 |
| Two-wheeler rims and spokes are the fastest
growing auto imports from China |
They
are the three most feared words in developed markets, and now they
are beginning to rattle nerves in India, too. The China Price. When
your buyer utters those words, he's asking you to cut your prices
by as much as 40 per cent, since that is likely to be the difference
between your price and that of the Chinese supplier. And it doesn't
matter what you manufacture-it could be chemicals, silk, auto components,
toys, or footwear. The China Price is the new reality that every
manufacturer based outside of the Middle Kingdom must grapple with
every day.
When India opened up the economy way back in 1991,
many in industry feared that their businesses would be wiped out
by cheap imports from China. Things haven't proved that fatal,
but there are industries-especially in the small-scale sector-that
are beginning to buckle under the China Price. That brings us
to the question, why are Chinese manufacturers so price competitive?
Or, if you will, how are they able to sell at rock-bottom prices,
when other manufacturers are hard-pressed to cut costs even by
a few percentage points?
These are questions that governments in Europe
and America have spent lots of energy and money on to answer.
Often, their conclusion has been simple: China dumps. Consider
this: 86 anti-dumping and trade protection investigations were
initiated by Turkey, India and the European Union on Chinese products
last year, compared to 63 the year before. According to the Chinese
Ministry of Commerce, of the 86 cases, 63 were anti-dumping, two
cases of government dumping, and 21 cases of investigations on
protectionist measures.
Yet, there's no denying that Chinese manufacturers
are vastly more competitive. Compared to Indian manufacturers,
who have comparable low-cost advantages, China scores on just
on point: scale. Take toys. As a country, China churned out $15.2
billion (Rs 67,200 crore) worth of toys in 2005. In contrast,
the entire toy exports from India were worth Rs 443 crore. It's
a difference that's rapidly growing the competitive divide in
manufactured goods between India and China, hurting industry after
industry.
Business Today looks at a handful of industries
that is reeling under the China Price.
But before you read on, here's a word of caution:
Just like there can be no justification for dumping by China,
there can be no justification for India, or any other country,
to erect tariff barriers in the way of competitive Chinese suppliers.
In the end, the consumers must win, and not inefficient Indian
manufacturers.
AUTO COMPONENTS
BEGINNING TO FEEL THE HEAT
 |
| Cheaper Chinese SILK has led to the closure
of several units in Karnataka |
Sanjay
Labroo, Managing Director, Asahi India Glass, and Vice President
of the Automotive Component Manufacturers Association of India (ACMA)
gets uncharacteristically animated when you bring up the topic of
China. "I don't understand China," he says, before holding
out a chart showing how much Chinese component imports into India
have increased over the past five years. In 2002-03, India was a
net exporter of automotive components to China-importing a paltry
Rs 47.4 crore, while exports totalled Rs 69.3 crore. ACMA predicts
that by the close of 2006-07, if the current growth rate is kept
up, Chinese component imports will touch a massive Rs 1,117.6 crore.
"The problem is not that we are uncompetitive,"
says Labroo. "In the last 10 years, the Indian component
industry has developed into a quality supplier of components,
but sometimes we find ourselves competing with guys who are selling
below raw material cost," he says. Labroo isn't the only
one complaining. "I know what steel costs, I know what it
costs to produce welded sheet metal parts," says S.K. Arya,
Managing Director, Jay Bharat Group. "I know what black magic
they use, but when you hear quotes below the price of the steel
going into the component, how can you compete?" he asks.
Labroo says that ACMA has conducted studies in
China and found that the country does have some inherent advantages
such as good infrastructure ranging from logistics to electricity,
besides cheaper labour. But there's no way, he says, that Chinese
auto-part manufacturers can sell at the prices they do. "All
our calculations at ACMA have led us to conclude that, at best,
China can offer an 18 per cent cost advantage. But our members
are regularly outbid by 30-40 per cent. In a recent case, a supplier
was outbid by 55 per cent," says Labroo in consternation.
The problem, ACMA believes, is that the Chinese
component industry is highly opaque, and a supplier today may
not exist tomorrow. The part whose imports have grown the most
in the past year have been two-wheeler rims and spokes. However,
Labroo takes pains to state that ACMA is not for protectionism,
a point that is backed by Lumax Industries Chairman D.K. Jain.
"Lighting systems were affected by the Free Trade Agreement
with Thailand, but we have held our own, because we offer value-engineering
to our customers here," says Jain. "Even with China
I think the same thing will happen." However, he does think
the parts that are commodities will be hit.
