Perceived threat from Chinese imports: A futuristic scenario

Bhanoji Rao

Some might consider that China’s entry into the World Trade Organisation (WTO) will help modify the way it conducts its trade relations. WTO accession could increase access to China’s markets for exporters. There is, however, no point in that access if a country is not well prepared to entice the Chinese consumer in an environment where the state sponsors a very high level of patriotism (read it as a faithful use of ‘Made in China’ goods and a subtle refusal to buy goods from abroad unless prompted to buy from persuasion from the party and the state). As far as India is concerned, the WTO regime may favour even more imports from China and may not automatically confer any benefit on India unless the country is prepared to take advantage.

One could make up the following futuristic scenario on the potential impact of what now constitutes a relatively small fraction of our total import from China. Suppose our government, industry and people are complacent enough to just enjoy the short-run cost advantage on products from the neighbour. Slowly, say, in five-to-10 years time, we all get used to the products from China, with Korean, Japanese, European and American imports declining in share. Once markets are firmly established for Chinese products in our country, there will be much justification for Chinese producers to open production facilities here and then slowly dictate prices and quality standards for us—especially if a few politicians and civil servants can be bought over by China, the country that often has top ranks in terms of bribe payers index.

One need not adhere to such stock pessimism. Let us try the other brush. Let us, like many other nations, import cheap goods from China and pay for them by exports of services—software, music, dance, spirituality (great indeed that the Kanchi seer is going to China) and more. What are the chances? There is the oft-repeated Nasscom target of $80 billion software exports by 2008. A fair share of it could go to China. There could well be export opportunities in education and health too. There is no room for complacency, however. Even in respect of the software sector, it was widely reported that a study by McKinsey found that India could be left behind China within a few years.

To realise sizeable exports of services, thus, one must make some bold assumptions on many strategic moves by India including a massive expansion of study of and research on China, language mastery by our traders and businessmen (Chinese language compulsory in B-schools?) and “cultivating” the key actors in China in business and policy circles. There could well be an Assocham-CII-Ficci institute for strategic research on China, funded by corporate members’ contributions. The institute is to bring out only classified papers for the benefit of members, and full stop.

In addition to the specific strategic initiative noted above and despite the likely boredom, it is worth listing the following “second generation reforms” that are needed to give a boost to the country’s overall export efforts.

First, the central and state governments have to demonstrate cost consciousness and cut costs of providing direct government services and goods and services from government linked establishments. Second, managers in charge of export marketing (of not only exporting companies per se, but also companies which may have even the slightest interest in exporting) should develop market penetration strategies.

Third, R&D (research and development) officials of both private industry and public research establishments, in collaboration with marketing managers, must work out time-bound strategies for product improvement to assist market penetration. Fourth, intra-firm inequality in contractual wage/salary must be reduced and comprehensive profit-sharing systems should be in place to promote teamwork and cooperation to achieve significant increases in export market shares.

Fifth, the country’s trade union leaders should come up with a new framework for union-management relations to handle the penetration into global markets, based on a full understanding of industrial relations practices in major exporters like China.

Finally, foreign investment policy of India has to be fine-tuned not only to increase investment inflows but also to augment exports. I was once speaking to a group of officials on East Asia and reminded them of the great challenge India has to face in terms of competition from China. A senior looking official, with the familiar “I know all” confidence, tried to educate me thus: “We have no threat from China since it will disintegrate soon and will be submerged in its internal problems.” Sad, some have such a perception and eschew the need to take action from our side. Hope and pray such an official will not be the one presiding over the destiny of my nation.

(The writer can be reached at bhanoji@vsnl.com)