China ‘underestimated Indian industry’s competitive edge’

China should reduce production costs for manufacturers as competitive pressure from Indian industry is “much bigger” than Beijing had imagined, a state-run Chinese daily said on Tuesday.

“The competitive pressure on China’s manufacturing sector from India is perhaps much bigger than China imagined,” an article in the state-run Global Times said.

Referring to reports that salaries in China have grown by 10.6 per cent since 2008, while India has seen a salary growth of just 0.2 per cent during the same period, it said.

“India’s low labour cost advantage has rung an alarm for China’s manufacturing sector. Now it is time for China to map out concrete measures to reduce production costs for manufacturers.

“In this regard, the Chinese economy has to reduce its reliance on real estate and strive to create a favourable investment environment for manufacturers,” it said.

Already some Chinese smartphone vendors like Huawei plan to start manufacturing handsets in India because of cheaper labour costs, it said.

“India’s low labour cost advantage forces China to make more efforts to maintain its competitive edge in the global manufacturing landscape. “As China commits itself to developing its service and high-tech sectors, such as the nuclear power industry, the nation certainly will not give up developing its manufacturing sector, which plays a particularly important role in creating jobs,” it said.

“With a population of 1.4 billion and an expanding domestic demand for employment, China will be unable to rapidly turn into an economy highly dependent on its service sector. “For the foreseeable future, the manufacturing sector will remain the backbone of China’s economy,” it said. 

“However, China’s low-end manufacturing industry is experiencing hard times as some multinationals move production from China to other Asian countries, India included. “The increasing competition from India raises a tough question for China’s manufacturing sector of how to keep its competitive edge at a time when the nation’s labor cost advantage is shrinking rapidly,” it said. 

Additionally, as some foreign-backed companies show an increasing interest in India over China, the country should promote the development of its local manufacturers and encourage them to build plants in less-developed central and western regions where labor costs are relatively lower, it said.

Despite India being more attractive to manufacturers than ever, it will be difficult for it to build a complete industrial chain overnight, it said, adding that India may still need to expand its imports of Chinese-made components and parts to support the development of its nascent and growing manufacturing sector. “Hopefully this would lead to a new cross-nation industry chain and closer economic ties between China and India in the future,” it said.