Panel discussions

A financial powerhouse that hits you by its sheer size and scan

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China’s rise was not limited to just export oriented factories and shiny new physical infrastructure. It made startling shifts in power relations too.

I had written a lot about the challenges of Indian businesses and also tried to unpack the complex reasons behind China’s success in driving itself and transforming itself from a bit of an agricultural backwater into the kind of manufacturing and infrastructure superpower that it has become. I have often said that the Yiwu City Market was more spectacular and amazing and jaw-dropping than the Forbidden City.
At least 90% of the world’s Christmas trees and ornaments were being manufactured in and around Yiwu and being sold there. Similarly 80% of the world’s zips and buttons, plush toys, even Ganesha and Krishna statues were made there.
I lived in China between 2002 and 2009 and this was really an epochal time in the country’s opening up. China had just joined the World Trade Organization in 2001 and Beijing had won the bid to host the 2008 Olympic Games. So there was really a kind of visceral energy that was palpable across the country in those years.
China’s rise was not limited to just export oriented factories and the kind of shiny new physical infrastructure either, indicating one of the most startling shifts in power relations. Beijing had also begun to emerge as the globe’s chief creditor and it had accumulated the world’s largest foreign currency reserves. Particularly after 2008, it became a financing powerhouse, financing the spending sprees of Western Nations including Spain where I am sitting right now.
During the seven years that I spent in China, I worked in three capacities—initially as a teacher; I was teaching news writing in English. Subsequently, I was an advisor to the CII. Overlapping with that, I worked as a journalist, eventually becoming the China Bureau Chief for The Hindu newspaper.
At that time, I was the only Chinese speaking Indian foreign correspondent based in China, which I always found amazing, considering that together we formed a third of the world’s population and were very important part of the geostrategic picture.
Although Indians remain obsessed with China, there was very little investment in trying to understand or learn about it as evidenced by the fact that there were so few journalists stationed over there. When I moved to China in 2002, like most Indians, I knew very little about it. There had been a long diplomatic freeze between the countries and there were no direct flights. Between 2002 and 2008, the growth was really exponential.
My first impressions of the country were about scale. The size really hits you—the roads and the buildings. This was not only true of modern China but true throughout the history of China. For example, the Forbidden City was huge. We saw it replicated during the Communist period as well. They relied on this kind of gargantuanism with size and heft as a symbol of authority. It has translated into the modern and contemporary times too.
The rhythm in Hutongs
As I lived in the city and learned Chinese, I ended up living a very local life. Unlike a lot of expats, I did not live in the suburbs. I lived in the Hutongs (narrow lane in Beijing) and spent a lot of time with the working-class Chinese people. I learned quite soon that a lot of the stereotypes we had about the Chinese as being inscrutable, unfriendly and inhospitable were completely wrong. They laughed readily, had a great sense of humour and were very much into teasing people and teasing me as an Indian as well.
They were rustic and easy to approach. Like in India, people welcomed you very effortlessly into their homes. Lower down the socio-economic order, people were more open.
If you took a bus into the countryside, people would share their eggs and oranges and nuts with you just like people would, on a train in India. There was a sort of rhythm of everyday life in the hutongs. That was again very familiar to an Indian. You had one to ten itinerant vendors that would pass by there. People addressed each other in familial terms just as they do in India. When quizzed on their perception of India, they would talk of India as a Buddhist country.
A certain demographic people had been watching Hindi movies that were massive hits from the 1950s and 60s through to the 1980s. They would even dance to the songs from the movie ‘Awaara.’
Some would comment on our population and suggest that we should have ‘one-child’ policy. Once I asked an old bicycle repairman for his views on India. He didn’t open. After a lot of prodding, he said that India’s telecom policy is quite advanced, people have choice in choosing the operator and the tariffs are low. I was blown away by that—the fact that this guy had that kind of knowledge, but I think it was also a reflection of the broadening out of coverage that they were getting about India.
In India too, we had very little knowledge about China and when I asked the reverse question in India, I would get the full spectrum between Pride and Prejudice.
There were people who either believed everything was so amazing in China and we should emulate it in every way or people who thought that China was the biggest enemy and there was nothing at all that we could learn from them. I travelled the length and breadth of China and visited about 25 Chinese provinces during the years I lived over there. I went looking for poverty and was taken to a village in Ningxia, which is one of the poorest provinces in China. I met two old couples who were supposed to be really poor. They lived in a room, had a motor cycle, fans and a refrigerator. Looking at the consumer products definitions in India, they were very firmly middle class. This was supposed to be like the deepest poverty that you could find in a village in China!
Prelude to Covid-19
I began my reporting career writing about a strange new virus that had begun over the winter of 2002 and which the Chinese government was covering up. That was a novel kind of corona virus. That’s how I began my China journey and we seem to have come full circle today!
I think that China has learned a lot of lessons from 2002-2003 in managing the present outbreak. South Korea, Japan, Taiwan and Vietnam have been relatively successful in how they have handled the corona virus as opposed to Europe. We can trace the epochal change after Xi Jinping came to power in 2011- 2012.The China of today and the trajectory it has taken is quite different from the one I would have predicted 10 years ago. n

