China Invades India’s Manufacturing Sectors

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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