Why China Should Support “Make in India”

Ravi Bhoothalingam, Honorary Fellow, ICS

A version of this article was originally published in Chinese as ‘中国为何应支持“印度制造”’ (Zhongguo weihe ying zhichi “Yindu zhizao”), 第一财经 (Yicai), 4 April 2017. This is part of a series by Indian scholars in China’s top business affairs news portal facilitated by the ICS. The Chinese version follows below the English text.

“Make in India”—a signature campaign of Indian Prime Minister Narendra Modi– was launched in late 2014 with the objective of transforming India into a dynamic global manufacturing hub, and thus radically enhancing employment and the prosperity of the Indian people. Just a few months later came an announcement from China’s State Council of “Made in China 2025”—a set of eight policy measures to re-orient the Chinese manufacturing sector in line with the country’s economic structural adjustment program. So, are “Make in India” and “Made in China” competitive programmes which coud drive another wedge between these two nations?

To answer this question, we need to understand the nature of both “Make in India” and “Made in China” more closely. The fundamental idea behind “Make in India” is sound and unexceptionable. Those nations that evolved into becoming manufacturing powers from early beginnings as agrarian economies, saw a rapid rise in their economic growth, employment and prosperity. Whilst the Industrial Revolution in Great Britain is the most quoted example, the most recent and dramatic experience is that of China. The exceptions are thinly-populated States abundantly endowed with natural resources. Having achieved very high levels of prosperity even without an industrial base, these countries now find themselves at the mercy of price fluctuations of those very resources.

Where does India stand in the manufacturing ladder today? From the 2014 World Bank figures, the share of the manufacturing sector in value-added terms in India’s total GDP stands at 17%. In comparison, Thailand is at 33%, Indonesia at 22% and Sri Lanka at 18%, whilst Vietnam and Bangladesh keep India company at 17%. China (31%) and Korea (30%) remain the leaders, and China’s strategy through “Made in China” is to move its manufacturing sector into higher value-added areas through R&D, innovation, sustainability, marketing and structural reforms.

Manufacturing is much more than creating widgets in some smoky factory, with toiling workers driven by heartless owners. It is a complex matrix combining two vital processes. One part applies human labour, technology and ingenuity to raw materials, to create saleable goods. The other connects these goods with markets where customers are willing to buy them. Therefore, if “Make in India” is to be a success and attain its goal of 25% share for manufacturing in its GDP by 2022, India must ensure the coordinated working of expanded and improved infrastructure, logistics, skilled manpower, innovation and R&D. Two final elements are “the ease of doing business” (to eliminate administrative bottle-necks) and “connectivity” to link India’s factories to markets – both domestic and international.

This is where China fits in. Right now, China is rebalancing its economy away from investment (with huge idle capacity, there is a low return on China’s investment) to consumption (to ensure higher living standards for the Chinese people). Where can China invest its considerable foreign reserves and earn better returns than it does in U.S. Government bonds? Yes, in India! And India, on the other hand, needs vast investment –about US$1 trillion over the next 10-15 years – in infrastructure, transportation and heavy industry to support “Make in India”. And where else to source this investment but from China? Further, India has a stable political environment and a good investment climate with the necessary regulatory controls and legal processes.

India is a large market and the “Make in India” programme further offers China the possibility of profitably manufacturing in India items that rising Chinese labour costs render unviable at home. But “Make in India” does not envisage India as just another low-cost manufacturer. Rather, its combination of plentiful labour, skill development and digitalisation is designed to make India the centre of ‘smart low-cost manufacturing’. This means that India’s competitive advantage will be low cost but not through just cheap labour, because digital applications will greatly enhance labour productivity even with mass employment.

At the same time, China can source some of its consumption needs from India. Take medicines. India is rightly called the ‘pharmacy of the world’ with more than 40% share of the U.S. generics market. The healthcare bill for Chinese families can similarly be significantly reduced if China buys Indian generic pharmaceuticals. China is also a large supplier of the world’s outbound tourists. India is practically a virgin market for Chinese tourists and it is nearby, inexpensive, with an ancient culture and a large-hearted tradition of welcoming guests. Tourism to India can fulfil a large part of China’s future demand for leisure consumption in an enjoyable and cost-effective way.

Through “Made in China”, China intends to move up the value chain through the special development of seven strategic high-technology sectors. Here, China may find that Indian management and technical skills – recognised the world over – fill a gap. Indeed, in a recent article, China’s Global Times has admitted that China has neglected to tap the Indian talent pool for management skills and I.T. talent to power its own manufacturing upgradation.

