The China Invades India’s Manufacturing Sectors
Posted : March 23, 2007 at 4:39 pm [IST]
Last Sunday, I had to go to buy fruits and vegetables from the weekly bazaar that comes up near our house in Noida on the road, as Yamuna was sick. I was stunned to find apples from China along with those from Australia and the local sources, all selling at Rs 100 a kg. Let me confess, the Chinese ones looked more attractive because of their uniform pinkish colour and size. I kept on enquiring from the vendor and all others who also had them, ‘are they sure that these are from China?’ Let me confess, I bought only two of ‘Australian ones for Rs 40, as I never even imagined that the apples will be that costly and there will be so many buyers even in this weekly bazaar.
While I was talking with the fruit vendors, an elderly bearded man selling locks and knifes on his bicycle mounted mobile shop that doubles as repair shop too, came from behind and confirmed that he also now sells all Chinese products.
I read and wrote earlier about the Chinese kirpans used by Sikhs that are now all Chinese-make. The Chinese have captured the export market of kirpans too that was earlier held by Punjabi manufacturers. It made me blog on the subject. I had earlier written about the other items such as lamps and decorative pieces including Ganesh and Lakshmi statues that appeared in market during Diwali. I also read about the Chinese Banarasi and Kanchivaram silk sarees that are so much sought after by the Indian brides in North and South India for marriage displacing the original ones woven by the local weavers. All these items from China are certainly hurting the poor craftsmen and workers, and now fruit growers in Kashmir, Himachal, and Uttarakhand.
It serves the unscrupulous traders well who get these popularly demanded items from torchlight’s to table tennis racquets or badminton gears or crockery and regularly required electrical items such as transformers, capacitors, inductors, ICs or fluorescent lamps from the Chinese sources, as it gives them better margin. Chinese imports have wiped out almost 80% of the ‘gift segment of the domestic ceramic industry and forced the 60 out of the 70 units around Delhi to close down.
Are these the benefits of globalisation that all reputed economists such as Jagdish Bhagwati of Columbia University and prospective candidate of Nobel Prize talk of so loudly? How do these small manufacturers and poor craftsmen fight this unethical invasion?
‘Business Today’, March 24 issue has published a feature ‘The China Effect’ dealing how ‘in a variety of industries, cheap imports from China are killing local manufacturers. How much of it is due to China’s competitiveness and how much due to dumpings?’ It reports on sectors such auto components, silk and textiles, toys, ceramic tiles, bulk drugs, automotive tyres, and gifts and household goods that are reeling under the Chinese Price menace. But I got a shock when I read a news report that small shops of a town in Gujarat came out on roads to complain against the so called invasion of biggies of organized retail sector in big malls coming up fast that are selling cheap and unbranded produces of China and killing their business and livelihood. I was for organized sector in retails. But if these outlets go for importing the items of China, as claimed by the protesters, that are rejected by the European and Americans at very cheap price and sell to ignorant Indian customers, it is just simple cheating. China is having the first move advantage. The manufacturers in China developed the household items such as one for gifts for the developed market, and flooded the developed markets at cheaper price compared to what was available in those market from the local manufacturers because of the higher labour cost in those countries. Many big retail stores such as Wal-Mart got the items developed and manufactured by the China for the price advantage. Chinese created a huge manufacturing capacity for those items. Many of them were fakes of the branded items of the Western countries. For Indian manufacturers, it is difficult to compete in price if Indian traders bring the rejected lots that are basically seconds or scraps, and sell at cheaper prices. Again, the importers are resorting to many other unscrupulous means too such as importing kirpans that might attract more duty as toys that is charged lower duties.
In some cases as automotive tyres, the Indian manufacturers allege traders of undervoicing imports. Fuels account for about 30-60% of the manufacturing costs in case of crockery and pottery items, and the Chinese fuel costs almost one-third of that in India. Naturally, the question is ‘How can the Chinese fuels be that cheap?” Is the fuel cost subsidized by the Chinese government?
I am much more shocked with some news from the auto component sector that I am more acquainted with. While India exported Rs 69.3 crore of auto components to China in 2002-03 and imported only Rs 47.4 crore, ACMA predicts that by the close of the 2006-07, Chinese imports will touch Rs 1,127.6 crore. How can the Chinese offer cost advantages of 30-40% to OEMs? As reported, recently an Indian supplier of auto component was outbid by 55%. Indian manufacturers sarcastically call it Chinese black magic of pricing to outbid competition. One Indian manufacturer asked, “How can the Chinese quote below the price of the steel going into the component?”
