The Good China

In India, on the other hand, the bulk of domestic manufacturers are small enterprises that have never been forced to upgrade their equipment or their practices. (The World Economic Forum ranks India 53d out of 59 countries analyzed for their competitiveness.) Indian companies are handicapped by onerous costs and excessive regulations. Manu-facturing workers typically are unionized, which means higher wages. Frequent power outages disrupt the manufacturing process. And taxes are high. All ultimately add to the cost--and retail price--of products.

The head-to-head competition with China has already begun to claim victims. Several Indian padlock makers have gone out of business in the last three months. Fan manufacturers are scrambling to survive; one of the largest, T-Series, has stopped making fans altogether, while others now buy them from China and resell them. "If foreign goods continue to flood Indian markets, many Indian factories will close down," warns A. K. Singh, a member of the left-leaning All Indian Trade Union Congress. "Hundreds of thousands of workers will lose their jobs, adding to social tensions."

Some Indian manufacturers are crying foul. Amit Mitra, secretary-general of the Federation of Indian Chambers of Commerce and Industry, claims that some Chinese companies are shipping their products first to Nepal, where they are stamped made in Nepal, then bringing them into India to take advantage of the kingdom's no-duty treaty with India. Indian companies have also asked Delhi to levy anti-dumping duties on certain Chinese goods. But dumping is difficult to prove, and the industry lobby has thus far succeeded in getting tariffs placed on only a few items, like sports shoes and batteries.

On the other hand, a growing number of executives think a shakeout would be healthy for the Indian economy. "All this talk about the Chinese threat is just a ruse by Indian companies to hide their own weakness," says Bibek Debroy, director of the Rajiv Gandhi Foundation, a New Delhi think tank. "Indian companies should shape up and become competitive, or close down." Some firms are getting the message. Ajanta Quartz, the world's largest clockmaker, has decided to shift its manufacturing from the western Indian state of Gujarat to a factory in the Special Economic Zone of Shenzhen. "We're setting up in China mainly because of lower taxes, power and labor costs," says Sanjay Das, a senior executive at Ajanta. "There is also much less interference from the bureaucracy." Bajaj Electricals has formed a joint venture with a Chinese firm in Guangdong to make table and pedestal fans. M. K. Jain, a small-scale toy manufacturer in the state of Uttar Pradesh, is getting out of the toy business and has already fired 90 percent of his workers. He now wants to trade in crockery and home appliances imported from China.

An Indian government official in Beijing says that many more joint ventures between the two countries will be coming. "Competition from China can be a welcome development," says T. K. Bhaumik, a senior adviser to the Confederation of Indian Industry, but only if Indian companies learn to make better products at lower prices. If not, Indians will keep scooping up goods marked made in china.

© 2001