• An average Chinese worker is much better skilled than an Indian one. Give any of them a cellphone – and they will be able to dis-assemble and re-assemble it in a jiffy.
• Chinese people are baniyas at heart. At the end of the day, the worker will have her thela in the evenings – making an extra buck.
• The communist government also is capitalist at heart. There are no objections to the above mentioned thelas by sarkaari thoolas.
• If you can bring business to their factories, they will welcome you with open arms. Else go back home.
• They are fascinated with India’s IT prowess. The Chinese govt is the allocater of labor – and they are trying their best to encourage the Chinese IT services sector by building Hi-Tech parks.
• Chinese labor is becoming more expensive – yet the country continues to maintaining high productivity.
• Most of the gold sold in the US is 14 carat, Europe and Middle East it is 18 carat. India is fascinated with 22 carat. (Pure gold is 24 carat)
• Gold has better scratch resistance than platinum. White gold was an alloy launched during the times that Platinum was relatively more expensive – but its allure has diminished since the price difference has come down.
• The margins are better in diamond than in gold.
• Duties levied by the Indian govt make it unviable for Chinese factories to export to India.
• Indians are not value conscious, they are only price-conscious. This leads to the impression that anything made in China is shoddy in quality. China has a quality for every price. Also China accounts for about 60% of world manufacturing. 

Chinese Whispers – 2

Rakesh started his career with Tata Steel, where he worked from 1990 to 2002. After a short year-long stint with ISMT, Baramati he moved to China in 2003, joining the HK headquartered, KGK Jewels.  

All large Chinese businesses are mostly state-owned. And there are a lot of them. The city of Dongguan has more than 5000 state owned companies, each with a worker strength of more than a thousand! Even some of the bigger non-state businesses are indebted to the state because they are owned by crony capitalists. China’s export engine runs on government subsidy. Here is an extract from a report by the LSE.

Behind the meteoric rise of Chinese exports in recent years lies an under-appreciated factor: there is a wide range of government incentives aimed at encouraging firms to produce almost exclusively for the foreign market. These incentives usually take the form of tax rebates that are conditional on a firm exporting all or most of its production. Over a third of Chinese manufacturing exporters sell more than 90% of their produce abroad. To put this in perspective, fewer than 2% of French exporters and 0.7% of US exporters display such high export intensity. Putting strong reliance on encouraging exports while at the same time protecting the domestic market has been a cornerstone of China’s transition to a market economy. Since the late 1970s, China has been characterised by a dualistic trade regime in which a system of export-oriented enclaves co-exist with a highly protected domestic economy, a situation described as ‘one country, two systems’ Ultimately, as a consequence of the use of pure exporter subsidies, Chinese consumers are faced with higher prices while foreign consumers reap the benefits of cheaper subsidised goods

Another lever in the hands of the Chinese government is the exchange rate. And here is where Hong Kong plays a role. All the conversion from US dollar to RMB happens in Hong Kong. The government frowns upon US dollars entering Mainland. Real estate and banks are money spinners for the Chinese government. There is a huge spread between lending and borrowing rates. your typical fixed deposit bears a 0.35% interest rate, whereas money is lent out at 4.35%.

Cash dominates Chinese culture. Literally, the word for money in China is cheena. Chinese businessmen were surprised by India’s demonetization. Like most Indian businesses, a lot of Chinese businesses also do not pay tax. The cash economy is important and is the driver of the high liquidity in China. China is a major part of the global cash economy, producing unregulated goods for consumption in Africa and Latin America. Her rise as a global center of manufacturing owes to its willingness to trade in the cash economy. Local governments have adopted policies designed to encourage the cash economy to alleviate unemployment.

Business is the easiest to do, albeit not so easy for the non Chinese. It’s very difficult for small Indian or other companies to set up shop in China. Labour laws that apply to the bigger multinationals are very pro-worker. With a very strong legal team, the only major case that Apple has lost in the world is in China, and that too, related to its brand – IPhone. The Chinese courts have allowed Xintong Tiandi, a leather goods manufacturer in Beijing, to sell goods using that name! 

The Chinese Governments is ready to turn a blind eye to regulatory issues when it comes to homegrown companies beating global rivals.  Chinese companies are masters of at low cost imitations. Luckin, a Starbucks imitator, was selling coffee at 10 RMB cheaper than Starbucks. Founded only in 2017, Luckin accelerated to 4500 stores in China Vs 4200 of Starbucks. Luckin even managed to get listed on Nasdaq. But turns out that all the growth was fuelled by accounting scandals. 

What can India learn from China? In China everyone is a stakeholder. Most small businesses don’t have employees, they hire contractors. There is unity of command, no matrix reporting, one organisation, one boss. Everybody reports directly to the owner. This makes the organisations listen better, as communication channels are direct..Although there is some kind of social security, but not so much for the 50% of the workforce that is part of the unregulated cash economy. The Chinese mentality is that each one has to fend for himself in his old age. Interestingly, your provident fund gets confiscated by the government, if you happen to die before attaining the retirement age of 60. And all real estate in China is government owned, it is only given on 90 year lease for residential properties and 60 year lease for industrial properties. In India, we definitely need to invest in developing our technical and entrepreneurial skills. The average Chinese plumber and electrician are much better skilled compared to the average Indian ones. What also helps are the huge investments in technology made in China by the West. Globally things have changed in the last few years which are impacting Chinese businesses. A few years ago, the US which normally had a 6% duty on jewellery imports upped the rate to 24%. India already has had that kind of customs duty for a long time. Garment and shoe manufacturing is slowly shifting out from China – to places like Bangladesh and Vietnam. The China government wants to encourage a shift to high tech industries like electronics and drones. One company alone, Samsung, records over 25% of Vietnam’s exports today. India can make a beginning with technology, that is maybe not so cutting edge. For example – shipping containers. Did you know that India does not have a single manufacturer of shipping containers?