China which prides itself as the bigger giant than India with a huge trade surplus to boot, is worried about job losses on account of its firms shifting manufacturing base to India. this concern was voiced in Global Times, a publication that reflects the official Beijing line.
Amongst the first to switch to India, are smartphone vendors since India’s mobile market is expanding very fast. Low labour costs are an added incentive. China sported this very advantage some years ago and became the preferred base for American companies to shift their production platforms to the land of Bamboo Capitalist. Historically speaking also,labour-intensive manufacturing industries are constantly shifting to regions where the labor costs are lower. In that sense India can be said to have become a new world hub. Already, Chinese telecom equipment maker Huawei Technologies Co announced on Sept 23, 2016 that it would start making smartphones in India next month, joining a wave of smartphone vendors establishing production facilities in the promising mobile market.
Will this shift put pressure on China’s economy? The Global Times doesn’t think so. The daily’s commentator, Hu Weijia, avers that there will be no need for China to worry as long as the country can achieve its industrial upgrading to rely more on high-tech industries, including the production of key parts and components. What will be concern, however, will be the possible impact of the processing transfer on China’s production chain.
Excerpts from Global Times Commentary
Despite the fact that a considerable part of India’s handset components are imported from China, some observers forecast that the processing transfer will lead to a greater amount of mobile parts production being localized in India.
India currently imposes an import duty on some mobile components, including chargers, batteries and wired headsets, at around 12 percent. It is not hard to imagine manufacturers will want to work with local component suppliers to reduce operating costs after they set up plants in the country.
India’s Communications and Information Technology Minister Ravi Shankar Prasad said earlier this year that the Indian government is looking to achieve net zero imports on electronics by 2020. India’s efforts to localize components and parts production will intensify the economic competition with China.
In recent years, countless Chinese companies have been included into the production chain for smartphone vendors. It is difficult to accurately determine how many Chinese workers are involved in the production chain, but what is clear is that all those workers face potential job cuts if smartphone vendors transfer the whole industrial chain of mobile production from China to India.
Frankly speaking, China can’t afford that. The country has to ensure its competitiveness in production chains at a time when India is becoming a new processing base for manufacturers. This will require Chinese local suppliers to maintain technological advantage through continuous innovation.