China needs to worry about effect of India industrial transfer on production chain

By Hu Weijia Source:Global Times Published: 2016/9/26 0:23:39

As Chinese manufacturers show an increasing interest in setting up assembly lines in India, the economic competition between the two countries is likely to enter a new stage as India and China vie to expand their industry chains.

Chinese telecom equipment maker Huawei Technologies Co announced Friday it would start making smartphones in India next month, joining a wave of smartphone vendors establishing production facilities in the promising mobile market.

Given the nation's fast-expanding mobile market and its low labor cost advantage it comes as no surprise that smartphone vendors are scrambling to invest in the South Asian country. Historically speaking, in the global landscape labor-intensive manufacturing industries are constantly shifting from mature economies to regions where the labor costs are lower, and now it seems India is on the way to become a new world hub. The industrial transfer will put pressure on China's economy, but 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 is a concern is the possible impact of the processing transfer on China's production chain.

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 if it can reduce operating costs after they set up plants in the country.

India's Communications and Information Technology Minister Ravi Shankar Prasad  was quoted by media reports earlier this year saying 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.

The author is a reporter with the Global Times.

Posted in: Eye on The Economy

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