The ‘Mandate of Heaven’ at play in Chinese consciousness

The ‘mandate of heaven’ also shares the platform with other philosophies and values of China… This is the basis of the underlying belief system of the Chinese people.

I am primarily an educator. I used to run Indology programs for American and British based museums and also for educators who teach about India. I had this big apathy for China like most Indians. I had one long stint in the Nalanda archaeological site in Bihar. My guide, an elderly person, always used to tell me that I should see the beautiful Chinese Museum which was being constructed by the Chinese.
The map that led to China
One fine day, he took me to the Chinese Museum and what struck me was the huge map of China. I looked at the Xinjiang province in the West of China and thought about the connection between India and China through the West, the pathways through which some of the ancient travellers of China came to India and vice versa; and these were so compelling on me. I decided to go to China. In 2008, I landed in Beijing.
I was there for a BMW foundation and a CII meeting. Then I took off and I spent about a couple of weeks in the region of Zhengzhou. That is where I could really learn about China’s glorious past, the Chinese people and their backgrounds, cultural moorings and why they think the way they think today.
I went all the way to Kashgar which is in the extreme west of China. I travelled extensively and that was my passion. From 2005, I have been running a Global Leadership 2030 Program for the Tuck Executive Education in which I am a partner of Professor Vijay Govindarajan. This flagship program is offered for about five large US based multinational companies and one British company, which is Rolls-Royce.
I started picking up a liking for China. I could connect a lot of dots from the past to the present. Incidentally, ethnography is my speciality and that’s the reason why Tuck School absorbed me into their programs. I started seeing different aspects of China, largely from an American lens, but also from working on developing leaders who were yelling in pain about doing business in China.
I also went through the transition of China with Xi Jinping coming in and the metamorphosis of China happening. Experiential learning was my specialty. My job involves taking people and putting them for half a day in a small little Communist Party office in a village, then bringing them out and having conversations with them.
The deal
What I learned is that in China, there is a deal between the rulers and the subjects. This deal was made some time in 600 BC. It is known as the ‘Mandate of Heaven.’ They don’t necessarily believe in gods and goddesses, but they do have a notion of a heaven. Metaphorically, let us assume that the heaven is like the ocean and the earth is the only ship in the ocean. The emperor has the mandate of the heaven to steer the ship in a way that there is harmony at all times.
Then there are subjects in the ship and their responsibility is to serve the emperor and follow him. This deal has helped China sail in the past. The ‘mandate of the heaven’ says that subjects have the rights to rebel but they better be sure because the emperor’s axe could fall on their neck. It also tells the emperor that it is his responsibility to lead in righteousness and if he does not deliver, there’s going to be a rebellion.
The ‘mandate of the heaven’ also tells that from time to time the heaven will give clues to the people when righteousness is being defiled. Those clues are diseases, earthquakes, natural calamities and foreign enemies ganging up and trying to break the fort and come into the country. This might sound very much like a fantasy, but this has been in vogue in China.
In China, there were many dynasties which came up and went down. Every time a dynasty came up, it was because there was a rebellion. It starts from the intellectual circles. There are wise people who start voicing up and eventually there are people who take up arms. When the civil war ends, the emperor is gone and the rebel hero becomes a new emperor, a new dynasty starts off and people follow the new dynasty.
