About us Disclaimer	notjustinfo.com	Home Feedback
	Knowledge centre for MBA students.

The second Chinese invasion

Nisha Jose

Enter the Dragon - this time Indian markets have been targeted. An unprecedented dumping of Chinese consumer products prompted alarmed industry associations to make representations to the Government of India. The complaints have been specifically about cheaper Chinese imports that are coming in the form of tyres, bicycles, dry cell batteries, fibres, ferro alloys, edible oils, chemicals, toys and consumer electronics and components. It is not surprising that China chose the Indian markets due to the size and proximity. And their USP is dear to the Indian consumer - good quality products at lower prices.

One of the major victims has been a leading manufacturer of dry cells in the country, which had to close down its subsidiary unit. This alarming trend continues to gain momentum, as there are more reports of closure or slashing of production volumes. Some others suspended production after realising that their products could not match Chinese goods on the pricing front. When Chinese goods are legally imported, they are reportedly under-invoiced. For instance, Chinese bicycles after paying import duty sell at Rs. 800 as against Rs. 1200 for a comparable Indian brand. The small-scale manufacturers have also been affected.

The government has initiated certain measures to tackle the problem. First, the government has increased the basic duty on imports of edible oils. This is likely to put a stop to the unbridled import of cheaper edible oil into the country and regulate the imports to the gap between the demand and supply. Second, the government has ordered anti-dumping investigation into select Chinese imports and is laying down the standards for imported goods. Third, compulsory licensing for imports has been introduced. This mandatory licensing would help in collection of detailed data on all imports and would allow easier interpretation of import trends. Finally, the government has also imposed BIS (Bureau of Indian Standards) norms on the import of 131 goods. This would ensure the same quality levels as compared to the Indian counterparts. In addition all imported goods should carry the name and address of the importer, thus, bringing in greater transparency to the overall process. The mentioning of MRP on the products would help check evasion of duties and under invoicing.

Amidst this din certain views that are not in tandem with the above can also be heard. There is the opinion that Indian industry may be looking for protection in the guise of anti-dumping measures. Official statistics reveal that China does not even figure in the list of India's top ten trading partners. There are two dangers in an overreaction in case the Chinese threat is not as large as it appears and is merely being used as an excuse by an industry suffering from demand recession in the domestic market. Firstly, India has always complained that other countries unfairly impose non-tariff barriers on Indian exports. The use of arbitrary quality standards is often cited in this respect. India cannot use the same stick on imports into the country and yet effectively argue against other countries using such non-tariff barriers. Second, the imposition of anti-dumping can in some situations badly affect domestic industry as well, which may have to rely upon Indian substitutes that may be either sub-standard or expensive.

There are those who do not see reason behind the argument that Chinese imports are harmful for the consumer. Apparently, Chinese cycles are made of alloys instead of steel that is banned by the European Union. But we all are aware that Indian products do not conform to EU standards. Similarly, the argument about inferior quality Chinese batteries can also be challenged. Apparently Chinese cells last only 23 minutes instead of 50 minutes like Indian batteries. Chinese cells cost Rs. 2 while an Indian battery costs Rs. 7. Surely the customer must have done some prudent calculations. He may have opted to buy 3 Chinese cells for Rs 6 and bought 69 minutes of time instead of buying one Indian cell. BIS constitutes non-tariff barriers and their imposition will be in contravention of WTO norms.

Statistics do not support the argument that Chinese imports are also being routed through Nepal and Bangladesh. The total imports from Nepal and Bangladesh constitute a mere 3.15 per cent of total imports in 2000, so is the panic justified? If Chinese goods are being under-invoiced then there should have been a rise in Chinese imports. However, statistics reveal that the relative share of China in India's imports has increased only from 2.6 to 2.7 per cent from 1998-1999 to 1999-2000. The removal of quantitative restrictions cannot be blamed for the increase in smuggling. Smuggling is an illegal activity and smuggled goods are not routed through customs.

This is a double-edged sword, which will affect both sides. The government is adopting a two-pronged approach. Even as there is talk of liberalisation, steps are to be taken to arrest this surreptitious and swift onslaught of foreign goods. While the government is giving audience to many interests, the consumer and his interests have been left out. A cheaper price is a major alluring factor and this is where the Chinese goods are scoring over Indian goods. Indian goods must not only be competitively priced but must compare on quality too. Restricting imports would protect domestic industry, most of them multinationals.

Indian industry must ideally find out how the Chinese are able to produce and sell at such low costs. This is imperative because this phenomenon is a harbinger of more to come. The preference for Chinese imports stems from its price competitiveness and innovation. China's price competitiveness has many reasons. Economies of scale are one. While a Chinese company can produce 12 million television sets annually, the combined capacities of all such Indian companies is 7 million sets per annum. Such disparities exist across all sectors, largely due to the policy of reservation for the small-scale sector. Over the past three decades heavy investments have been made to make its infrastructure efficient and adequate.

Dumping is difficult to prove and anti-dumping duties even more difficult to implement. For the government to actually impose anti-dumping duties against imports, three conditions have to be met: that dumping is actually taking place, that the dumping is hurting a particular company, and that dumping is causing the harm and nothing else. Once the evidence against genuine cases of dumping is gathered, the anti-dumping cell of the commerce ministry can review them and deal with them using agreed procedures within the framework of the WTO.

Indian industry must recognise that the only way to fight competition is by cutting costs and improving quality. This needs to be done at the company level by focusing on productivity and the factors of production. At the same time industry associations must draw the governments attention to the obstacles that stand in the way of industrial reengineering. They must certainly press the government for more and better quality infrastructure. The archaic system of reservation for the small-scale sector must be reformed. This influx must be regarded as a loud wake up call for Indian industry and Government. Protectionism is not the potion for this problem.

However, China's appearance on the radar screen of Indian industry should not be fully ignored as a passing phenomenon. This is evident in the fact that increasing numbers of Indian businessmen are toying with the idea of setting up operations in China. Some have already done it as in the case of a clock manufacturing major in India because in the present scenario it makes more sense to operate out of China.