How do Indian manufacturers, particularly the smaller ones with limited resources, face this unethical competition from China? Will NMCC (National Manufacturing Competitiveness Council), CII and Assocham have a cell of experts to study all these cases and suggest some means to compete to the manufacturers and the government? Can some NGOs such as Mr. Arvind Kejriwal of RTI fame and with a background of mechanical engineering help on the issue of this Chinese invasion in pretext of free trade and globalisation? Can the students and faculty of IIMs and IITs take up this challenge to study the challenges posed by the Chinese and come out with suggestions? While the bigger manufacturers as in past will have to focus on innovative approaches to compete through superior design and R&D and better management practices, the smaller manufacturers, craftsmen, and weavers need help of all sorts including the removal of anomalies of taxations such as higher import duties for raw materials than for the finished products and even subsidies of some sorts.
Indian manufacturers must face the competition and grow in scale to compete, but all who can, including the employees, must provide the input for that. Otherwise the consequences will be severe so far the employment potential of the sectors are concerned. Moreover, the new entrepreneurs will hesitate to enter in manufacturing sector.
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Germans shifting choice to India from China
- Indra
Category: Manufacturing |
4 Comments »
PS
On Friday, March 23,2007, The Times of India published this report about the unethical means adopted by the Chinese:
Fakes from China now carry made-in-India tag
Pradeep Thakur | TNN
New Delhi: The world of ‘counterfeits’ finds the ‘‘Made in India’’ brand worthy of forging, adding to the fact that India has arrived.
The Directorate of Revenue Intelligence (DRI) has booked a case against a Noida-based SEZ unit for importing counterfeit goods with ‘‘Made in India’’ brand stamped on them. The DRI seized a container consisting of integrated circuits and spark plugs.
The consignment contained fake spark plugs of a prominent brand with ‘‘Made in India’’ mark on each of them. The DRI investigation has revealed that the consignment had come from Singapore and the goods were allegedly manufactured in factories in China.
The spark plugs and integrated circuits made by the Bangalore-based company are quite popular in India and are rated high among its competitors. Sources said though the Bangalore company has registered a case against fake manufacturers in China and some action has already been initiated there, the DRI is currently investigating the role of a Singapore-based firm for its involvement in exporting the consignment to India. However, this is not the first case of Intellectual Property Rights violation registered by the DRI based on complaints received from Indian beneficiary firms. In another case registered two months ago, DRI had seized a container in Delhi containing fake cosmetic items.
The alleged role of a Delhi-based firm is being investigated in the case. Sources said like in the spark plugs case, the cosmetic goods had been imported through Singapore and were allegedly manufactured in some factories in China. Trade in fake counterfeit goods is increasing, with more and more Indian brands being targeted.
The number of counterfeit cases related to IPR infringement may further shoot up once DRI opens 22 other containers the agency had seized some 15 months ago. No one has come forward to claim them, sources said.
So far, Bollywood products were mostly popular in the fake market and, of late, also piracy was noticed in the software segment. But this is for the first time that industrial goods of Indian make are being copied by companies abroad and pushed back to India.
pradeep.thakur@timesgroup.com
Posted by: Indra at March 24, 2007 @ 4:52 am
A comment appeared on the article in Patnadaily.com that I am putting it here for reference:
If you have written this article 10 years ago, it would be a good article. Now, it is too late. The article does amuse me a bit because so many years have passed and still some people write such article which should be written 10 or 15 years ago. The fact you have mentioned in your article is nothing new. It happened 10 or 15 years ago. Everybody knows that China started reform in their agriculture and then manufactures. China started to build their infrastructure and improve their manufacture much early and much efficient compared to India. High productivity and large scale are the two factors for their efficient manufacture industries. High productivity is obtained from well educated labours and advanced equipment plus good management. Large scale can significantly cut the cost per unit and still make profit even the margin of per unit is low. They can make final product even cheaper than the cost that you pay for raw material because buying large quantity is always cheaper than buy small amount. Such rule applies to raw material purchase as well. It is not dumping but Chinese simply work hard and smart. India took a different developing road. Instead of manufacture, India has done very well in offshore service and IT industries. However, service and IT industries can only benefit few people compared to manufacture industries. This is why India’s development and people’s life have not improved as fast as in China. Please remember, manufacture is the back bone of a country, especially a big country. Look at USA, Japan and most EU countries. They all started from manufacture. Small countries or regions like Singapore and Hong Kong are different. They do not have a lot of people to support and they do not have massive labours so they can afford and have to develop their service, financial or high tech areas without left a lot of people in poverty like India. I have said this 10 years ago and I will say it again: If India does not develop its manufacture industries and their infrastructure (manufacture related), India can never really take off. IT and service industries can not support the growth that India wants for whole India even though they can make a few more Billionaires.