Just the same, Labroo says that the government
should investigate if Chinese suppliers are dumping. "I have
no problems with consumers benefitting from cheap components,
but I have problems with dumping products below cost-price since
that adversely and unfairly impacts Indian industry," says
Labroo.
SILK & TEXTILES
STRAINING AT THE SEAMS
 |
| Chinese reagents cheaper than Indian ones are
benefiting local pharma industry |
On a quiet
street in Ramanagram, some 50 km from Bangalore, M. Imtiaz Pasha
is overseeing operations of a dozen semi-automated reeling machines.
Pasha's MIP Silk Industries is one of the several dozen units that
employ some 7,000 people in this town. With India a seemingly distant
second to the Chinese dragon in the silk market, life has become
an uphill struggle for businessmen such as Pasha, who is also the
president of the local reelers association. The strength of Chinese
reelers is evident just outside the unit, where a wood-fired reeling
unit lies defunct and employees focus solely on the newer electrically-run
machines. "If we had stayed with wood, most of our units would
have wound up in the face of increasing Chinese competition,"
says Pasha, who has seen several businesses go belly up and as many
as 3,000 one-time reelers head to larger cities such as Bangalore
in search of work.
Work on his wood-fired reeling unit may have ceased
a couple of years ago, but that doesn't mean that Pasha and many
other Ramanagram reelers (an estimated 500 of the 2,000-odd reelers
have given up their licences) are doing much better today. "The
industry's losses are around Rs 5-10 crore today and insolvency
of several units means that it's harder for us to approach banks
to raise funds for modernisation and expansion of our facilities,"
he contends. While local reelers such as Pasha and politicians
(including the likes of Karnataka Chief Minister H.D. Kumaaraswaamy)
argue that "dumping" of Chinese silk is to blame for
the decline, others say that the sheer scale of Chinese silk farmers
and production units makes Indian produce a side-show on the global
stage.
The problem of cheaper Chinese imports is not restricted
to Ramanagaram, or even silk. In fact, overall textile imports
from China went up from $78.71 million in 2000-01 to $548.81 million
in 2004-05. In the textile segment, the imported synthetic yarn
and synthetic fabric from China is cheaper than what is possible
to make locally. "We are able to compete with China in the
international market but not in India," says a member of
the Andhra Pradesh Spinning Mills Association. He attributes this
mainly to customs duty of 10 per cent on PSF (polyester staple
fibre), a key raw material, which is making cost of production
uncompetitive compared to China. And though PSF is also being
made locally, the price matches with the landed price of imported
PSF. Today, he says, a 40-ring spun PSF yarn can be sold in India
at best at Rs 114 per kg, but got from China for as low as Rs
106 per kg.
TOYS
LIVING WITH CHINA
 |
| Toy Association's Paresh Chawla says that half
the toys sold in India are Chinese |
The business
of toys is no longer child's play for Indian manufacturers. Increasing
competition from Chinese players is changing the nature of the game.
"Today, the total retail worth of toys sold in India is Rs
6,000 crore. Of this, nearly Rs 2,500 crore are Indian made toys.
The rest Rs 3,500 crore are Chinese made," says Paresh Chawla,
President of Toy Association of India. In fact, 90 per cent of the
Indian toy industry output comes from the unorganised segment. Since
imports of toys started in 1999-2000, the Indian toy industry has
been through a torrid time. More than half of the toy manufacturers
shut shop, and today around 1,500 players are operating in this
industry, most of whom are small-scale players. That's a far cry
from 2,500-plus players in 2000.
"We are not against Chinese imports
and neither are we blaming Chinese manufacturers," says Chawla.
"The problem is with Indian importers who are under-invoicing
the Chinese products coming into the country." But increased
competition has not been just bad news for the Indian industry.
At one level, the quality of toys available in the domestic market
has gone up. Furthermore, the better quality of toys has also
meant that Indian exports of toys have also increased.
Kolkata-based Funtoys, the second largest soft-toys
brand in the country, started sourcing from China in 2002. Since
then, the costs have come down by at least 20-25 per cent and
the entire benefits have been passed on to the consumers, says
Abhineet Gupta, Director, Fantacy Creations, makers of Funtoys
brand of toys. The company imports raw materials for soft toys,
electronic modules for hi-tech toys and raw materials for plastic
toys from Shau Tou and Changhai in China.
CERAMIC TILES
HITTING ROCK BOTTOM
The Rs 6,000-crore ceramic tiles industry is yet
another example of an industry that has been at the receiving
end of cheaper Chinese imports. Industry players say that the
Indian tile industry is going through a tough time, thanks to
dumping of tiles by Chinese players at "unprecedented levels."
