We are all familiar with Chinese products of comparable quality, novel conception and low prices flooding into the Indian market. The differential in price ranges from 20 percent to as high as 50 percent.
What makes the prices considerably low?
One of the mainstays of the Chinese strategy of following a mass-production and mass-consumption formula is to keep the profit margins low and cover the gap by the subsequent boost in sales. As its motto, the huge scale of operations of the Chinese industry is geared towards supplying not only the large domestic market, but also exporting extensively to global market at cheap rates.
The cheap labour in China leads to cheaper availability of goods. However, that is only partially true; labour is only one part of the total cost of a product, and in many cases it is as low as 20 percent of the total cost. There are about 1000 protest demonstrations occurring every week in China at the risk of beatings, demotions, dismissal and even torture. As a result, wages have finally been rising by about 15 percent every year over the past four years. It took suicides by workers in the summer of 2010 to achieve additional improvement in wages and working conditions at plants which were more like prison camps with dormitories for workers to live in. Fences were constructed around the buildings so workers couldn’t leave the premises.
Thirdly, Chinese government imposes few health and safety or environmental regulations. China doesn’t provide workmen’s compensation insurance for its workers; workers injured at work do not receive any compensation, at times to a point that they are disabled.
Fourthly, China shows lesser concern for the environment. Environmental protection laws are generally ignored, especially at the local level. So, Chinese companies have the advantage of being able to dump just about any odious by-product into the air or waterways. Six of the top 20 most polluted cities of the world are in China, and China has been designated as the world’s most polluted nation in several studies.
Next, there is the cost of taxes and duties. Chinese companies receive a VAT refund from the government for materials of products produced for export.
Moreover, China’s national government policies allow their manufacturers to use trade cheats. For example, there are unbalanced tariffs, such as the 2.5 percent for a car entering India versus 25 percent for a car coming into China! In addition, the Chinese government requires foreign firms to have a Chinese “partner” company.
Finally, China has a national strategy of what is called “dumping.” Dumping is defined as the act of a manufacturer in one country exporting a product to another country at a price that is either below the price it charges in its home market or is below its cost of production. The goal of dumping is to capture the market or destroy the competition for a particular product or commodity so that the price to the end user or consumer is lowered way below the competition, sometimes even below the cost of production.
A flood of cheaper Chinese goods, sometimes better than their Indian counterparts, is forcing small manufacturers to shut shop and turn into traders.
Holi is an Indian festival but colours and pichkaris (water-guns used during Holi) are made in China; Diwali is celebrated in India but electric lamps and crackers are all imported from China. The idols of Gods and Goddess worshipped are made in China. From mobile phones, television, computers, lamps, kitchen items, shoes, polish, furniture, curtains, to even pens and pencils, everything is made in China!
I for one would prefer to buy Indian goods rather than China Ka Maal (Chinese products) which are competing with domestic items and thus hurting the profitability of Indian producers.
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