Good luck to India. - Dake Yu - Mar. 31, 2007
Posted by: Indra at March 31, 2007 @ 7:26 pm
Another one from Patnadaily.com:
I think problem is not with Chinese competition but with Indian racist mind. Porn Magazine such as ‘Business Today’ is too self-indulged to write anything genuine to protect the interest of Indian manufacturers. Accept promoting racism and interest of internal colonialist nothing can be expected from porn Indian media. Hurdles to Indian Manufacturers are being created by Indian Customs and Central excise who have added rules worth thousands and thousands of pages year after year to intimidate manufacturers in India. I don’t think quality of Chinese products should be raised as an issue because I am sure if Indian consumers can pay more Chinese will surely export high quality goods to India moreover low price does not mean low quality.
I am having some personal experience of this by having my own business both in India and China. I am a manufacturer myself. My company manufactures electronic products for our own brand and because we have enough manufacturing infrastructure we also provide manufacturing services to others across the world. Recently my office in UK received a bulk order for manufacturing some electronic devices from a renowned company. Here is part of two quotations one received by my Indian office from an Indian supplier and second received by my Hong Kong office from a Chinese supplier for the sub assemblies of the same order. It tells every thing at once.
Indian Supplier, Terms & Conditions:-
Excise Duty :- 16%
Ecess :-3 % on Excise
VAT :- 4%
Octroi :- 3 %
Payment :- 50 % advance 50 % against delivery
SPECIAL NOTE :-
PLEASE DECLARE THE DESIGNING COST IN YOUR PURCHASE ORDER
BECAUSE IT ATTRACTS 16% EXCISE DUTY ON DESIGNING COST
AND YOU CAN AVAIL THE CENVAT ON THE SAME.
Chinese Supplier:
Call me if you have any problem
I have removed the actual quote amount and other details for commercial reasons but Indian Supplier had quoted double the price of Chinese supplier besides quotation of Indian supplier had lot of extra ‘%’ sign. Obviously after saying ‘Resurgent India, India shining etc’, sitting in my UK office, I forwarded the order to my Hong Kong office to process. Sorry it may sound a bit cynical but while reading those %s in Indian quote it always sound to me like,
Dadua Dakait :-16%
Raju Chamcha:- 3% of Dadua Dakait
Munna Sardar:-4%
Ghutan Shukla:-3%
SOCHA KYUN SOCHNE KA YAHAN 16% LAGTA HAI!
Problem for manufacturers like me in India is not only with complex structure of custom duty or excise duty but also with the way we are forced to pay illegally under various sections which are not applicable to us in case we get intimidated and try to get matter solved by paying under the table via crook clearing agents. How laymen like me, can be expected to know about each page of the book on Indian customs and excise running over thousands of pages. By the time we come to know that we have been forced to pay illegally, it’s late and who has got the time to fight in court for years when easy and cost effective options are available in China. Unless you are Tata, Birla or so called ‘Guru’ expert in applying the means, manufacturing business is not an easy business in India. Yes, business like software or BPO are different all together because in that case import and export both takes place over Internet.
I am all for Chinese imports. I can relate objection to Chinese imports only with racism and not with protecting interest of Indian manufacturers as our own Indian Customs and excise have assured that genuine manufacturers are adequately harassed in India.
If India seriously wants to compete with China then rather than offering SEZs to neo colonialists it should ease the rules of Customs and excise in general so that whoever wishes can start and run manufacturing business smoothly. This way by volumes even customs and excise will collect more revenue for India and people will get cheaper product and services. It took a Laluji from so called economically backward Bihar to teach the world the other way to do business by earning money without increasing the fare. May be some day someone will come from grass-root who will show by generating much more revenue for customs and excise through volumes while equally encouraging the manufacturers rather than talking rubbish about fears of Chinese imports, promoting crap like SEZs and promoting FDI in organized retail sector while strangulating the manufacturing sector with tougher regime of customs and excise year after year. For ‘Laluji Darshan’ only business ‘students’ from all over the world are coming but to the ‘Darshan’ of that reformer business ‘practitioner’ (investment) from all over the world will come. Please don’t quote me about IT because that takes place on IP, pass the software through customs and then we will like to hear about some success story. In fact success of IT proves the capability of us Indians. Just imagine what great heights we can achieve if the similar freedom is achieved in manufacturing too. Till then it really feels like Robin Hood of Loxley with the idea of manufacturing in India. - Shiv Shankar Sharma - Mar. 31, 2007
Posted by: Indra at March 31, 2007 @ 7:28 pm
Another from Patnadaily.com
As one who frequently travels to China and having seen the hard work patriotism and dedication of the Chinese people in building up their industrial and manufacturing capabilities I disagree with the point of view of the author of this article.
