Storm in a Chinese tea cup

At Rs 2 a battery, for instance, or a third of what local Indian ones cost, most traders see a killing to be made, never mind if, as FICCI says, these batteries don’t last as long as the Indian ones. All over Indian markets, you can see the same orders of difference: Chinese cordless phones sell for Rs 1,200 while the nearest local ones hawk for double; at Rs 100 Chinese energy-saving bulbs cost a third Indian ones — in cases like the Chinese Konka TV which, at Rs 12,500 costs the same as a BPL one, it’s because companies like BPL have been forced to constantly lower prices.

The question, of course, is: Is the government justified in putting up all kinds of barriers to these imports? From a consumer’s point of view, the answer is an obvious, and emphatic, no. From the legal point of view, is it compatible with India’s trade obligations under the WTO, for instance? Right now, since China’s not a member of the WTO, it isn’t too important if India can’t prove the goods are being dumped — that is, you have to show they are priced lower than they are in China.

The issue, however, is a lot more serious, for it isn’t just Chinese goods that are flooding the Indian market. When’s the last time you bought reasonably decent glass bowls, that were Indian? Some of the most reasonably priced ones in the market today are from Indonesia. The issue here is that by next April when India has to free all imports, Indian industry will be hit by a deluge. And it’s woefully unprepared. To see just how much, let’s look at what the Chinese have done.

First, unlike India, China does not reserve items for manufacture by only small-scale units. According to T.K. Bhaumik at CII, an average Chinese unit produces 4 million cycles, while one Indian manufacturer (RMI) is still a small-scale unit. And, according to India Today magazine, Changhong has a capacity of 12 million TV sets, against India’s 7 million spread across various firms. (Scale, by the way, is what allowed Reliance to survive when most Indian polymer units closed down over the last decade).

There’s more. According to Nicholas Lardy of the Brookings Institution, China’s weighted import tariff today is a mere 4 per cent, down from above 16 in 1985 (India’s around 20 per cent now) — that means Chinese producers can import items at rates far cheaper than Indians can and that helps make them more competitive. By the way, a large part of India’s software success is due to the fact that computers/parts could be imported freely and at very low duties, so this lowered costs for software firms. This example apart, however, India is one of the world’s most protected countries.

Further, Lardy says, close to 95 per cent of retail goods in China are priced according to the market (this was zero in 1978). This figure is 83 per cent for agriculture, and 86 per cent for industrial goods — thus, the major part of the Chinese economy is responding to market forces, and has been forced to become very competitive.

Not surprisingly, after starting at near-same levels, China’s exports have shot through the roof. As a per cent of (their massive) GDP, China’s exports rose from 6.3 per cent in 1980 to 21 per cent in 1996, while India’s rose from 6.5 per cent to just 11.6. Naturally, China today controls over 60 per cent of the US toys imports market today, over a tenth of the electrical machinery, around 60 per cent of apparel and footwear, and so on.

None of this is to say the Chinese don’t play unfair. Economist SurjitBhalla, for instance, says a large part of Chinese success is due to theiraggressively undervaluing the yuan in the early ’90s. India, however, is not just uncompetitive vis-a-vis China, it’s with so many countries. Unless we begin fixing that (by lowering capital costs, having flexible labour policies, lowering import duties, lowering fiscal deficits, and so on), Indian industry and agriculture will always remain under siege. And it may not always be possible, or desirable, to raise anti-dumping walls to save them.