The onslaught of Chinese companies has caused untold disruption across the globe and India is no exception. How should we tackle this growing threat?
- Siemens and Alstom made an unsuccessful attempt to merge their transport businesses recently to counter the rise of Chinese companies, especially CRRC.
- The threat of Chinese competition is raising the alarm across industries and markets.
- A parliamentary committee panel report last year highlighted how Chinese competition was causing immense harm to Indian companies.
- Measures like import duties are essentially short term with limited impact – India needs to look for ways to make its industry globally competitive.
Siemens and Alstom recently attempted to merge their transport services to create a rail behemoth with revenues of around € 15 billion. However, it was refused by the European Commission.
The interesting bit here is the rationale for which the two companies had decided to come together – the rise of Chinese competition. State-backed China Railway Construction Corporation is the world’s largest train manufacturer with a revenue of € 26 billion, larger than Bombardier, Siemens and Alstom combined.
Not just rail, the trend of Chinese dominance transcends industries. ChemChina is directly competing with Monsanto and DuPont after its acquisition of Swiss pesticide giant Syngenta for US$ 43 billion. The state-owned ChemChina became one of the world’s seeds and pesticide producers when it acquired Swiss pesticide giant Syngenta for US$ 43 billion in 2017, putting it in competition with Monsanto and Dupont.
China has produced solar panel manufacturers like Jinko, Trina and Solar that dominate the global market. WH Group is the world’s largest producer of pork. DJI is the world’s largest civilian drone maker with a 70% share of the global market.
Chinese smartphone companies are increasing their global presence led by Huawei (15%) and followed by Xiaomi (8.7%) and Oppo (8.1%). Similarly. Haier leads the home appliances industry and Chinese battery firm CATL is fighting Panasonic for market leadership.
INDIA’S NOT-SO-FRIENDLY NEIGHBOUR
India faces a similar onslaught of Chinese businesses in different sectors. A case in point is the smartphone segment. Around four years ago, Indian smartphone players Micromax, Karbonn, Lava and Intex accounted for 43% market share. But now their market share is down to single digits.
The Chinese players blazed into the 4G market while Indian players were still clearing their 3G inventory. Aggressive marketing, introduction of products across price points and smart leveraging of e-commerce were key to the success of the Chinese, who have even unseated South Korean consumer electronics giant Samsung. They now account for 6 out of every 10 phones sold in India.
In the solar panels sector, the onslaught of Chinese companies is far greater. India’s aim to generate 100 GW of solar capacity by 2022 was going well till 2017 with solar power bids beating coal at Rs 2.44 per unit. But there was a catch. The boom was reliant on solar panel imports from China, which account for 85% of the market in India.
Last year, a Parliamentary Committee had highlighted the manner in which Chinese goods were damaging Indian industry in its 55th report on ‘Impact of Chinese goods on Indian Industry’. It cited the fact that China was facing the bulk of anti-dumping investigations in India, so it was evident that products from China were causing unfair disruption in trade.
The report further added that investigations by Directorate General of Anti-Dumping and Allied Products (DGAD) took too long, and by the time they got completed, the domestic industry would be left ‘weak and bleeding forever’. Moreover, players were able to circumvent the anti-dumping framework by giving wrong classification of products.
Chinese companies are also re-routing their products from regions with which India has free trade agreements (FTAs), like the underdeveloped markets of South East Asia. It emphasised the need to protect Indian industry from cheap and poor-quality products from China.
The scale of the challenge is evident from the fact that India’s exports to China grew by US$ 2.5 billion over the last decade. But Chinese exports to India have grown to US$ 50 billion during the period.
COMPETE, CONTAIN & COLLABORATE AS APPLICABLE
The Parliamentary Panel has expressed the view that in the name of ‘Ease of Doing Business’, India was greatly facilitating market access to Chinese products, while the latter continued to adopt protectionist policies against Indian goods.
Its recommendations included increasing the duty to bound rates that suffered from Chinese dumping. The limitations of duties have been evident in the solar sector. In July 2018, the government imposed a 25% import duty on imported solar cells and panels.
However, this has impacted the auction prices for solar projects on the upside, and slowed down capacity addition in the sector last year. Moreover, it has still not made Indian products competitive vis-à-vis China. The government also tried manufacturing-linked tenders, but the interest from developers has been poor.
The committee also proposes encouraging Indians to buy Swadeshi goods, but that kind of an approach is not considered to be too successful either.
In the short term, measures like duties become necessary, but India has to develop and implement a firm roadmap for boosting its local industry in the long run in focus sectors. While unfair trade practices by Chinese firms need to be tackled, India also needs to realise that the rise of China is not necessarily a negative development.
The size and potential of the Indian market and the presence of a huge and cheap labour force are critical for growth-hungry Chinese companies. This fact can be leveraged to our advantage. India needs to continue its relentless push for Chinese companies to invest in boosting manufacturing in India in lieu of market access, as the trade deficit between the two neighbours is clearly unsustainable in the long run.