Hindi-Chini No Buy-Buy

Tired of reading everywhere that India is not at a stage where it can boycott Chinese products? Here is a contrarian view! A lot of focus here has been on why we buy the Chinese products, how they have been able to sell their products at such low prices consistently over the years, and what India in its current capacity can do to surpass China as the Globe’s largest manufacturing hub, of course over a period of time. But the prerequisite here is – every citizen necessarily has to believe – “COUNTRYMEN WILL DO WELL ONLY IF THE COUNTRY DOES WELL ”

It should be noted, that India has already started devising and acting on a systematic plan to boycott China. 7 Crore traders and 40,000 trade associations throughout the country have come together to launch a national campaign, where a list of 3000 Chinese products (FMCG, textiles, paper, stationery, etc.) has been prepared. These goods have ready Indian manufactured substitutes available, which the Indian consumers should have no problem accepting.

Despite nurturing a negative sentiment towards China of late, why do we purchase their products?

Chinese products are not only a relief for our wallets, they provide us a value for our money. US/European counterparts might charge us 20-40% more for similar products. Is the reason for such low prices of Chinese goods a very low cost of labor? Probably. But if available data is to be believed, over the years, China has not been synonymous with cheap labor anymore. The labor is available in abundance, and is certainly cheaper than that of the developed countries, but it is not the cheapest. A comparison between India and China’s minimum daily labor wages has been shown in the graph below:

It is evident that China’s average laborer is quite high maintenance in comparison to an average Indian laborer. So, if it is not labor, what is China’s secret recipe for high value, high quality, cost-effective products?

The answer may lie hidden in various unexplored factors.

1. Exchange rate: Aside from including bats in their diet, the Chinese are well known for undervaluing their currency - primarily against the USD. China, for years, has been following a fixed exchange rate regime with some market-linked fluctuation allowed, that too within a fixed range which more or less fixes their currency rate. A weaker currency and a stronger dollar results in the ballooning up of their export earnings. Another effect of a stronger dollar is a fall in imports. This manipulation has a domino effect on the prices of the exported goods in the global markets, domestic goods prices and, labor wages in China.

2. Rip-offs: How Uber despite burning through 2 billion dollars in two years in China, failed to capture market share, and ultimately had to be merged with Chinese competitor – “Didi” is a case in point. There is a reason why Facebook, Twitter, Google, Uber, among others have failed to make any dent in the Chinese market. One peculiar characteristic that China is known for, is allowing foreign players in, learn the ropes, get a handle of the new technologies, and find better and cheaper ways to get the same work done domestically. It should be noted that in its trade war with China, the US had openly accused China of intellectual property theft. Very low R&D costs could be a significant factor behind cheaper Chinese products – since the business models and systems are a rip-off of global technology giants.

3. Supply Chain: No country at present has a more sophisticated supply chain than China. Supply chain activities transform the raw materials into the final product. China’s greatest advantage lies in the domestic availability of most of the raw materials required to manufacture a product. Having easy access to affordable raw materials helps bring down manufacturing costs, and as a result, having local suppliers of these raw materials has gained importance as a way of cutting costs.