From the Chinese ‘Bow’ to the Indian ‘Namaste’

by Admin | Jun 1, 2020 | IITBOMBAY-WU

The British Industrial Revolution was one of the most important socioeconomic events in human history. Before this revolution, humanity had lived essentially at a sustenance level. In around 1760, the United Kingdom entered into an era that witnessed an increasingly higher standard of living and a permanent growth in per capita income. Because of the remarkable increases in living standards and national income, almost every nation in the world tried to emulate the British Industrial Revolution.

What China underwent in the last 4 decades is also an offshoot of Britain’s maiden step towards manufacturing and modernization. But this was not China’s first attempt at industrialization, but it’s fourth over the past 120 years. This attempt began in 1978 under leader Deng Xiaoping. But this time the country instead of taking advice from Western economists, took a very grounded, modest and experimental approach with its reform policies.

At a national level: China maintained political stability at every cost and provided enormous aid for infrastructure build-up.

At the business level: the country focussed on its strengths – agriculture instead of the financial sector and promoting rural industries came first.

And finally at an evolutionary level: China started the use of manufactured goods and followed a dual-track system of government + private owned enterprises rather than completely private. They finally moved up the industrial ladder, from light to heavy industries, labour- to capital-intensive production, manufacturing to financial capitalism, and a high-saving state to a consumeristic welfare state.

China’s fourth attempt imitated the proven steps of the British Industrial Revolution, despite dramatic differences in the ways the 2 two countries were and are run politically.

Today, China is seen as the next candidate for superpower status, with some actually asserting that China wants to take over the world. These interests serve a national purpose, but what they all add up to is a compulsive need to control foreign resources and commodities, including in a militaristic sense.

One of the most recent examples of China’s aggressive economic growth is that as of October 2019, when China had more privately-held start-ups valued by investors at over $1 billion than the US. There were 206 Chinese firms out of a global total of 494 ultra-valuable start-ups, known as “unicorns”, in June 2019, according to the research firm Hurun Report. This made China the country with the largest number of unicorns in the world, with the US coming in second with 203 such companies. China and the USA dominate with over 80 per cent of the world’s known unicorns, despite representing only half of the world’s GDP and a quarter of the world’s population – a classic economic ‘Pareto’.

Another example of China’s high focus on dominance is proven by its strategy in Africa and Latin America. Air and sea routes are increasing between China and African nations as massive deals are made for commodities, trade, labour and military cooperation. Chinese private schools, embassies and cultural centres are popping up in places like Rwanda, Nairobi and Angola. Angola even has its own “Chinatown” district. Similarly, China has reached out to Latin America as well, bypassing the United States as Brazil’s No. 1 trading partner, and coming in second to the United States in Argentina, Costa Rica, Chile, Peru and Venezuela. With this kind of reach, and a population at well over a billion people, it’s no wonder that a large percentage of the global financial news focuses on China.

Enter covid19…

China was the first country to enter the post covid-19 era. But the world did not see China lead the way for the world in the fight against corona. In fact China’s overseas investment policies that have traditionally been politically driven; with nationalistic objectives have been accentuated during this crisis.

There is growing unease about predatory investments and hostile takeovers of domestic companies at a vulnerable time like this. Governments are clamping down – Australia, Germany, Spain, America, Italy and now India, are all introducing stricter rules to defend their domestic industry. There are lessons from the past as well. Policymakers across continents are conscious of Chinese state-owned companies buying dozens of assets after the 2008 financial crisis, and also in Europe (Greece and Portugal) when their economies were hit by the European debt crisis. Most are afraid of their local economies being exploited again at an unprecedented time like this.

The Chinese origins of the pandemic make things even more difficult. It has led to a rise in anti-China sentiment, making a compelling narrative against the Asian superpower. It is fuelling public outrage and therefore also inviting political intervention.

The coronavirus outbreak has exposed how lopsided the global supply chains really are. Companies want to reduce their dependence on China now and India is emerging as one of their most viable options.

Can China’s loss be India’s gain?

Foreign businesses based in China want to move out. They are looking at India as their new home. 1000 odd companies have reached out to India and are engaged in discussions with Indian officials at various levels of progress. At least 300 companies are already actively pursuing production plans. They belong to industries like mobiles, electronics, medical devices, textiles and synthetic fabric.

There are reports that South Korean companies like Posco and Hyundai, Apple’s manufacturing partner Wistron Corporation, the company that assembles the iPhone and some start-ups are all considering India. India is being seen as a dependable alternative and as a global manufacturing hub. The Indian government has also urged industry bodies to attract top companies from the US and the UK backing the idea of more joint ventures and assuring the government’s complete support.

The Indian government is keen on capitalising on the shift. There are reports that claim that the government is planning an aggressive “Make in India” push after the lockdown. Most importantly, India is developing a land pool that is almost double the size of Luxembourg (5000 plus square kms), promising easy access to land for companies leaving China. India was already an attractive option after the cut in corporate taxes last year. The corporate tax was reduced to 25 per cent for new manufacturing firms and is as low as 15 percent. This is an attractive proposition.

While doing this India has to also overcome its challenges of red tape if it wants to lure business away from China. And there is competition too. Vietnam, Malaysia, the Philippines and Indonesia are some of the other alternatives that companies are considering. India may need to do more to attract big investment and the country is reportedly willing to offer incentives to foreign businesses.

The Prime Minister’s office, Niti Aayog and other government agencies are working on a plan. The government plans to set up dedicated groups that will directly engage with the firms that wish to diversify out of China. 100 odd companies have already been approached.

The coronavirus outbreak and the lockdowns have killed demand like never before. Major businesses especially in the B-to-C space are practically shutting shop. At the moment, India’s fortunes are tied with the global economic revival. If India makes the right moves, it could have the early mover’s advantage in this ‘exodus’ opportunity coming from China. It has the opportunity to not just compensate but in fact surge ahead and become the critical point in strong supply chains across the world, further leading to a positive cycle of employment, demand and renewed supply in India.

Source: Yi Wen (Economist), wionnews.com

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