Infrastructure Leasing and Financial Services Limited (IL&FS), the infrastructure development firm, on Friday became the first Indian company to acquire a stake in a state-owned Chinese enterprise. The landmark deal, estimated at $150 million, is seen by Indian officials as a watershed for Indian industry in China.

ITNL International Private Limited (IITL), a subsidiary of IL&FS Transportation Networks, signed a contract to acquire 49 per cent equity interest in one of the biggest state-owned infrastructure companies in the south west municipality of Chongqing.

The Chongqing Expressway Group, which chose IITL following a bidding process, is an infrastructure giant with assets in excess of Renminbi (RMB) 100 billion ($15.7 billion), and supervised by the State Owned Assets Supervision and Administration Commission (SASAC), a powerful government body that manages all of China’s State-owned enterprises.

The deal, analysts said, would provide a valuable foothold for IL&FS in the booming Chinese infrastructure market, and particularly in western China, which has increasingly become the focus of China’s infrastructure development amid a campaign to raise its development to the levels of the more industrialised and prosperous east.

Much of the $178.77 billion invested by Beijing in transport infrastructure this year — a 11.5 per cent rise from the previous year — was directed to a ‘Go West’ development drive, to build road and rail networks in places like Chongqing, Sichuan and Xinjiang.

Behind the Chongqing firm’s decision to partner IL&FS, analysts said, was a reflection of the increasing interest among Chinese companies to enter the Indian infrastructure market, as well as an attempt to leverage the Indian company’s better financial management expertise.

Beyond the immediacy of Wednesday’s deal, Indian officials viewed the contract as signalling a more significant shift in how the Chinese government — and its State-controlled firms — deal with Indian companies.

“For SASAC to directly approve this deal,” an Indian official said, “certainly means that some kind of credibility checks have been done, and that an Indian company was finally chosen because it has been acknowledged as having expertise in this field.”

Cui Jian, Director of SASAC Chongqing, personally attended Friday’s signing ceremony in Chongqing.

SASAC, which reports to China’s Cabinet, or State Council, holds huge influence within the Chinese economy, not only supervising state-run firms, but also having the final say on the appointment of executives, the signing of contracts and acquisitions.

Indian enterprises have so far struggled to make inroads into the vast swathes of the Chinese economy still under the control of the State, a failure seen by Indian officials as contributing to a fast-widening trade deficit, on track to surpass last year’s record $20 billion figure.

Bilateral trade is forecast to cross $70 billion this year, growing by more than 15 per cent despite the downturn and reaffirming China’s position as India’s biggest trading partner.

“For an Indian company to acquire a stake in a Chinese state-owned firm, that too in the infrastructure sector, is certainly a landmark,” E. B. Rajesh, chief representative of the Confederation of Indian Industry (CII) in China, told The Hindu.

“This will help in creating synergies between the two companies, and the two countries, which will also have an effect on projects back in India. This will help bring in more Chinese companies, and raise the confidence of Chinese state-owned enterprises to work in a collaborative manner with India on infrastructure projects.”

Rahul Chhabra, Deputy Chief of Mission of the Indian Embassy in Beijing, said at the ceremony in Chongqing that the deal was reflective of the “transformational impact that the investment co-operation between the two countries will herald in.”

“We believe that the new alliance between ITNL and Chongqing Expressway Group will usher in a new wave of co-operation between the two countries in the infrastructure sector,” he said.