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India-China: Cooperation In SME Space

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China has emerged as a manufacturing powerhouse during last two decades.  Quantum of export of its manufactured goods has risen so rapidly that it has raised alarms in many countries.  Slowly, world is coming to terms with China's rise as well as discovering potential of one of world's largest and fastest growing markets.

In India, perception of China also has undergone a substantial change since early 90s.  India embarked upon a systemic economic reforms programme in 1991 resulting in massive lowering of duties and abolishing of Quantitative Restrictions (QRs) on imports. The process was accelerated after India's accession to WTO in 1995. Chinese exports grew rapidly: from US$ 760 Mn in 1994-95 to US$ 1167 Mn by 1997-98 and crossed $ 2 Bn mark in 2001-02.  It took to even higher growth phase after complete removal of QR restrictions in India from 1st April 2001.  While from 1995-96 to 2000-01,  the Chinese exports grew on an average 13per cent annually, it grew more than 46per cent annually from 2001-02 to 2004-05!  

It was during the period that fear of Chinese swamping Indian industries, especially the small and medium enterprises, was at its peak.  It also led to anti-dumping duties on many Chinese products. Till then China was on the radar of Indian traders only, now SMEs also started looking at it seriously.  Indian industry, including SMEs, started visiting Trade Fairs in China and mounting trade delegations.  Such enhanced business to business contact was facilitated by a higher level of political engagement: visit of Indian President K. R. Narayanan in 2000 to China, Premier Zhu Rongji's visit to India in 2002, Prime Minister  Vajpayee's visit in 2003 and visit of Chinese Premier Wen Jiabao in 2005.

In the process, India discovered China which was under a tremendous transition itself.  From the major supplier of cheap, mass produced consumer durables, China was emerging as producer of a wide range of sophisticated industrial products and machinery.

While in 1993-94, the share of low tech mass produced items such as textiles, footwear etc was over 42 per cent  in China's exports, by 2007 it came down to less than 22per cent. Simultaneously, the share of exports of machinery and instruments rose from less than 22  in 1993-94 to over 51per cent by 2007.  Riding high on FDI, China strategically attracted technology  intensive manufacturing in number of areas such as electronic/ computer hardware, machine tools,  robotics, plastics and chemicals among others.  The diffusion of advanced technology in China during the period has been rapid  and its industry leapfrogged from manual/ mechanical processes to massive automization of operations.

Since 2005, Indian industry is taking a more nuanced approach to China: admiration for some of their better production processes, technology and scale of operations coupled with productive workforce.  They realize that with better infrastructure and strategic support from public authorities, Chinese companies can be formidable competitors indeed.  Better understanding is slowly leading to spotting of areas of cooperation than ever before.

FISME- the largest body of SMEs in India, has been actively engaging with Chinese companies. It has been sending to China and receiving from it a large number of trade delegations annually for many years.  According to FISME,  while bulk of Indian MSMEs  are still stuck in low productivity manually operated  machines,  thanks to large number of collaborations with Japan, South Korea and Taiwan, their  Chinese counterparts have quickly moved from manual to automatic to the genre of machines operated through digital technologies.  The number of suppliers of small plants, machines and equipment  and the range they offer is mind boggling. 

FISME identifies huge scope of imports of plants and machines from China for Indian SMEs to help upgrade and scale up their processes.  While there is potential in almost segments, opportunities in a few areas are especially noteworthy such as packaging (for alternative medicines, processed food and cosmetics), rubber and plastics, textiles, machines for garment industry, pollution control equipment, small scale plants for a range of consumer durables among others.  Toolings and Process machinery for painting, plating and coating also have enormous opportunities. Many Indian companies, even SMEs, are also using China as a manufacturing base for exports to other countries.

Indian strengths in manufacturing are largely unknown in China; India is known for IT software.  Also, opportunities for India are currently limited in manufactured exports to China owing to its huge domestic manufacturing base, cost advantages and excess capacities build over the years.  Much more rigorous efforts are required by Indian companies in identifying niches.  Exporting to China also becomes precarious because of lack harmonization of Technical Standards and absence of Mutual Recognition Agreements (MRAs) between our testing labs.  There is a lot of ground to be covered under 'Trade Facilitation and Promotion' agenda by both countries.

Anil Bhardwaj is the Secretary General of Federation of Indian Micro and Small & Medium Enterprises (FISME), New Delhi

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