The Chinese have opened their markets and their economy to every thing. They are not afraid to compete, and not afraid of competition. In the words of their leader Mao Tse Tung
” Let a hundred flowers bloom and let a hundred schools of thought contend”. This principle is applied by China as much to their economic relations with other countries, as to their general lifestyle.
The Chinese have embraced free market competition and the results are spectacular. China is more than a country of peasants with a small keyboard punching convent educated English speaking clerical urban elite. The Chinese are primarily a working people, a nation of industries, a factory to the world and to themselves. China is also a free market of over a billion people with a rapidly improving quality of life and a purchasing power based on real cash (not credit cards). They have shed their former superstitious, religious, feudal outlook and moved on.
An appraisal of China would be fairer if we look at what China has achieved after what it went through. China achieved independence or rather liberation from foreign occupation and a feudal system in 1949, two years after India. Unlike India which was flushed with foreign aid and investment from the Commonwealth and the USA, post-independence China stood diplomatically, militarily, geographically, and economically isolated. China had completely lost its infrastructure through decades of civil war, and a savage foreign occupation by the Japanese which had claimed millions of lives and left 90% of its population in the grip of famine, poverty and illiteracy. It could not re-build because of a vicious foreign backed interference and military blockade by Taiwan. China faced threats from superpower backed wars on two of its sensitive frontiers ; in Korea, and Vietnam. China had no access to the outside world. On its Pacific coast two massive nuclear powered carrier based naval task forces kept its meager obsolete fleet of merchant vessels blockaded in bombed out and shattered harbors. Those vessels attempting to leave were promptly sunk by Taiwanese surface vessels, air strikes or submarines. Sabotage by Taiwanese amphibious commando strikes destroyed every power station and communications post on their eastern seaboard. China did not even control its own air-space. The then superior Taiwanese air force ravaged the coastal cities of China and penetrated as far as Beijing destroying civilian air-ports, aircraft on the ground, and shooting down the remaining obsolete air craft that did manage to make it into the air. An embargo of spares and equipment grounded most military and civilian aircraft in China. Until the late 60s China never had a national air line on account of the dangerous flying conditions in the country. On its western border China was blockaded by several armored divisions of the Soviet Union backed by hundreds of bombers and strike fighters. Every Chinese city was targeted by both Soviet and US intercontinental ballistic missiles. Chinese communications were pathetic relying on 30’s era telephone and telegraph lines. China had no road links to any of its neighboring countries. Worst of all a growing poverty stricken population and periodic famines resulted in massive starvation deaths.
China had lost all its technical and trained manpower through massive waves of emigration through Hong Kong and Taiwan. There was no international redress as China was not a member of the United Nations and it had no relations with any of the wealthy economic countries of Europe and North America. It was a bleak scenario very unlikely to attract any foreign investment.
Yet by sheer will power, dedication and patriotism the Chinese overcame their economic problems. By the early sixties the Chinese had more or less addressed their internal security problems, and felt more confident in dealing with the Taiwanese disruption.
By sheer hard work the Chinese built up its military capabilities sufficient to secure their coast line and their air space. Their power stations, and communication links could now function and their rail road networks could be restored. The superpower blockades remained but that would be dealt with later. The Chinese exploded their nuclear devices in the mid-sixties successfully demonstrating to the outside world their military prowess. Education, coupled with birth control, and complete equality of gender ensured a move to stabilizing the population. A secular government ensured that religion based conflicts which could be exploited by others compromising internal security was now history.
China broke its geographical isolation in late 1970 when portions of the Karakoram Highway were completed linking China with the Middle East through Pakistan. In 1971 the diplomatic blockade was finally broken when China was accepted as a permanent member of the UN Security Council displacing Taiwan. The emergence of a united independent Vietnam in 1975 (in which China played a major role) was turning point. The superpower naval presence on its eastern sea board was greatly reduced and Soviet Union eased the pressure on the western borders. Diplomatic relations with all nations followed. The collapse of the Soviet Union in 1990 and the depletion of the surviving Russian military capabilities has ensured China’s eminence in the region.
China has never looked back since:
Today China has the following:
- A massive advanced industrial infrastructure
- A skilled educated labor force, with no bars to race religion or gender
- No internal conflicts based on religion
- Advanced communications, road and rail links.
- A stable political system with a manageable amount of corruption
- Completely secure borders
- A military capability to defend its assets.
- Advanced R & D and massive investment in scientific development.
- Open markets and open competition.
This is why China succeeds. We need to learn from China and march in step with that nation has as great a destiny as its past history. - Reza Sami - Mar. 31, 2007
Posted by: Indra at April 1, 2007 @ 9:15 pm
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