Made in China

A Small Thought Experiment on Made in China

 

china

In the recent past, there have been calls for boycotting Chinese goods. The question is: Whether this can be executed? Or to put it more specifically, whether it can be executed by a middle class Indian?

Consider my personal situation. I am writing this column on a Lenovo laptop, which is Made in China.

The Kindle book reader which I use to refer to many books that I quote in my regular columns, was assembled in China.

My internet connection is provided by Reliance 4G Wi-Pod. The device has been made by the ZTE Corporation, which is based out of Shenzhen in China.

I use the Moto g4 PLUS mobile phone, which is Made in China.

I own the most basic model of a Hewlett Packard printer, which is Made in China.

I own a Toshiba television, which also happens to be Made in China.

This shouldn’t be so surprising. In 2015-2016, 36.6 per cent of Indian imports from China constituted of electronic products. Engineering goods came in second at 28.9 per cent and chemicals came in third at 18.4 per cent.

So, basically if we want to hurt China, then these are the goods which we should not be importing from them. In total, they formed close to 84 per cent of Indian imports from China.

So far so good.

How realistic is this? Here’s a thought experiment I did in order to figure this out.

So let’s say you want to go out somewhere. You decide to call an Ola or an Uber taxi. There is a very good chance that you do this using a Made in China phone. In 2015-2016, 16.3 per cent of Indian imports from China were telecom instruments.

Even if you manage to avoid that, chances are that some component of the phone would be Made in China. You have no way of knowing. Why do I say this? This is primarily because MNCs these days manufacture products using global supply chains.

As the World Trade Report for 2013 points out: “A central feature of this… age of globalisation is the rise of multinational corporations and the explosion of foreign direct investment (FDI)… Upwards of two-thirds of world trade now takes place within multinational companies or their suppliers – underlining the growing importance of global supply chains.” This is something that India has clearly missed out on due to a whole host of reasons, which are beyond the scope of this column.

Further, the battery of the phone used to call the taxi, is charged through electricity. Chances are the electricity that you are using has been produced using equipment imported from China, using loans provided by the Chinese banks. Electrical machinery formed 4.4 per cent of Indian imports from China in 2015-2016.

You avoid thinking about this rather esoteric point and get back to calling for the cab. You need to go out after all. And in order to do that, you need to call an Ola or an Uber taxi. If you call Ola, you need to know that Ola is in alliance with Didi Chuxing, a Chinese taxi-company. They have entered into a non-compete clause.

If you call Uber you are going to use Paytm to pay the taxi driver. The Chinese company Alibaba is the major investor in Paytm. So that rules out paying electronically.

So you need cash. You go to withdraw cash from an ATM. Chances are the ATM will be in Made in China.

So what do you do now? You go to a bank branch and withdraw money. Chances are the computer used by the teller to give you cash is also Made in China.

So what do you do?  You think chuck it, let’s not go out anywhere because we don’t want to encourage Made in China. Let’s order a Pizza. Ah, a perfectly American Pizza. Uncle Sam can have my money but I am not going to give it to China.

What do you think Uncle Sam will do with that money? Order goods from China.

But that is a second-order effect. So you ignore that and curse that MBA degree that makes you think so much.

Nevertheless, Pizza has cheese. And cheese is made from milk. In 2015-2016, industrial machinery for dairies formed 4.7 per cent of Indian imports from China. Oh then, it’s quite possible that cheese also has Made in China inputs.

What is a Pizza without cheese? But you compromise and decide to go get Pizza bases from the market and make one for yourself at home with tomato ketchup.

Wait, wait, wait! What is a Pizza base made of? Wheat. And farmers use a lot of fertilizer to grow wheat and other food grains. In 2015-2016, fertilizers formed 5.25 per cent of Indian imports from China.

India is dependent on imports in the case of phosphatic and potassic fertilizers. As far as phosphatic fertilizers are concerned, almost 90 per cent of it is imported. With no known commercially exploitable source of potash in India, the country is totally dependent on imports for potassic fertilizers.

You decide not to think so much and just to order and eat the Pizza. After eating the Pizza you feel a little queasy. You decide to pop a tablet. Wait, wait, wait. Medicinal and pharmaceuticals formed 3.8 per cent of Indian imports from China in 2015-2016. Bulk drugs and formulations formed a major part of this. In 2015-2016, bulk drugs and formulations formed around 3.7 per cent of Indian imports from China.

So chances are that the drugs that have gone into the making of the tablet have been imported from China. Even if they haven’t, there is no way for you to figure out.

How do we go we genuinely go about avoiding Made in China? Let’s say we boycott Chinese brands. You don’t buy a Moto G phone but an Apple iPhone. While iPhones are also assembled in China, a large part of the money will go to Apple, which basically seems like an American company.

Interesting. But the moment you buy Apple, you pay more. This leaves you with lesser money to buy everything else and in the process Indian manufacturers lose out.

Hence, Apple is not worth the trouble.

Okay, so you buy a Samsung phone. Samsung is a Korean brand. But they also make stuff in China. If more and more people buy Samsung phones (and not Moto G) that in turn will also benefit Chinese companies. What they lose out on Moto G they will possibly make up from Samsung.

So where does that leave us? It leaves us with crackers. Yes. Diwali crackers. Make sure you buy Indian brands this year. Made in Sivakasi. And not Made in China. And in the process keep encouraging regular fires in Sivakasi.

