China threat: Trap, penetrate, destroy

My last official visit to a major Indian factory producing consumer goods took place over two decades ago. That was when the Central excise and customs department, of which I was a part, was a major source of government revenue. It was an era when cheap and substandard “Made in China” goods hadn’t yet made inroads into India. That visit was to gather firsthand information and make a realistic assessment of the modus operandi of producing goods so as to explore possible, probable or actual end-use, dual-use or misuse thereof, and to determine its tariff classification that would have a direct bearing on the quantum of revenue generation for the government. Interestingly, the value of finished industrial goods or its end-use retail price was hardly a matter of concern because a higher production price tag would imply a higher revenue owing to it being ad valorem (Latin: a tax proportional to the value of the goods taxed) rate of tax. Here lay, and still lies, an important component of the production-distribution-consumption scenario of applied economics. Since those were indigenously-made consumer goods that had no cheaper Chinese equivalents to compete with, it was “advantage India” in a true sense. But being indigenously produced, the goods attracted a somewhat high rate of Central excise duty under the Central Excise Tariff Act 1985 (read with Central Excise Act 1944), and several state-imposed tariffs in the form of levies.

However, despite the high excise duty on indigenously manufactured goods, “Made in India” stuff was protected as imported goods often attracted an even higher rate of customs duty. Things are vastly different today, thanks to the ongoing multilateral trade negotiations and bilateral proposals.

The conservative school of thought believes globalisation and privatisation are liberal West-promoted and corporation-mentored long-term attempts to transform and transgress the Westphalia nation-state concept to maintain their hegemony over a system which admirably stood the test of time for over 350 years. This began owing to the post-Cold War crisis of confidence in the usually dominating and domineering multinational corporations, which invariably had their headquarters in the West. The concept of globalisation and global village was essentially an economic plan of the West to create and cast the net further for increased profit given its possible decline in fortunes and shrinking political influence. The classical economic theory of “free movement of capital, goods and labour to convenient and cheap places” was reiterated with fanfare. But what perhaps initially remained hidden, unforeseen, unanticipated and incomprehensible was that a Third World country like China would be the biggest beneficiary thereof, taking full advantage of its cheap labour and attractive terms offered for (foreign) capital (investment) and mass production of goods to a ridiculously end-of-the-earth state and stage to the detriment of Western interest as well as those of other Third World and developing nation states.

China managed to pull Western industrial companies to its soil. Multinationals moved their operations to China overnight to take advantage of its low labour costs and huge domestic market. US companies took the lead on “Mission China” — as a result of which China’s manufacturing sector boomed. The West, however, also benefited from China’s low exchange rate currency manipulation, that kept Chinese fast-moving consumer goods (FMCG) ridiculously affordable. This cut out all competitors. Thus, what began as China’s “Mission West” to lure manufacturers from London to Liaoning and from Boston to Beijing, its small-scale sector graduated to medium and ultimately to heavy industries and high-tech through reverse engineering, violating all canons of intellectual property rights. Thus, two out of 20 imported combat aircraft from the West were used, not for active duty, but for research, development, refurbishment, upgradation, and ultimately “indigenisation”. No wonder the world now faces a Donald Trump whose catchy slogan “Make America great again” creates an opportunity for China to push for and create an alternate market through BRI/OBOR/CPEC.

As far as India is concerned, China does not yet feel threatened by New Delhi’s industrial production because it has assessed the Indian scenario and psyche well, thanks to a long spell of coalition polity. Successive stints of weak administrations hampered the desired expansion and indigenisation of the industrial sector. Therefore, instead of becoming a producer, India has emerged as a huge consumer market, making it easy for China to pander to only a handful of Indians who will ostentatiously help develop a mutually-beneficial Sino-Indian market — a “win-win” scenario for both Chinese producers and Indian consumers. In this background came my December 2017 visit to India’s iconic Royal Enfield motorcycle factory in Chennai. Known to manufacture “high-priced and heavy” but quality two-wheelers.

However, danger lurks around the corner. The Chinese are cloning brands of smaller and lighter Indian two-wheelers like Bajaj, KTMs and Kawasaki. These cloned Chinese motorbikes have already flooded the Pakistani market. The Indian Kawasaki 2250 is the Chinese Wing-150, and the Indian Bajaj Pulsar RS-200 is the Chinese Lion-150. There are several other popular Indian two-wheeler models which stand “burgled” by Beijing, violating intellectual property rights (IPR) with vengeance and without any sign of regret, remorse or acknowledgement to Indian ingenuity. And that constitutes a real threat to India’s manufacturing sector. A careful scrutiny of the Chinese product inventory shows the listed price (which certainly can’t be reliable as Beijing often sells goods at prices much lower than the listed price) of two-wheelers is as low as $200-400 (Rs 12,800-25,600). Today, China’s yuan exchange rate is 6.52 to one US dollar, compared to India’s Rs 63-64 to the dollar. And that is the crux. $200-400 could be Chinese yuan 1,305-2,610. Just imagine that! The huge price variation notwithstanding, the huge difference between the superior-quality Indian Royal Enfield and a light, unreliable, cheap Chinese two-wheeler is evident. That is why I see the looming danger of “trap, penetrate and destroy” on the horizon.