankai University, private enterprises in China accounted for over half of the total investment in the BRI, making them the driving force in this endeavor. However, since 2016, both of its annual count of investment projects and the total investment volume have witnessed a consistent decline. By 2022, both figures had fallen to less than half of their historical peaks.
China’s annual investment in BRI has also been on the wane. While the shift of investment priorities plays a part, there is still the constraining impact of broader economic trends on available public and private financial resources. Following the conclusion of pandemic-related lockdowns, the lackluster performance of the Chinese economy suggests that state-owned and private enterprises alike are gradually finding it more challenging to secure the financial means required to support their foreign investment and financing endeavors. Additionally, the ongoing trend of an aging population is placing additional strain on the Chinese economy. In contrast, India not only exhibits a robust economic trajectory but also boasts a younger demographic profile, signifying a more promising overall outlook. Consequently, Chinese companies like the smart device maker Xiaomi, despite encountering challenges in India, continue to maintain a presence in the country. This trend extends to various international giants that are also in the process of relocating their supply chains to India. India’s vast and dynamic market provides Indian businesses with a solid domestic foundation to underpin their global expansion ambitions, fostering greater confidence in sustaining competitive strategies against China.
Currently, the Adani Group, closely tied to the Indian government, has essentially completed the establishment of a railway and port infrastructure network spanning from the Indian Ocean, the Persian Gulf, the Red Sea, and the Mediterranean, to the Balkan Peninsula. This development has also effectively created a situation where Chinese companies face increased competition, a trend that is expected to persist and potentially intensify in the future. This situation is unlikely to bode well for BRI projects.
As of the end of August this year, the financial controversy surrounding the Adani Group is still ongoing, with international media continuously reporting on it. If these allegations are substantiated, it will undoubtedly deal another significant blow to the Adani Group’s stock price and may even lead to internal issues. Nevertheless, the gap left by Adani in India’s domestic market is likely to be filled by other Indian corporate giants, and the void in the international arena will also be occupied by different Indian enterprises. Several factors favoring Indian companies are expected to persist in the long term. Even if Adani ceases to be a dominant player, other Indian companies will continue to wield significant influence globally.