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S. Majumder

THE fear of cheap Chinese imports is looming not only over India; but also over other South-East Asian countries, particularly Asean. However, the strategy adopted by India to counter cheap Chinese imports is entirely different from the Asean's drive to protect its domestic industries.

Until three years ago, a leading Philippines readymade garment manufacturer, Leader Garment Corporation, was the biggest supplier of some items to Gap Inc, a major US clothing retailer. But Leader Corporation has since lost the Gap account, as well as business dealing with Wall Mart Stores Inc and Kmart Corp, to Chinese apparel-makers. Reason — from materials to labour, China has cost advantages, according to the general manager of the company. Hence, Gap Inc. is considering shift its production base to China or to Indonesia to cut cost.

In Thailand, Distar Electric Corp., a leading consumer electronic good manufacturer, has decided to lever up after-sales services to counter the competition from low-priced Chinese TV sets. According to the company executive, Chinese TVs are cheap, but are thrown out once they are damaged, or require repairing. Local makers are now striving to fight the Chinese invasion by upgrading quality and after-sales services.

Even in food products, the Chinese invasion has been rampant in the Asean market. PT Indofood Sukses Mukmur, the largest instant noodle maker in the world, is wary of the rising number of Chinese instant noodle-makers. The company is mulling over aggressive sales tactics to protect its domestic share. At the same time, it is considering a tie-up with Chinese companies in areas other than instant noodles.

The ASP Group, a Singapore-based IT-related company, plans to set up a Chinese subsidiary to offer courses comparable to those offered at vacation schools. The Chinese Government, in an official announcement in April 2002, decided that higher education was a priority area and the Chinese government would encourage foreign investment in this area. American and British educational institutions are gearing up their presence in China.

Asean firms are, thus, attempting to foil China's invasion by strengthening further the trade and investment relations with Chinese firms on bilateral basis.

The important lesson from the Asean instances is taking advantage of Chinese low-cost manufacturing facilities and cross-utilising them to neutralise the damage due to cheap China imports. Instead of realising this, Indian business groups are harping on expanding anti-dumping measures and government's protection measures, though some of them are not WTO-compatible. The largest number of anti-dumping cases initiated by India were against China.

In fact, Asean started to look seriously to China at the beginning of the 1990s, when many of the members started losing comparative advantages in several labour-intensive products in key markets of the US, the UK and Japan. The major factors pushing China's comparative advantages in exports were surge in foreign investment, coupled with low-cost materials and labour.

China's entry into the WTO can pose a bigger threat to Asean in terms of FDI diversion to China. To allay fears, one possible step is to increase inter-dependence between China and Asean. After attaining the world's largest platform for manufacturing facilities, China is now on the look out for stable and long-term sources of supply of natural resources and materials. This would help keep alive its manufacturing operations now in an over-drive. To meet its demand for natural resources, China has started increasing overseas investment in natural resource-rich nations (almost following the Japanese strategy to enrich its manufacturing capability).

Consequently, Chinese investment in Asean — endowed with natural resources — that remained modest till 1998, perked up in 1999 and 2000. In 1999, the Chinese government approved $72 million in Asean countries. In 2000, it jumped 50 per cent to $108 million.

Indonesia emerged the major source of oil, gas and timber. Introducing non-stop flights between Jakarta and Guangzhon and the buying of the stake of Spanish oil company, Repsol YPF, in the Indonesian oil and gas assets by the state-owned Chinese company, CNOOC, are instances of China's foray into Indonesia. Like other South-East Asian countries, Indonesia too has come to realise that China is simply too big to ignore. This was abundantly evident when the Indonesian Minister of Trade and Industry acknowledged that Indonesia has strength in natural resources and China was making products that were relatively affordable for Indonesians.

In Vietnam, motorcycles made from Chinese parts hold over 70 per cent market share. Strengthening inter-dependence between China and Indonesia, as an important tool to shield against China, can be gauged a corroborative example for India to hedge competition from China. India can now look for more East-oriented foreign investment from China.

India can woo Chinese investment in oil, gas and mineral resources, such as iron ore, coal, bauxite and copper. In 2001, China's investment in Australia stood at $1.2 billion which included sizeable investment in iron ore and aluminium concerns. China is already importing huge quantity of iron ore from India and has surpassed Japan in 2000-01 by paying more, though quantity-wise it imported less than Japan. India is the fourth largest reservoir of bauxite and China is the largest importer of Indian bauxite to meet the needs of alumina.

Thus, there is much scope to attract Chinese investment in these areas and increase inter-dependence between India and China.

Another option is to shift plants for components and autoparts to China, manufacture them there and import back into India for assembling and selling at competitive prices.

Japan's Toshiba Corporation, a leading manufacture of televisions, has shifted its production facility from Japan to Dalian in China. Hitachi Ltd. is setting up a huge facility for manufacturing air conditioners in the Anhul Province.

Therefore, while China is eager to strengthen economic relations with India, which has already been manifested by the visit of the Chinese Premier, Mr Zhu Rongji, India should use the opportunity. It will not only help to cross-utilise China's price competitiveness as a global business partner for domestic sale, but also increase exports in those areas.

(The author is a Senior Researcher with a New Delhi-based Japanese multinational.)

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