Dragon Bite

Last fortnight,two Indian traders were forcibly held by Chinese businessmen in Yiwu,one of the worlds largest wholesale commodity markets,because they had allegedly defaulted on payments. An Indian diplomat who tried to intervene was roughed up,leading the Indian government to issue a stern advisory,dissuading Indians from trading in Yiwu.

Since the bottom line counts,its advice that is likely to go unheeded. Annual trade between India and China is worth over 60 billion. From soft toys to cellphone covers,cutesy plastic flowers bobbing on car dashboards to watches,Chinas might in manufacturing ensures that its goods swamp Indian markets. But small traders scouring Shenzhen or Zhejiang provinces for bargains profits range from 10 to 25 per cent face legal grey areas that big corporates do not.

Yiwu is a particularly notorious case. Here,most of the business is done without paperwork or cheques. Its a cash-and-carry market where cheap deals are up for grabsbut very little by way of security. In other markets,traders need to fill an invoice to buy products and pay 30 per cent upfront. As soon as the shipment is on its way,the rest of the payment has to be made. Since Indians do not understand the language,if the seller defaults,or passes off poor quality products,there is hardly any legal recourse. Vijay Gupta name changed on request,a Delhi-based trader who buys plastic wares and toys from China,says if the prices go up,the Chinese dont dispatch the goods and ask for more money.

Trade between India and China is thousands of years old,though the balance now tilts in favour of the latter. According to the government data,the total trade between the two nations stood at 63.09 billion in 2010-11. While India exported goods worth 19.61 billion to China,it imported 43.47 billion. In the Ease of Doing Business report of the World Bank,China fared much better than India. Though it slipped to 91st rank in 2012 from 87 in 2011,it was placed above Indias 132nd position out of 183 economies. India was ranked at 139 in 2011. However,under the key indicator of protecting investors,Chinas rank fell to 97 from 93 last year while Indias fell to 46 from 44.

The ranking reflects the level of safety provided to investors in the two countries. In business you require two things profit and comfort level. Profits are high but the comfort level is very low, Handa says.

Geeta Kochhar,assistant professor at the Centre for Chinese and South East Asian Studies ,JNU,says that most traders dealing with China are aware of the risks involved. Language hampers the Indian business the most as they do not understand the law. Translations leads to misinterpretation at times, she says,suggesting that the two sides need to put in place a mechanism,where both parties are aware of how to deal with disputes.

India has gates but China has walls. This is how government officials sum up the trade between India and China,obliquely hinting at the difficulties small Indian traders face when dealing with the neighbour. China has a well-developed non-tariff barrier regime,with high standards for imports. Their standards are brutally enforced. They are deliberately unfriendly to countries they import from, an official from the ministry of commerce and industry said.

Not every trader thinks that the Great Wall is insurmountable. OP Garg,a Delhi-based businessman who exports carpets,handicrafts,textiles and furniture to China,says he has never come across payment or shipment problems. They are better organised and the only issue I feel uncomfortable with is the high duty rates, Garg said.

Director-general and CEO of Federation of Indian Exporters Organisation,Ajay Sahai,insists that the Yiwu episode should be considered a one-off. He believes that China realises that it has to put its house in order so it has more cause to worry.

There are very few who advocate that governments should intervene. Will traders think twice before doing business in China? No,the profit margins are too high, says Gupta.