According to the Indian Council of Ceramic Tiles
& Sanitaryware, the volume of dumped tiles in the local market
is estimated to be around Rs 450 crore in 2005-06. The industry
body also says that the volume of tiles dumped from China into
the Indian domestic market has risen from 3.1 million square metres
(2003-04) to 14.6 million square metres (2005-06). Meanwhile,
the overall share of tile imports from China has increased from
39 per cent ('03-04) to 81 per cent (2005-06). The problem is
especially severe in the vitrified tiles segment, which is estimated
to be worth about Rs 1,500 crore. "Over the last few years,
the volume of Chinese vitrified tiles dumped in the domestic market
has gone up tremendously. In 2003, the Chinese market share in
the vitrified segment was 20 per cent, which rose to 30 per cent
last year," says Vijay Aggarwal, Managing Director, H&R
Johnson (India).
Industry watchers like Aggarwal believe that dumping
of Chinese tiles is due to an 'inverted duty structure', where
a trader importing tiles from China pays only 5.37 per cent basic
customs duty. On the other hand, Indian tile manufacturers importing
raw materials such as abrasives pay much higher basic customs
duties, sometimes as high as 10 per cent. That has made it more
profitable for traders to import Chinese made tiles rather than
make the tiles themselves. As a result, the prices of vitrified
tiles have taken a beating over the past couple of years. In the
last two years, vitrified tile prices declined from Rs 120 to
Rs 40 per sq ft. Chinese vitrified tiles cost Rs 30 per sq ft.
BULK DRUGS
THE DEAD END?
Hyderabad-based Virchow Laboratories might arguably
be the first Indian bulk drug company to face an anti-dumping
investigation from China. Virchow is being investigated for allegedly
dumping Sulfamethoxazole, an antibacterial and a widely used pharmaceutical
ingredient-an allegation the company denies. "We are not
selling at a price below our cost of production. We make profit
and sell at the market price of around Rs 323 per kg and our cost
of production is lower than that," says Dr N. Venkata Reddy,
one of the founders of the company. A case like Virchow's is a
rarity in an industry where cheaper imports from China are more
the norm.
Plant Organics, another Hyderabad-based bulk drug
company, had been importing its two raw materials from China at
$12 per kg (for 3-cholo 4 fluoro aniline) and $8 per kg (for emme
or ethoxymethylene) to make Norfloxacin (an antibacterial) and
sell at around Rs 1,200 per kg in the domestic market and export
at around $45 per kg.
But over time, input prices have fallen to $4.2
and $3.2 per kg respectively and the end product is made by Chinese
players at as low as $25 per kg. Plant Organics no longer sells
Norfloxacin in India (today available at around Rs 850 per kg).
The company has been forced to look at regulated markets like
Europe and Japan, both for export of end product and intermediates.
Norfloxacin is just one of the active pharmaceutical
ingredients (APIs) or bulk drugs that is being imported into India
at prices at least 10 per cent lower than its domestic equivalents.
That is not all. Other drugs like paracetamol, analgin, ciprofloxacin,
metronidazole and diclofenac sodium are also getting imported
from China and sold at a cheaper rate in India (in all about a
dozen such products). Ciprofloxacin, for example, costs Rs 1,200
per kg in India, but you can buy it for just Rs 1,000 per kg from
China. Ouch!
AUTOMOTIVE TYRES
FLATTENING OUT
The Rs 14,500-crore Indian tyre industry has also
been challenged by the imports of cheaper tyres from China. "Cheaper
Chinese tyres are flooding the Indian market. Truck and bus tyres
are especially being imported in large numbers," says D.
Ravindran, Director General, Automotive Tyre Manufacturers' Association
(ATMA). Ravindran adds that between April and September 2006 alone,
3.15 lakh truck and bus tyres were imported into India. That might
seem minuscule compared to the Indian industry, which produces
1.2 crore bus and truck tyres a year.
But industry watchers suggest that tyre prices
are being driven down to unreasonable levels thanks to Chinese
imports that are, at times, 25 per cent cheaper than Indian tyres.
Industry sources allege local importers of underinvoicing imports.
"Underinvoicing is rampant among Indian importers. Other
than that, Chinese players have structural subsidies built into
the system like the exchange rate of their currency which makes
their tyres cheaper," says Arnab Banrjee, Vice President,
Marketing, CEAT.
GIFTS & HOUSEHOLD GOODS
THEY ARE ALL OVER
From torchlights to table tennis racquets, and
from crockery to transformers, Chinese goods have flooded the
|
