No More Ore For China Please

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What the dragon now needs from the Asian tiger are finished products — not raw materials, Shantanu Guha Ray found in Beijing’s boardrooms

Inside China A pork market in Nanjing town of Jiangsu province
Photos: Reuters

IN AN impassioned address to Indian and Chinese businessmen in Chengdu, Indian Ambassador to China, S Jaishankar repeatedly returned to a single point: India must give iron ore exports a break and quickly focus on selling finished goods. As expected his remarks drew applause from both the Indian and Chinese businessmen gathered at the most exciting Chinese investment hub after crowded Shanghai – home to hundreds of blue chip companies.

But back home few in the government were clapping. Indian policymakers continue to obsess over with the never-ending border dispute and with issuing ritual statements while the market space still available is captured by smarter investors from other parts of the world. Not that Jaishankar was saying anything new, of course. “All you need to do is look at the stats,” commented Dinesh Sharma, joint secretary, Ministry of Commerce. “Iron ore constitutes nearly 53 percent of India’s total exports to China. We have completely failed to tap the $615 billion Chinese domestic market, which is only possible if we use it as a production base. As our ambassador said, we must localise, localise, localise. That must be the bottom line if we are to get anywhere.”

Speed track The Wuhan-Guangzhou high-speed train is the world's fastest
Speed track The Wuhan-Guangzhou high-speed train is the world’s fastest

He should know. The first India-China trade talks in four years are scheduled for January 17 this year in Beijing — amidst a growing confidence from both sides that the new decade will evenly balance the current trade gap between the world’s two most potent economies. And this needs to happen fast. Consider the China story as compared to India. Valueadded items – led by machinery – make up 36 percent of Chinese exports to India. According to industry sources, in the first half of this year alone Chinese engineering companies secured $4 billion worth of contracts. Though bilateral trade for 2008-09 was $41.60 billion, Chinese exports stood at $31.33 billion against India’s $9.27 billion.

Some progress has been made, but the pace has been shamefully slow. Indian exports of ore, slag and ash dipped by nearly $3 million during the first three quarters of FY 2008-2009 compared to the previous fiscal. In the same period, exports of iron and steel exports declined from $233.58 million in 2007-2008 to $160.55 million. But exports of non-railway related automotive equipment to China stood at $21.5 million, an increase of almost $4 million from the previous fiscal. While this is good news, it is also an indication of China’s import preferences and India’s inability to recognise it.

As Jaishankar argued, China has repeatedly said that what it needs are not more commodities and raw materials, which constituted nearly three-fourths of Indian exports to that country. It is only if this unfortunate trend is reversed that the two Asian giants can hope to surpass the bilateral trade target of $60 billion this fiscal. Indeed, even the technology and services sectors – our only strong points – are not doing as well as they would have if the Indians had involved the Chinese in crucial management roles.

“Only if we localise will it be possible for Indian companies to overcome preestablished vendor loyalties. Thermax, L&T and Videocon have already taken this route,” Jaishankar told the India-China Business Seminar. Chengdu, in China’s western province of Sichuan, is seen as one of the world’s prime investor-hungry markets. Considering that India and China have led Asia’s recovery from the 2009 slowdown, it stands to reason that the tiger and the dragon must bond – not only for their own good but the entire region’s. Even a worse-than-expected fourth-quarter contraction in Singapore’s gross domestic product failed to dampen this upbeat mood.

Big market Shops in Beijing are now seeking finished goods from India instead of raw materials
Big market Shops in Beijing are now seeking finished goods from India instead of raw materials

Sentiments similar to Jaishankar’s were being voiced in the imposing precincts of Xinhua, China’s state-owned news agency, in Beijing. There, local speakers – including academics – wanted to know why products from India were not adequately competitive in China or why Indian companies didn’t seem to devote sufficient energies to impact on the market. “In modern-day Beijing, the automobile has long displaced the bicycle,” said Hu Junkai, executive editor-in-chief of Xinhua.

