Image Courtesy: The Financial Times
Article 66/2021
There is an interesting scenario developing in the ‘powerful’ Indian neighbour’s so-called developed society. Reports emanating from China indicate that the country is passing through a most terrible power crisis. There were severe blackouts and Beijing has enforced electricity rationing in large parts of the country. Not only factories are closed but even hospitals, schools and homes are affected. The shops were functioning on candle lights, while the lights of residences in Heilongjiang, Jilin and Liaoning districts were cut off without notice for many days. Even the state-run Global Times mentioned that the blackouts were “unexpected and unprecedented”. The factories in Hunan, Guangdong and Anhui provinces were instructed to curtail their production because of the power crisis. China watchers claim that besides shortage of electricity the administration is ruthlessly implementing the ‘dual control’ policy for energy savings.
The manufacturing sector which is the backbone of China’s unprecedented growth was badly hit because of power shortage. According to an estimate more than 40 percent of manufacturing was impacted because of the power crisis. The official State-run Xinhua News Agency also stated that more than 20 registered companies had suspended their production.
President Xi Jinping while addressing the Climate Ambition Summit in December 2020 promised that China will cut down more than 65 percent of carbon dioxide emissions by 2030 in comparison to 2005 emissions. He also assured that China would use more renewable energy. Nonetheless, Prof Zou Ji, Chief executive and president of Energy Foundation in China mentioned in an interview that China could peak carbon dioxide emission by 2028. The present power crisis is in the autumn season while things are expected to worsen in the winter months when the demand would be at its zenith.
The National Development and Reform Commission (NDRC) announced a ‘dual control policy’ on 26 September 2021 pertaining to energy consumption and to reduce the emission.
Besides power outages, U.S. China trade war, Beijing’s deteriorating relations with the democratic world, cases of theft of intellectual property, human rights violations in the whole of China especially in Xinjiang autonomous region of Uighur Muslims, debilitating the autonomy of Hong Kong, threatening its neighbours including Japan and Taiwan, illegally capturing the areas of India and other neighbouring countries, aggressive behaviour in the South China Sea, high tariffs and misuse of World Trade Organisation and other international organisations are other reasons that several big multi-national companies are either leaving China or reducing their production in the country.
The spread of coronavirus and rising production costs have expedited the departure and reduction of manufacturing units of multinationals in China. The prominent companies including Nike, Apple, Samsung Electronics, LG Electronics, Adidas, Puma, Zoom, Sharp, Hasbro, Kia Motors, Hyundai Motor Group, Stanley Black & Decker, Dell, HP, Microsoft, Sony, Nintendo are affected by the present power crisis. These companies have either reduced the size of their production units or withdrawn or in the process of transferring their production facilities from China.
According to a rough estimate, more than 30 percent of manufacturing units would be leaving China within next five years or less. As several companies are in the process of leaving, the signboards mentioning ‘space available’, can be viewed in Dongguan and other manufacturing hubs in China.
America, which is a sole superpower, is also feeling threatened because of phenomenal rise of China, which is home of about 30 percent of global manufacturing which is about $ four trillion. China, which has the world’s best supply chains, is the world’s largest exporter while U.S. is the biggest importer.
In view of the above India should galvanise its system so that it can take benefit of an exodus of multinational companies from China. Delhi should give more emphasis on ‘Make in India’ policy. Although there would be a virtual meeting between President Biden and President Xi Jinping by the end of 2021 as the U.S. is in no hurry to lift tariffs on Chinese goods imposed during the Trump regime.
The companies are shifting to Vietnam, India, and other countries. The Chinese leadership is realising that business is shifting to other countries hence Xi Jinping has propounded the idea of ‘dual circulation’ which means that instead of depending on exports, China should focus more on internal circulation which means production, dispersal, and consumption within the country.
The Chinese government is tightening the business enterprises which were not adhering the laws. Chief Executives of big firms were arrested while few more may be imprisoned. The government is formulating laws to increase state control so that the debt, and impact of foreign countries especially U.S. can be mitigated. Government is not ready to provide bailout package to sick Evergrande Group which is facing a liquidity crisis. The firms which were involved in corruption and illegal transactions were raided by government officials.
China joined the World Trade Organization (WTO) in 2001 as a junior player but soon it reformed its economy and became a leading player in producing labour-intensive products including toys, readymade garments, textiles, footwear just to name few. After producing labour-intensive products Beijing entered in electronics. As the wages of labour has increased and the labour force is much more qualified, hence China wants to manufacture higher-end goods.
Consequently, the country with good infrastructure can attract labour-intensive industries. In 2013 China’s share in world exports was 39.3 percent which was reduced to 31.6 percent in 2018 and it would further reduce. Now India, Bangladesh, Cambodia, Indonesia, Myanmar, Pakistan, Sri Lanka, and Vietnam are in competition. Bangladesh has emerged the second largest producer of readymade garments while manufacturers of sneakers and textiles are moving to Vietnam but these countries are too small to take over all labour-intensive industries. Europe, North Africa, and the Middle East are also not capable to accommodate bulk of these industries. In fact, India with a large work force has the capability and desire to accommodate industries shifting from China.
China is also trying to retain these industries by using more robots but all work cannot be done through machines. China is also trying to shift the industries in other part of the country which is not much developed but it is also difficult because of poor infrastructure. The manufacturers are also reluctant to move from coastal areas to the interior of the country. In the beginning, companies would move a small portion of their manufacturing units and if everything works well, they will shift fully to other countries, as China’s power crisis is difficult to resolve.
The present scenario is obscure as many options are emerging. First of all, China does not want the departure of all labour-intensive industries. It may like to shift them in other underdeveloped areas so that in present areas more technology-based industries can be established. China will also make efforts to restore the power supply but certainly curtail the use of coal in power generation. The companies are also hesitant in shifting their bases, as China provides the best infrastructure, qualified labour, and company-friendly labour laws. As companies have to shift their bases from China, India being a democratic country, with large workforce, independent judiciary can be a good choice. Nonetheless, India has to develop infrastructure, company laws have to be made investment-friendly, the interference of bureaucracy has to be curbed. The workforce needs more training and technical expertise. Shifting of industries would also be good for the success of the ‘Make in India’ programme. The government is working hard for the ‘Make in India’ programme as it would create a large number of jobs for unemployed youths of the country. Defence forces have already given big contracts to Public Sector Undertakings (PSUs) which would create, jobs, infrastructure, and expertise. The foreign companies are aware that in the beginning there is always less infrastructure which grows with the passage of time. It happened in China also hence India should accelerate its efforts so that more and more companies establish industries in the country.
(Jai Kumar Verma is a Delhi-based strategic analyst and member of United Services Institute of India and Institute for Defence Studies and Analyses. The views in the article are solely the author’. He can be contacted at editor.adu@gmail.com)
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