Business Today

Friendly side of the dragon

There's growing evidence that imports from China may actually be helping the Indian industry-big and small-in manufacturing better quality products or products they earlier couldn't make.

Rishi Joshiand twitter-logoManu Kaushik | Print Edition: August 9, 2009

At first, they came as unbranded toys, stuff that is the dream of every child and the child in every man. Battery-powered racing cars, miniature trains that ran on tracks, bears that sang Macarena, telescopes-and all at throwaway prices that middle class Indians could afford, but had never even seen in their neighbourhood shop. Then they came as a tide of freebies like cameras that FMCG majors give away with their products, and even as Diwali lights and furniture.

Cheap. Capacities. Magnets that drew the Big Boys to the party. In the ensuing rush from Chandni Chowk to China, every business worth its margins headed north to build up sourcing lines for everything from motorcycle and shoe parts to giant boilers for power projects.

Where it hurts
Possible dumping by China - especially given the global economic meltdown
Trade deficit with China is widening as exports languish
Doubts over quality of products

China became the largest source of Indian imports, overtaking the US, and bilateral trade grew 33 per cent in 2008 over the previous year, to nearly $52 billion, despite the economic slowdown. Imports from China almost doubled to $24.16 billion in April-December 2008-09 over the comparable period of 2006-07, and now account for a little over 10 per cent of India's total.

So, will the Chinese deluge leave a trail of destruction in its path? Are the business linkages being created bad for India's strategic interests? Officially, the heads of India's trade lobbies fuelled the China bogey, even as many of them as entrepreneurs rushed off to find Chinese suppliers. And why not? The ground realities indicate that Indian industry is a big beneficiary.

Consider this: Almost half of India's imports from China consist of capital goods crucial for the manufacturing and infrastructure sectors. There is robust demand from user industries such as power, automobiles and electronics (which account for more than half of India's imports)-and cost is not the only consideration.

The Chinese are gaining a name in quality and sophistication. Says Haiyan Wang, Managing Partner, China India Institute: "If we look at China's own evolution-imported capital goods and intermediate goods from Japan, Germany, South Korea and Taiwan played an extremely important role in helping it become a manufacturing and export powerhouse. I believe the same logic is relevant for India."

Who's Buying from China
The power sector is a prime example. Over the last couple of years, Chinese suppliers have made deep inroads into the power plant equipment market in India, riding on the back of India's huge requirements for power generation and inability of local companies to meet the growing demand. In India, power generation companies face regulatory pressure to keep tariffs low. Most companies pursue a dual strategy to achieve this.

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