How China became the world factory?what are the lessons for India.

Share the positivity. · How China become a world factory?

If there is one thing which is the main attribute of China's success it is policymaking by the bureaucrats. In 1978 Deng Xiaoping was elected as president for the people's republic of China he brought in many reforms which made china into a manufacturing hub in the next 3 decades. The bureaucrats created the policy which makes China a favorable environment for doing business. The businessmen were earnest to tap the advantages of the Chinese market and reduce the cost of production and export the goods to the whole world. There were abundant cheap labor and other favorable conditions in china than in the US, which made companies shift from America to China. In 1978 the government instituted the Household responsibility System(HRS) or 'de-collectivization of agriculture' which reallocated collective agricultural land to individual rural households, giving them relative autonomy over land-use decisions and crop selection, this policy was a huge success, this increased the agricultural production manifold and in the coastal regions many SEZ'S(Special Economic Zones) were set up the advantage of setting up firms in SEZ is you'll get tax incentives when compared with doing business in other parts of China and since most of the economic zones are located near the coastal region it provides them the access to the ports it is easier for them to export to the whole world.

                   Image credits: sina.com

 

In 1980 the first SEZ's were set up in Shenzhen before 1980 Shenzhen was a small town of 30,000 inhabitants but today it has a population of around 18 million people, the GDP of Shenzhen has increased exponentially over the years. In the 1980's China also introduced the Dual Pricing Policy i.e; different prices for different markets it is more or less similar to price discrimination which made the private firms make a profit out of it. The legal policies for the set-up of a firm were flexible in China, the powers were de-centralized to the provinces which made the companies complete their legal procedures in province-level itself rather than going to central-government for approval. The provinces were given more autonomy, they invested a large amount for enhancing infrastructure in the rural areas it also created a competition among the provinces to attract foreign investment into their province.

 

                image credits: Getty Images

China has artificially pegged its currency as 8.27 yuan per dollar, they have undervalued their currency which makes to look their goods cheaper and thus there'll be an increase in the export of the Chinese goods. Undervaluation of currency by China created an artificial trade deficit to the US about 2.7 Million jobs lost in the US due to competitive exports. Land acquisition norms and the process is completely flexible when compared with other countries like India. All the FDI's(Foreign Direct Investment) was a largely export-oriented mindset where they produce in China and export it to the rest of the world. 

All the inflows of FDI in India are market seeking rather than being an export-oriented mindset. The other important aspect which made China a conducive business environment is its infrastructure(Transport, connectivity,power&electricity supply). China spends a large part of its GDP on enhancing its infrastructure even now it is working on its Belt Road Initiative(BRI), China has one of the strongest supply chains in the world. It has very good rail network which helps in the movement of goods from one place-to-another at a faster pace. India has the fifth largest railway-network but it is not modernized,60% of the Indian freight still moves by road. China understood the significance of having a good infrastructure, from 2000-2005 it has increased the length of the railway network from 2,50,700 km to 1,930,500 km. 

         Image Credits:chinanewsstories

 Now, let us come back to India and check what India can learn from China. Why India didn't become like China, there are so many reasons to blame India the reasons are:- 

1.Lack of infrastructure 

 2.legislative complexities 

3.Labor Market 

4.The complex Land acquisition process 

 With the tensions of the US-China trade war at peak global companies are thinking to move out of China it provides an opportunity for developing nations like Vietnam, India, Indonesia to grab the opportunity but Vietnam is the obvious winner of this competition. The US-China trade war is a blessing in disguise for Vietnam. Between April 2018 and August 2019 Out of 56 companies that relocated their production out of China, only three went to India and two to Indonesia. This was the finding of a study by Nomura, a Japanese financial group.26 re-located to Vietnam,11 to Taiwan,8 to Thailand. 

Even though India ranks better than Vietnam in most of the aspects there is a lot of loopholes which India needs to work on to get a share in the manufacturing pie of the world. India's ranked 63 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings, India has increased its ranking over the years but still, there is a lot of room left for India to improve. If India can mitigate all its drawbacks and come up with a better solution to solve the problem India can attract more FDI inflows into the country and eventually create employment opportunities for many Indians and raise their standard of living. 

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