And forget about the fact that there have been cases of Sivakasi fire cracker entrepreneurs also getting their stuff Made in China. You will only know once you open the packet.

And how much will a boycott of crackers hurt the Chinese? Perhaps a little. But not something that they can’t manage. Fire crackers are low value products at the end of the day.

So how is it possible to really hurt China? The way out is to ensure that the government creates an environment where Indian manufacturers can compete with the Chinese ones. And that is easier said than done.

The column originally appeared in Vivek Kaul’s Diary on October 21, 2016

The Make in India lesson I learnt when I bought a television set

make in indiaVivek Kaul

Yesterday’s edition of The Times of India had a very interesting newsreport. As per the newsreport: “Data available with the Bureau of Indian Standards (BIS) shows that over 60% of the recently registered products are “Made in China.””
These include products like mobile phones, printers, power adapters, notebooks, tablets and so on. What this tells you clearly is that a vast majority of electronic products that we buy in India are not made in India, but in China.
Interestingly, the last time I bought a television set few years back, it came with a weird looking plug—something that I had never seen before. It wouldn’t fit into the electrical socket at home. It took a helpful neighbour to solve the problem. He told me that I would need a converter to fit the plug into the socket. The converter cost me Rs 25 and left me wondering that why did a company which sold a product worth Rs 15,000 inconvenience its customers for something worth Rs 25? Maybe marketing professionals can throw some light on that.
Last year when I bought a smart phone a similar experience awaited me. But this time around I was prepared and as soon as the smart phone was delivered at home (I had ordered it online), I went out and bought a converter, which cost Rs 20 this time around.
As you must have figured out by now, dear reader, both the products were made in China. Not just technology products which are made in China are flooding the Indian market. There are other products as well. As The Times of India newsreport referred to earlier points out: “There are a vast majority of goods — from electricity bulbs and thermometers to Ganesha and Laxmi idols — where the government is yet to have domestic standards resulting in unregulated entry of Chinese product.” Even Rakhis are now made in China. Indeed, this has been a worrying trend for sometime now.
The reason for this is fairly straightforward—no country has gone from developing to developed without the expansion and success of its manufacturing sector. As Cambridge University economist Ha-Joon Chang writes in Bad Samaritans—The Guilty Secrets of Rich Nations & the Threat to Global Prosperity: “History has repeatedly shown that the single most important thing that distinguishes rich countries from poor ones is basically their higher capabilities in manufacturing, where productivity is generally higher, and more importantly, where productivity tends to grow faster than agriculture and services.”
And the Indian manufacturing sector cannot flourish with products being made in China. For a while there was great hope that India does not need to go through a manufacturing revolution to pull its citizens out of poverty. And that the information technology led services revolution would do that trick. But services by their very design have certain limitations.
As Chang writes: “There are certainly some services that have high productivity and considerable scope for further productivity growth—banking and other financial services, management consulting, technical consulting and IT support come to mind. But most other services have low productivity and, more importantly, have little scope for productivity growth due their very nature (how much more ‘efficient’ can a hairdresser, a nurse or a call centre telephonist become without diluting the quality of their services?).”
So, where does that leave us? Over the last few years the education infrastructure that has been built to feed trained individuals into the services sector has been huge. As Akhilesh Tilotia writes in The Making of India: “An analysis of the demand-supply scenario in the higher education industry shows significant capacity addition over the last few years: 2.4 million higher education seats in 2012 from 1.1 million in 2008.” In 2016, India will produce 1.5 million engineers. This is more than the United States (0.1 million) and China (1.1 million) put together.
The number of MBAs between 2012 and 2008 has also jumped to 4 lakh from the earlier 1 lakh. As Tilotia writes: “India faces a unique situation where some institutes(IITs,IIMs, etc.) are intensely contested while a large number of the recently-opened institutes struggle to fill seats…With most of the 3 million people wanting to pursue higher education now having an opportunity to do so, the big question that should…be asked…are all these trained personnel required? Our analysis seems to suggest that India may be over-educating its people relative to the current and at least the medium-term forecast requirement of the economy.”
What this means is that a large number of people going in for higher education will find it difficult to find jobs which are commiserate with the kind of money they have paid for their education, after they pass out. And they will not be the only ones having a tough time. India is adding nearly 13 million people to the workforce every year. And enough jobs are not being created.
This is something that the latest economic survey points out: “Regardless of which data source is used, it seems clear that employment growth is lagging behind growth in the labour force. For example, according to the Census, between 2001 and 2011, labor force growth was 2.23 percent (male and female combined). This is lower than most estimates of employment growth in this decade of closer to 1.4 percent. Creating more rapid employment opportunities is clearly a major policy challenge.”
And these rapid employment opportunities will be created only if more and more products are made in India and not China. For products to be made in India, major labour reforms need to happen. A report in The Indian Express seems to suggest that the government is working on this front. It is planning to make amendments to the Industrial Disputes Act, 1947. The government is also planning to: “codify the Central labour law architecture wherein the labour ministry plans to merge all 44 Central legislations into four codes on labour laws — one each on wages, industrial relations, social security and safety & welfare. Apart from industrial relations and wages, other codes are likely to be released during the course of the year.”
Let’s see how far is it able to go with this. 

The column originally appeared on The Daily Reckoning on May 6,2015