This cycle has been going on. The last cycle in China was broken in the ‘century of humiliation’ as Chinese call it, when westerners for the very first time came into China and ruled for about 100 years. For Chinese, it is all right, if the problem is within China.
Now the Chinese Communist Party (CCP) has this deal with the people of China. The ‘mandate of heaven’ also shares the platform with other philosophies and values of China, like the Confucian and Taoist values. This is the basis of the underlying belief system of the Chinese people.
China is an authoritarian state, but that doesn’t mean that the people are unhappy there. People are proud of their culture and they have managed to maintain this heritage in all these years. With this as a mooring, you can drop down to present-day China.
Xi Jinping has a vision that no other country has in the world today. His vision is to deliver China as the number one country in the world. That vision is backed with the traditional Chinese values. This is the single most important differentiator between China and any other country and it percolates down into everything else.
China is a bureaucratic, authoritarian rule. It is not a dictatorship as when Mao Zedong ruled. Subsequently, there have been a series of well-planned successions in China, which do not exist in any other communist country. Xi Jinping has taken that away. As long as he is winning, one cannot argue. It is also very difficult to say that the people have not given him the mandate. Of course, there is unrest going on in Hong Kong.
Merit all the way
China is a country which believes in meritocracy, which is very important for them. This is not imposed by the government or Chinese Communist Party. Meritocracy is something which came to China way back from the 12th century.
You need to very good. You need to have excelled in school not only in your studies, but also in games and extra-curricular activities. Then you get a ticket to the Communist party. You are judged and rated as you pass out from school, college and in the party affairs. Only if you are good in all these things, you can climb up the party ladder. You can imagine the people who are sitting right on top in the politburo of China—the seven member committee who are reporting to Xi Jinping. They are highly qualified and very capable people who have risen up the ranks.
If as a CEO of a company, you end up in one of the cities in China discussing with a local Communist Party office about doing a joint venture with the semiconductor factory in China, you better be sure that the person sitting there is amongst the best CEOs in the semiconductor industry.
There is no inheritance in China. What I mean is that in India, we had a legacy from the British. They left us a ‘work-in-progress’ sort of administrative system. But for China, there was nothing like that. When they got the country, it was a clean slate development. They had to learn everything. So they had this grand vision of saying that they had to come out of the ‘century of humiliation’ and become the best. The roles were very clear; the commitment to the party and to the Communist Party Chief was also clear. But the mission was all a series of experiments.
Decentralised China
85% of the total spend of China is done by the local governments. The central government or the federal government spends only about 15%. Even in the most developed economies, the rate would be something like 50-50 at best.
When we talk about freedom, there are three kinds—the personal freedom, political freedom and economic freedom. Soviet Union and most of the Communist Bloc countries started with political freedom, which is not possible without personal freedom. Then they allowed markets to take care of economic freedom.
Most of them failed, or so say most authors. In China, they never gave personal freedom and political freedom. The freedom they gave is economic freedom. And, this is the kind of a competitor we are actually up against.

