CHINESE COMPETITION

Summary

Delivered as the 36th A. D. Shroff Memorial Lecture in Mumbai on 23 October 2002 and circulated as a Forum of Free Enterprise booklet, P. N. G. Subramanian — a former Consul-General of India in Shanghai — sets out to explain to an Indian liberal audience how China engineered its sustained ascent and what that ascent now means for India. He locates the inflection point in December 1978, when the Party abandoned Class War for what he calls ‘Economic Capitalism and Political Socialism’, and traces an export-led, foreign-investment-rich growth model that has carried China to roughly $300 billion in exports, a savings rate above 40 per cent of GDP, and the world’s tenth-largest trading nation status on the eve of full WTO accession.

The lecture is candidly admiring of Chinese discipline without endorsing the political model. Subramanian repeatedly contrasts a ‘ruthlessly efficient administration’ that Indians are ‘unaccustomed to’, and a perspective-planning horizon stretching to 2030, with India’s weaker absorptive capacity, looser governance, and shorter time-frames. He surveys the running themes of Chinese reform — sick State-Owned Enterprises (‘Iron Rice Bowl’) threatening the public-sector banks, the macro-control balancing act between 8–9% growth and inflation control, ambitious industrial restructuring, the gradual dismantling of tariffs, quotas, import-licensing, import-substitution rules and services barriers under WTO commitments, and a still-vague but flexibly-enforced legal framework that nevertheless pulls in FDI ‘to the detriment of other Asian developing countries, especially of India’.

Having catalogued the advantages Chinese exporters enjoy (preferential tariffs, VAT rebates, Special Economic Zones, low MFN rates, anti-competitive cushions), the rendered pages turn to the implications for India: an impending MFA phase-out in 2005 that will deepen Chinese dominance in garments, textiles, electronics, footwear and toys; the centrality of human-resource development and innovation (‘ten thousand Singapores’); and a call for an Action Plan covering Agriculture, Mineral Ores, Building Material, Chemicals, Pharmaceuticals, Computer Software, Hotel Industry, Professional Services and Audio-Visual sectors. The rendered chunk closes mid-Action-Plan with agriculture; the booklet’s remaining four pages were not in the rendered set.

Key points

• Frames China’s post-1978 trajectory as ‘Economic Capitalism and Political Socialism’ — an export-led, FDI-rich growth model that has roughly doubled China’s per-capita income relative to India’s since 1980.

• Attributes Chinese competitiveness less to cheap labour than to a ‘ruthlessly efficient administration’, a 40%+ savings rate, $55 billion of annual FDI, and overseas Chinese diaspora investment.

• Surveys structural strains in the Chinese model — over-90% SOE share in industrial output, NPAs threatening the major State banks, and the dilemma of liberalising the State sector without destabilising employment.

• Walks through the post-WTO tariff, quota, licensing, import-substitution, services, and legal-framework reforms that will be required of China — and notes that even with reform, FDI flows are likely to keep diverting away from India.

• Warns that the 2005 phase-out of the Multi-Fibre Arrangement will let China capture a much larger share of garments, textiles, electronics, footwear and toys, adversely affecting India’s export niches.

• Holds up Chinese perspective planning (5, 10, 15, 30-year horizons aimed at ‘equalling the United States’ by 2030) as a discipline India lacks.

• Singles out education, R&D and human-resource policy as ‘the crux’ — citing Deng Xiaoping’s 1976 prioritisation of education and Chinese ambitions to manufacture ‘ten thousand Singapores’.

• Closes (in the rendered pages) by proposing an Indian Action Plan in agriculture, minerals, building materials, chemicals, pharmaceuticals, software, hospitality, professional services and audio-visual — anchored to Premier Zhu Rongji’s call to lift bilateral trade from $3 billion to $10 billion.