How China dismantled its Great Wall

There are certain common misconceptions about the trade in Chinese goods, such as underinvoicing, the opaqueness of the system, the subsidies by the Chinese government and the poor quality of Chinese goods. I have lived in China and had been engaged in global trading for almost a decade. I have witnessed the transformation and the deepening of reforms and its effects on both countries.

Briefly I would like to clear some of the misconceptions that persist. Take underinvoicing: There can be no underinvoicing or over-invoicing in direct imports from China in view of the system as it exists. Underinvoicing of Chinese goods could be possible only if the Chinese goods are imported through a third country.

Some talk of the opaqueness that characterises the Chinese system of trade. In trade everywhere there is certain amount of secrecy. However, in the later part of 1990s, we were aware of various costs involved while finishing the price in sales contracts. This problem we freely discussed with our Chinese shipper.

As for subsidies, it is generally believed that Chinese exports are heavily subsidised by its government. It is true, of course, that in China, as in all developing countries, certain incentives were offered for exports to help build up foreign exchange reserves in the initial stages of opening up the economy. Export obligations were imposed on manufacturing units, which they had to fulfil. In case they incurred losses, it was their business. Generally, due to the economies of scale, they made up their losses suffered in exports, if any, by selling their goods in the large domestic Chinese market. However, with the deepening of economic reforms, each import/export company is a separate legal entity and they have to now take their own decision whether to export or not to export. In case an export company does not make profit, the employees do not receive their full salary and if they suffer further losses, the company is shut down. This is something that cannot be imagined in India.

Finally, take the complaints over the quality of Chinese goods. After 1990, the Chinese have focused on improving on the quality aspect of their goods. Invariably, the goods provide value for money. All the stores in Southeast Asia, and even USA, are stuffed with Chinese goods. In fact, a leading electrical appliance manufacturer in India is sourcing electrical appliances from China and selling them under its brand name. Another leading two-wheeler manufacturer was seeking to import engines from China as they adhered to Euro II norms and the cost of manufacturing them locally would have been higher.

The Chinese have successfully dismantled their Great Wall and initiated the process of opening up globally about two decades ago. Today, it is deepening this process. India, too, had built a wall in the form of tariff barriers for four decades in the vain hope that our industry could be totally competitive. History has proved that building such walls has done no good to the country. On the other hand we should initiate reforms which would make our goods competitive and which would result in the consumer reigning supreme.

The writer is a Delhi-based businessman