Indo-China Trade Ties Chinese firms find India safe to invest

By Himanshu Yadav

The most outstanding develop­ment in the India-China rela­tionship is its improvement in bilateral trade. Both countries have emerged as global forces in the world economy and are regarded as hubs for major multinationals. This growth can be attributed to factors like cheap and skilled labour, availability of raw material, the rising standards of living and favourable economic infrastruc­ture. Going by the figures, last year, India-China trade hit the $29-billion mark, recording a 69 per cent jump from the previous year. The govern­ments of both countries are set to achieve the target of $60 billion by 2010. China has also overtaken US as India’s largest trading partner. While Indo-US aggregate trade is expanding by 23-24 per cent annually, Indo-China trade has grown by 57 per cent in the last two years.

Market potential

China has always excelled in hard­ware manufacturing, whereas India lagged behind in this space. Hence, China plays a crucial role in electron­ics hardware import for Indian buy­ers. According to a survey, “A high percentage of India’s buyers have extensive experience of importing and many are already importing from China. Approximately, 46 per cent of the hardware buyers import from China, while 54 per cent of electron­ics importers purchase directly from Chinese suppliers. Of those buyers who are not already importing from China, between 44 per cent and 49 per cent plan to do so in the next 12 months.” The survey took the views of thousands of volume importers and purchasing managers and focused on consumer electronics and hardware and building materials—two of In­dia’s fastest growing segments.

Telecommunication is another lucrative segment for Chinese inves­tors, accounting for 52 per cent of the foreign direct investment (FDI) approval granted to China. Compa­nies like ZTE, Huwaei and Haier have penetrated the Indian market in a very short duration as compared to other players in this segment. Huang Dabin, CEO, ZTE Telecom India Pvt Ltd, says, “When we commenced operations in the Indian market in 1999, we only had four employees and did not have our own representative office.

However, over the years, ZTE India entered large scale development and its sales increased year by year. Now, the company has a direct presence in the Indian market, with a manufactur­ing facility in Manesar, Haryana and an R&D centre in Bengaluru. Looking at the potential of the Indian telecom market, we are planning to expand our manufacturing capacity in India in the near future.”

Safe to invest

Not just MNCs but even small players see immense potential in the Indian market. A spokesperson of Grand-work Electronics Co Ltd, comments, “We believe the electronics business will become a first choice for small companies in India and China. Now, it’s easy for an Indian distributor to find a Chinese supplier through the Internet, overcoming geographical differences, thus making business easy and quick.”

Enterprises also feel that it’s safe to invest in the Indian market as India has a growing economy and has been least impacted by global recession. “The Indian market has grown very fast in the past 2-3 years and will continue to do so over the next sev­eral years. The world’s financial crisis didn’t influence the Indian market too much and companies are still expe­riencing a considerable growth rate. This will attract more and more sup­pliers. However, market competition will become more severe with time. Only those companies, which can continuously enhance their technolo­gies and offer reasonable prices will survive. Hence, factors like quality and cost are important to firms based in the Indian market,” shares the Grandwork spokesperson.

Barriers felt

Despite the tremendous promise that the Indian market holds, foreign firms that want to set up bases in the coun­try do face various challenges—rang­ing from unfriendly government trade polices, to cultural/language barriers, to lack of technical expertise. According to some Chinese firms, the business environment here is too complex for Chinese businesses. “The custom control process in India is difficult to comprehend and handle and mostly, we rely on customers to take care of it. We prefer to export PCBs to India instead of setting up a factory here. Although, a manu­facturing unit in India will help our business greatly, it requires a huge investment. A large investment is daunting, considering we have no knowledge about how to run a fac­tory in India or the local culture and law. Therefore, we find it less of a risk to manufacture in China itself and ship our products to India,” says a Chinese PCB maker.

Chinese companies suggest the Indian government to better custom management, making it more ef­ficient, simple and easy for import and export as this will help the Indian industry greatly. In order to nurture the India-China trade relationship, it is im­perative to overcome these hurdles through adequate means. India has an advantage in services and soft­ware and China, in manufacturing and hardware. Both countries should devise means to benefit through each other’s positives. Although this fact has been realised by Chinese companies and their has been a rise in investment in recent times, with more efforts, bilateral trade between both the nations can move forward at a faster pace.