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Will India be able to tame the Chinese dragon? - I

Dr J V Rao

In India over the last couple of years the most talked about issue in every financial paper, trade journal, business channel and in every trade and business forum is WTO. And if WTO regime comes, can China be far behind? Definitely not. So a few more questions like — how China has become the largest player in textile and clothing; what are its success stories; will it continue to occupy the top spot; will India survive the Chinese textile aggression; is China a competitor to India; and the likes are being asked quite frequently in every textile forum. Though there are divergent views prevailing, yet in this feature I would like to analyse the situation the way I feel it correct.

Let us first see the gross opinion surfaced in this issue. If the trend of general perception arising out of this hype is carefully analysed, two popular views are clearly found emerging. First, India is to face a stiffer challenge in combating Chinese aggression in the international market to protect its turf post-MFA. And second, China will come out with flying colours in grabbing a major chunk of the world’s textile and clothing market post-MFA. To be more precise, most of the people think that China would be unstoppable beyond 2004, while rest of the world would feel the brunt as the dragon would spit fire.

However, unlike most of my professional colleagues, I beg to differ from the popular opinion. In my personal view, the impending impact of Chinese aggression in the world market is grossly overrated. In short, it is simply because amongst other things, the huge market share that China managed in the US and EU during the 80s was possible only due to preferential quota access. Hence, the post-MFA scenario is unlikely to add any more to the Chinese bonanza. On the other hand, as long as India does not divert its attention from the casual and fashion segment of the western market, especially in cotton products, it needs not worry about the Chinese competition as I find competition in this slot is quite limited. Now before detailing. let us compare Indian and Chinese textile export as well as the likely effect of quota removal on both the countries.

The table shows that the Chinese textile industry is growing steadily. The major reasons for the growth of Chinese textile industry are workable labour policy, low cost of power and low capital cost. Though our labour is marginally cheaper than Chinese, low productivity works against this advantage. Power cost in China is 6.04 cents per kw/h as against 8.87 cents in India, while their cost of steam is three times cheaper than India. As far as the capital cost is concerned, for technology upgradation the cost of capital in China is 3 per cent as compared to 6-9 per cent under TUFS for their Indian counterparts. In addition to this, other factors also responsible for the growth of the Chinese textile industry are efficient infrastructure, reasonable transaction costs, simple fiscal policies and the likes. Interestingly, unlike China, the most tragic part is that these are all areas where political conveniences have always over taken economic interests in our country since independence.

Now let us see the likely impact of quota removal on China and India. China is likely to be supplier of choice for the most large US apparel companies and retailers and India too would follow the suit closely. Over the long run, competitiveness may diminish due to certain factors in both the countries. The probable economic growth would lead to better lifestyle resulting in higher wages and greater domestic demand for textile and apparel. As a result, the cost of capital may also rise in India and China, eroding their initial advantages. However, in spite of all these, India would likely to remain a competitive supplier to the US because a good many of the US firms prefer India and consider it as the primary alternative to China. So analysing the probable situation, I find China is in no way ahead of India as the popular belief is. On the contrary, there is very little to choose between China and India once the WTO regime fully sets in 2005.

(The author is director, NITRA)