It was a typical Chinese, a subtle indication of the huge impact of reforms in transforming China – and that it was time that India became a part of the economic game plan. Junkai, speaking at the conference, aptly titled International Politico-Economic Trends, said that with state-owned enterprises in China moving away from building infotech structure to buying it, Indian companies should offer the best deals.

And why just IT? India’s biotech sector could exploit a tactic that the Chinese has so often used in tackling unusual challenges – mass manpower. Officials at the China Council for Promotion of International Trade, who routinely deal with Indian corporations, point out that even localising will require far deeper understanding of the ground situation in China. “Only some Indian steel companies have so far shown interest in being part of the Chinese tendering processes,” says one official. “Indian businesses can increase five-fold over the next two years in China if some teething issues are resolved. China is a great market,” says Sajjan Jindal of the JSW group that has a major presence in the mainland.

Telecom boom Tata Communications and Reliance Telecom have ties with China Telecom

THE INDIAN Commerce Ministry believes that the 3:1 import-overexport deficit will evolve into a surplus by 2020. This can happen, considering China is already working on diversifying its import portfolio. But then India must know what it needs. As Sharma told TEHELKA, what is badly needed is that we change our laidback mindset: “New Delhi, despite being one of the world’s largest car exporters, has so far failed to roll on the streets of Beijing. We must change.”

Like Jaishankar, Sharma also includes hardcore exports in his reform agenda. Says Ma Jiali, research professor at Beijing’s China Institute of Contemporary International Relations: “India must study our changing strategies more closely. The need everywhere in our globalised environment is to be eclectic.”

Experts in Beijing say that some Indian companies are finally getting into the act. “The recent fibre optic project between China Telecom and Tata Communications will push bilateral growth because both understand each other’s needs,” says Professor Liu Jianfei of Beijing’s Institute for International Strategic Studies. The new 500-km long terrestrial will skirt around the vulnerable straits of Malacca and the earthquake- prone zones around Taiwan.

Many want to know why Indian products are not adequately competitive in China

“Along with Tata Communications’ other sub-sea cable investments, it will also provide a new high-speed connectivity path between Europe and Asia by transiting India and China,” says Tata Communications Senior VP Byron J Clatterbuck. He is richly endorsed by Kaushik Basu, India’s Chief Economic Adviser, who bases his optimism on the youth factor. “Our economy could grow by 10 percent in a couple of years, and exceed that of China by 2014.” Basu believes India’s young population will be a major factor in pushing the savings rate to over 40 percent of the GDP, from 38 percent, and spur economic expansion.

Indian firms urgently need to localise to overcome established vendor loyalties

As for the border obsession, there is some serious rethinking going on in China as well. Wang Zaibang, vice-president of the Beijing-based China Institute of Contemporary Relations, struck a note that would surprise many in the Indian government: “Border issues are eventually bound to be overshadowed by economic compulsions. Neither neighbour can afford to do without the other. They are too big. India failed to push trade across the Pakistan border, but the pipeline never happened. But what’s in pipeline here can and should be tapped.”

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TATA SONS

Tata Sons’ revenue from China crossed $1 billion. Tata companies in China include TCS, Tata Motors, Tata Steel, Indian Hotels and Tata Communications

INFOSYS TECHNOLOGIES

Infosys China, a fully owned subsidiary, is growing fast. Currently, it has 1200 consultants providing IT & BPO services to clients all over the Asia Pacific region

NIIT

NIIT, one of the early entrants, set up its base in China in 1997. Currently, it offers courses in over 170 centres and partners over 130 universities and colleges

RANBAXY

The first Sino-Indian JV, Ranbaxy Guangzhou China was formed in 1993 to manufacture pharmaceutical products for the burgeoning Chinese market

STATE BANK OF INDIA

The State Bank of India was the first bank to open a branch in Shanghai way back in 1997. It has now drawn up plans to open branches in other Chinese cities

LARSEN & TOUBRO

L&T has offices in Shanghai and Beijing and a manufacturing plant in Jiangsu Province. It supplies hi-tech equipment to the hydrocarbon sector

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shantanu@tehelka.com

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