Shanghai Surprise

• Dumping goods: Most Indian anti-dumping proceedings are against Chinese imports. But there's no consensus on the negative impact.
  
• Trade mix: Since trade balance is skewed in favour of China, its rapid progress and economic size are an obvious threat.
  
• Product quality: Chinese goods are double-checked by EU and US importers for quality and safety. But they remain competitively priced.
  
• Infrastructure: India can't yet match China in labour skills, political will, infrastructure or subsidies.
  
• Tech battle: China accepts India's successes in global outsourcing usiness, but says it'll overtake India.

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Of course, all this isn't a first. In fact, Indian industry seems to have absorbed much of the impact of several rounds of imports from China—such as those ridiculously cheap ballpoint pens streetside markets were swamped with in the early-to-mid 1990s. Then, there was an avalanche of consumer products earlier this decade. The textile industry survived the quick execution predicted by doomsayers after 2005, when textile quotas open to poorer nations ended. Other segments of industry haven't been as lucky—such as a section of the pharmaceutical industry, ceramic tile manufacturers, and domestic toy makers.

By mid-June, business lobby group FICCI decided to weigh into the simmering China debate. A well-timed survey says that India's small industry is "caught in a vice-like grip of monumental proportions". Smaller companies are "up against" rising imports from China, which are reaching Indian shores at prices "lower by 10-70 per cent" than usual Indian prices. Over 70 per cent of the 108 small and mid-size companies surveyed by FICCI said that they are feeling the heat of rising imports from China.

From makers of welding machinery to diesel engines; golf carts to soda ash; rubber tyres to glassware, steel and aluminum, the survey's list of most threatened products and commodities is virtually the A-list of anything India trades with China. What's worrisome, says FICCI secretary-general Amit Mitra, is that even if India "reversed all the infrastructure bottlenecks and policy disadvantages that hinder local companies, it still wouldn't be able to catch up with China's prices". Those surveyed claim that in 17 out of 22 items imported from China, domestic prices are higher by 20-70 per cent—far beyond the proportion poor infrastructure and laggard policy contribute to India's higher costs.

Considering all this, it's hard to understand why small industry—as a whole—isn't sounding angry enough about Chinese imports. "Somehow I don't have a very strong feeling about the impact of Chinese imports. Data doesn't support the threat concept, because overall imports from China are dipping," says Anil Bhardwaj, secretary general, Federation of Indian Micro and Small & Medium Enterprises. Similarly, toy manufacturing association of India's Raj Kumar says safety standards for toys are crucial, but enigmatically adds that the government also needs to keep a "close watch" on who's importing those toys—"Indian companies are doing it too," he says.

A closer look reveals the symbiotic relationship between most Indian and Chinese businesses. A year ago, Bhardwaj's association opened a branch in Beijing—members are tapping into China to gather skills and raw materials and it's proving lucrative. Similarly, leather products maker, M. Rafeeque Ahmed, who imports "20 per cent and growing" components for his factory from China, says it makes great business sense. "Even if you go to China to import goods and pay duties of 15-20 per cent, margins are strong enough to profit in Indian markets. A little competition from China isn't bad. Or, we'll never improve our quality, designs or manufacturing scale," he says.

So, the usual prescriptions to raise import duties, impose a countervailing tax, or a temporary ban doesn't seem to appeal to many businesses. FICCI, too, suggests long-term steps—take quality and safety checks for Chinese imports more seriously and speed up anti-dumping mechanisms. "We're not paranoid about China's exports. Only, the government must make efforts to take action against actual culprits—those Chinese firms that sell in India at lower than plausible prices," says Mitra. It's a slowdown—and just the season for protectionism—but the broad theme in industry seems to be that much of India's competitiveness is being eroded by New Delhi's policies. Prices of locally available raw materials, such as aluminum or steel, if kept in check, would help smes more than summary import bans.

Experts on India's trade relations with China advise caution mixed with common sense. Indian exports to China have been mainly 'primary commodities' such as ores, minerals, iron and steel. However, Chinese exports to India are slowly, but surely, being dominated by manufactured goods. The balance of trade remains firmly in China's favour. "We haven't accorded China market economy status," says K.T. Chacko, director of the Indian Institute of Foreign Trade, "precisely because it does not lend itself to transparent market access. But you can call China a 'threat' only when it's coming from companies that are breaking well-established practices."

What may be worrying India more is that China's chances of being acknowledged as a world power are far stronger than India's prospects. This incessant worrying over China's every move was compounded by the recent disclosure that a Chinese company was passing off drugs in Nigeria as made in India. "The fear of China disregards the fact that India and China are in a clearly symbiotic relationship in the pharmaceutical sector. India makes formulations and China the raw materials. Also, all generic drugs are not 'fake'—so let's not point fingers in this case yet," says an executive of a large ngo working in the health sector on condition of anonymity.

"India has the obvious fear of losing market share to China," says Pallavi Aiyar, who lived and worked in China as a journalist and wrote a book on the experience. "It's also true that Chinese companies have a bad reputation in many parts of the world—using India's name on a drug shipment is an obvious way for a company to avoid such stringent checks. But I don't think this is something the Chinese government would do!" she adds. Actually, China is doing exactly what India wants to do—directing capital in a pointed way towards what it feels needs to be done. On the other hand, India dithers about where to put its relatively limited resources. Maybe that's where the fear lies—not in something Chinese companies actually do.