In a surprise revelation, a Chinese daily rang alarm for China’s manufacturing powerhouse to rally behind India. It warned of China losing its competitive edge in manufacturing and and which could dent job opportunities in China. Foreign investors were already on the spree to dislocate their manufacturing activities to low cost countries.
The target countries are India and Vietnam. In addition, US President-elect Donald Trump’s pledge to bring back jobs in USA will be double whammy for Chinese manufacturing activities, the Chinese daily warned.
The recent decision of Apple for considering to set up manufacturing facilities in India after failing to retail due to tough domestic procurement rules and the exodus of Apple production chain, Foxconn, perked up concerns for loss of ten of thousand jobs in China. Foxconn is the contract manufacturer for Apple and is the world’s largest contract manufacturing company in electronic industry. Foxcon has decided to invest US $ 5 billion in India.
If Apple expands in India, it may lure other tech giants in India and China is likely to face more transfer of supply chains in India, the Chinese daily apprehended.
At a time when China’s manufacturing sectors are battling for overcapacity, concerns are rising for further loss of job, with the Chinese outbound investment on the rise.
The recent decision of Chinese largest telecom company Huawei Technologies Co Ltd to set up smart phone manufacturing plant in India perturbed the Chinese daily. It beaconed China’s loss of competitive edge and forecast India to be on the way to become the world’s new hub for manufacturing.
Besides Huawei, a number of Chinese vendors are in the rally to set up their smart phones manufacturing plants in India. Vivo China has already set up a smart phone manufacturing unit in Greater Noida. Xiaomi , ZTE, One Plus, Gionee are in the queue to open their manufacturing shops in India.
Chinese renewable energy firm Chint Group, chemical firm Sopo Group , Shanghai Electric Company and Ding Sen are among the firms looking for substantial investment in India. Chinese biggest industrial park developer CFLD looks to set up 10 industrial parks in India.
Even the Indian electronic manufacturers and assemblers, who were solely dependent on import from China, are shifting their strategies of procurement due to high costs. Instead of importing from China , Indian firms forayed in establishing their own manufacturing operations in India. Havells , Godrej, Micromax (a handset manufacture), Bosch ( auto part maker ) have all started exploring manufacturing operations in India.
The competition between India and China is centered on low labor cost and labour skill. India’s labour cost is one-third of China after the yuan appreciation. According to Boston survey, in 2014 average manufacturing labour cost in India was US $0.92 per hour, compared to US $ 3.5 per hour in China. China has an edge in skill over India. Even then, yawning difference in wage has a significant role in luring foreign investment, when the world is bogged down by frequent currency fluctuations.
The global slump in export led China shifting the growth model from export to domestic demand base. This wobbled manufacturing activities in China. Growth of manufacturing production plunged to 6.8 percent in August 2016 from 11.3 percent in October 2013, according to Chinese National Bureau of Statistics. Number of private enterprises were reduced to 214 thousand in 2014 from 274 thousand in 2010. These sent China into the red zone for job opportunities. China is going to lay off 5-6 million workers in the next two to three years in the wake of overcapacity in the country. According to Chinese Minister for human resources and social security, China would lay off 1.8 million workers in coal and steel sectors.
Further, unlike China, India’s high economic growth is sustainable because of its strong domestic demand. Nearly 65 percent of the GDP is engineered by domestic demand.
The downturn in Chinese manufacturing provides opportunities to India. It revved up India’s manufacturing strength. Even though share of manufacture in India’s GDP is low – 15 percent against 30 percent in China, it has become the engine for the surge in GDP growth. India sustained the world highest GDP growth of 7 percent during the past two years. In 2015-16, manufacturing witnessed the highest growth of 9.3 percent in GDP , making a big leap from 5.5 percent in 2014-15. Even though misgivings shrouded over the statistical fudging, when it is compared with index of industrial production, which crawled to 2.4 percent growth, the Chinese and foreign investors brushed aside the fuss
The undeterred foreign investors continued to flow their investment in India. Foreign investment spurred by 67 percent over the two years period of Modi government. Of these, investment in manufacturing was highest with 65 percent share.
Chinese nervousness of losing its manufacturing edge was unveiled when China introduced Made in China campaign , immediately after Made in India. “Make in India” and “Made in China” evoked similar sound. But, conceptually they are different. While “Make in India” was a call to establish world’s biggest manufacturing hub and increase share of manufacturing in GDP from 15 percent to 25 percent, “Made in China” was to re- built China’s manufacturing sector into a qualitative workshop with production of more Hi-tech products. So far China’s manufacturing sector served as turf for volume production.
Make in India steered a fierce competition between India and China. Growth of mobile telephone industry is a case in point. India’s mobile telephone industry made a landmark shift from import to domestic base production industry. Until two years ago, a few were manufacturing mobile phones in India, after Nokia closed down its factory in Sriperumbudur in Tamilnadu. Today, there is a spurt in domestic production. It meets 45 percent of the mobile demand in the country. India produced 100 million mobile phones in 2015, against 64 million mobile phones in 2014- triggering a growth by eighty percent within a year. Import from China plunged by over 25 percent during the past two years.
*S. Majumder, Adviser, Japan External Trade Organization (JETRO), New Delhi. Views are personal.