Therefore, it appears that “Make in India” and “Made in China” are not competitive but actually complementary. India and China need to engage in a comprehensive economic engagement which will embrace both investment and trade, tourism and services. Being the 2nd and 4th largest economies in the world, the more they connect, the greater opportunities there will be for both: for India to tap China’s investment surplus, and for China to use India’s manufacturing and service sectors to raise China’s own consumption levels. The two countries must seize this opportunity, for the sake of their future generations.

2014年年底,印度推出“印度制造”——总理纳伦德拉·莫迪(Narendra Modi)的一项标志性计划,旨在将印度塑造成全球制造业中心,从根本上增强就业,促进民族繁荣发展。而仅仅过了几个月,中国国务院就宣布了国家经济结构调整战略下的“中国制造2025”,该计划涵盖八大政策措施,重新明确了中国制造业的方向。那么“印度制造”与“中国制造”是否相互竞争,两项计划是否会成为两国之间的又一隔阂呢?

要回答这个问题,我们需要来细致理解“印度制造”与“中国制造”的本质。

“印度制造”背后的基本理念,是健全的、完美无缺的。那些早先由农业经济发展成为制造业大国的国家,经历了经济快速增长、就业改善和经济繁荣。英国工业革命显然是最佳例证,然而最新的、最具戏剧性的经历当数中国的发展。

当今印度制造业正处在一个怎样的水平上?根据2014年世界银行公布的数据,印度制造业(增加值)对GDP的贡献度为17%。相比之下,泰国为33%,印度尼西亚为22%,斯里兰卡为18%。越南、孟加拉国的情况与印度一致,皆为17%。中国(31%)、韩国(30%)依旧是制造业的领头羊。中国的“中国制造”战略通过研发、创新、可持续发展、市场与结构改革,正将制造业向高附加值领域转型。

制造业,不只是被无良商家无情压迫的劳苦工人在一些烟雾弥漫的工厂里制造小部件,而是一个结合了两大重要纬度的复合矩阵。一方面,原材料结合人力、技术与智慧,变成可供出售的产品;另一方面,将这些商品推向市场,在那里有客户愿意为此埋单。因此,“印度制造”要成功,制造业占GDP比重要想在2020年达到25%,印度就必须要扩大、加强基础设施、物流、技术人才、创新与研发,并确保其协同合作。最后,还需把握两大要素,即“轻松经营”(消除管理瓶颈)及将印度工厂与(国内外)市场连接的“连通性”。

而这正是中国可以发挥作用的地方。

眼下,中国正在进行经济调整,由投资(中国面临巨大的闲置产能,投资回报率低)转向消费(来确保中国民众更高的生活水平)。中国能将其可观的外汇储备投资于何处来获取比购买美国国债更高的收益?是的,那就是在印度!

而另一方面,印度也需要在基础设施、交通、重工业方面获得大量的投资——预计未来10~15年内需在这些领域投资约1万亿美元,来支持“印度制造”。如果不是从中国获得这些投资资源,还有哪里可以?进一步说,印度的政治局势稳定,投资环境良好,也具备必要的监管及法律程序。

印度是一个大市场,“印度制造”计划将进一步为中国在由于劳动力成本上升无法在本国生产而需转向印度生产的项目上获得利润。“印度制造”并没有让印度成为又一个低成本制造商。相反,印度制造业结合了大量劳动力、技术发展、数字化,意在让印度成为“智能低成本制造”中心。这意味着印度低成本竞争优势不只在于其廉价的劳动力,数字化应用使其即便在庞大的劳动力市场中也能极大提高劳动生产率。

与此同时,中国可以从印度获取一些消费需求,例如,中国是全球出境游大国,而印度市场尚属中国游客有待开垦的“处女地”,且距离中国不远、价格便宜、拥有古老的文化及热情友好的传统。

通过“中国制造”,中国意在借助七大战略性高科技部门的独特发展来提升价值链。在该领域,中国或将发现得到全球认可的印度管理及技术技能,将能为其填补空白。事实上,中国《环球时报》在最近的一篇文章中坦言,中国忽视了对印度人才库管理技巧和IT人才的利用来为制造升级助力。

由此看来,“印度制造”与“中国制造”并非相互竞争的,而是相互补充的。印度与中国需要参与到全面经济合作中来,包括投资与贸易、旅游与服务。作为世界第二、第四大经济体,两者接触越多,对两国来说就将有更大的机会:印度能够利用中国投资盈余,而中国能利用印度制造业、服务业来提升本国的消费水平。为了子孙后代,两国必须抓住机遇。

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