Every Interaction, relationship depends on the ‘Face Value’

I will share my experience working with Chinese people, competing with and supplying to Chinese companies. My experience is in two parts—one is about two decades back and one more recently between 2015 and 2018. I set up from scratch the Asia-Pacific regional office for Arvind Mills in Hong Kong. I recruited a number of Chinese staff and sales managers. We supplied fabric to a number of Chinese garment manufacturers who used to ship the garments over to USA and Europe.
Coming to the Chinese staff, one of the most important aspects that I noticed was their total focus on quality and productivity. Compared to an Indian staff member, they were not as quick in grasping things. They took a lot more time and needed hand-holding. But once they understood the process and requirements, they could do the same thing again and again. I could close my eyes and trust my staff with the shipping documents, bank documents, invoices and any operational aspects. There would be absolutely no fault. Their productivity was two to three times what I used to observe back in India.
Face value
The second important aspect I noticed is a basic philosophy in China called the ‘face concept’. What it means is that: “I cannot lose my face in front of either a customer or somebody superior.” They will go to any level to make sure that their ‘face’ is protected.
I noticed this very strongly with my sales team. If they promised that they would deliver something to the customer, they would do it. One of my biggest challenges in leading the team of sales personnel was to be able to make sure that the backend team in India meant what they had committed to the customer. It was a hard time retaining the sales people because they would not want to lose face with the customers. If once or twice the deliveries got delayed, they would just leave the company. This was their mindset.
My wife worked as a teacher in Hong Kong teaching English to Chinese school children. They used to say that they would work very hard to learn English so that their teacher need not lose her face.
With respect to competition, they do not have a profit motive but market share is very important. They work backwards from the selling price while we normally work on cost plus profit model. Therefore, competing with Chinese in manufacturing is especially very difficult.
Chinese customers expect us to be extremely agile and nimble. The commitment made to them should be met and they follow up closely. Promises must be delivered, come what may.

What should we do to attract Apple and Samsung to India?
Mr Venky Nagan: When I drive down in Hanoi and go past the Samsung factory, I find it humongous. It is really a giant factory that provides employment to around 20,000 people. The question is—will our policies change every few years?
Mr Balaraman, Past President, MMA: Mahesh told me that in China, the government makes sure that the entire value chain is competitive.
Mr Mahesh: In China, the entire value network is important. They are into many fields—Electronics, PCBs, Semiconductors, Wafers, Fablabs and so on. They probably don’t have raw materials. In India, we can only get contract manufacturers like Foxconn to set up shops. The government gives incentives and capital subsidy. As components are not made here, China can possibly create roadblocks in our getting the components.
Due to the failure of globalisation, many companies that have established their entire value chain in China feel they are stuck. Now, if we go on an audacious scale by having the entire value chain here, countries will not want to risk now. For them, it will be shifting the problem from China to India. Maybe, we should tie up with other countries like Malaysia and Singapore so that we can assure the big players that they are not putting all their eggs in one basket. Because of the trade war between US and China, many companies who have set up their factories in China are anxious. They begin to realise that they have to work with pockets of excellence like India in spite of changing governments and policy issues.
Ms Pallavi: Countries like Japan want to diversify away from China but they do not prefer India. They prefer Vietnam or even Bangladesh. This is because of the policy changes in India. For India to emerge as an alternative, they have to convince the manufacturers a lot but I think it is difficult.
Will the supply chain move away from China? What is the impact of an adverse US-China relation?
Mr Venky: Many are scared by the tensions in US-China relationship. But they feel that things can change in November. So they adopt a wait and watch approach. They look at other options but after going through all the pros and cons, they still find China as the best option.
Ms Pallavi: There has been thinking in China in preparation for this scenario. They may challenge the entire world. Whether they have miscalculated their strength or not, will be known only in the next few years.
How do you view the strength of India’s history of democracy versus China’s authoritarian rule?
Ms Pallavi: India has a safety valve in democracy. In China, things can change only by revolution. There is no question mark on the future of India as a country. Transition of power can be China’s Achilles heel. But I don’t think there will be a revolution in the near future. They have developed domestic markets. They say that the Communist Party is an elephant riding a bicycle. An economic slowdown can be a serious challenge for them.
Mr Balaraman: I know that many Chinese workers have lost their jobs in the recent slowdown and they are moving to their villages. There are huge empty buildings in the cities.
Mr Mahesh: Xi Jinping and the Communist Party have promised to deliver to their people. The people of China do not know what is happening in the world other than what is told to them by the Chinese media. So, there may not be a major shift in the near future.