I have lived in Hong Kong and China for a little more than 10 years. I have been very much interested in their culture and made a lot of good friends and business associates. I have tried to learn a lot from them.
If we look at the map of China, we can understand how the transformation happened with the State’s own interest and a lot of support from some of the developed countries nearby. The Northeast provinces like Heilongjiang and Liaoning were adopted by Japan. Places like Shandong got support from Korea. Fujian was adopted by Taiwan and Guangdong by Hong Kong. Thus, the strong influence came from these neighbouring countries and brought in suitable technologies, factories and opportunities.
China is a very large country, three times the size of India. The population is almost similar. They have one common language—except for two or three of the far-flung provinces—which helped in bringing and keeping them together. The unemployment is very low at 1.7% and youth unemployment is remarkably low. India has something like 23%.
The few good things that they did started from 1978. Premier Deng Xiaoping brought in a sharp focus. He tried to open the country and develop it. In 1978 when he took over, there were 88% of people below poverty line and today they are at 1.7%. Life expectancy from 1978 to now has improved by about 10 years. Infant mortality has come down from 53 per thousand to 8 per thousand, and literacy also improved to 96%. The State provides free education up to class 9. Labour force participation by women is 60%, whereas in India it is about 25%. That means the State has provided jobs, income, healthcare and education.
China’s economic liberalism is a transformation story of 40 years. In 1980, their GDP was less than India’s. Today they are at about 14 trillion and India is at 3.2 trillion. China is a global trading power. They are trading at 4,600 billion dollars with 54% exports. India’s trade is about 844 billion. China’s trade with India is about 100 billion dollars. For them, we are not a very big trading partner. But for us, they are important because we import 75 billion dollars of products from them. China has tweaked RMB to USD very opportunistically and intelligently, and tries to maintain parity where imports and exports are both supported. In essence, China is a very interesting mix of Confucian tradition, communist orthodoxy and super capitalism!
China has made a lot of developments and inroads into Myanmar, to an extent that Myanmar is like another province of China. In Myanmar, there are 600 garment factories—400 of them owned by China
How do the Chinese think? Along with Deng Xiaoping, there was another economic mind—Zhu Rongji, who contributed a lot to where they have reached today and how they think now. Government policies are in place to create self-sufficiency, stability and continuity. That is the bigger approach. They have something called the ‘whole nation system’ which started as a system to support sports and develop a number of world-class athletes. There is also another parallel system for education. Some of their best minds are grown in special universities and military universities and are developed for serving the country. China has global ambitions. You take the Belt and Road Initiative, which is a big Silk Road kind of movement to connect countries from China to Asia, Africa, Europe and Australia. China has made a lot of inroads into Africa because Africa has a lot of minerals. They are not there in Africa to make textile garments. China has made a lot of developments and inroads into Myanmar, to an extent that Myanmar is like another province of China. In Myanmar, there are 600 garment factories—400 of them owned by China. The road from Shanghai to Myanmar is so well developed that fabric is able to reach from the textile mills in Eastern China to the border of Myanmar in 10 days. Also, Myanmar is one of the countries where the important Mekong River flows. Water, of course, is a resource of the future. China has a lot of interest in Pakistan and Myanmar for these reasons. Pakistan gives them access to the Gwadar port and has river water up north. China has developed infrastructure extremely well—power, roads, railways, ports and communication. They think big and want to be number one. Even within their sub-systems, they aspire to be number one. They are, in general, implementers of technology, not particularly inventors; and they are not ashamed about that. The people want to be safe and respected. They are a collective lot and do not stand up as individuals. They work as a team. They look up to the government, and the government unites them. They cannot perform without a leader. They are good at working as teams. Guangxi and Renqing Guangxi and Renqing are two important concepts. Guangxi means relationship. They are very particular about personal and business relationships. Vendors try to support each other. Even if there is a minor accident on the road, drivers get down, exchange cigarettes and start making relationships! People have ‘hope’ as poverty has been removed. For them, Apple and Amazon are not the happiest places to work. China’s story is somewhat like that. Happiness is not the important thing. It's about being successful and their nation being an important country! They focus on setting up infrastructure projects and identify potential industries like steel, mining, cement, automobiles, aluminium, fertilizers, machine tools, armaments and food. As time progresses, they are willing to re-calibrate the list of potential industries and add artificial intelligence, drones, e-commerce, electric vehicles, robotics and space. So firstly, they identify the right industries and then the government supports them with land and tax subsidies. They invest first, start developments and course-correct later. It is not uncommon for the pollution control board people to go to the factories with chain and padlock and lock it up. They shut down all the small dyeing units and revised their standards for water pollution, several years after developing the industry. In general, their approach is to finish projects ‘on-time,’ if possible to finish ahead of schedule. From Three Gorges to the Great Railway: The Han penchant for greatness In power, their installed capacity is 2,000 gigawatts and 25% of that is coming from new energy. They have the vision to identify new energy opportunities like solar, wind and nuclear. They set up and commissioned the Three Gorges hydroelectric power plant, which is one of the wonders of modern engineering world with generating capacity of 22.5 GW. It took them 14 years working 24 x 7. They helped in resettling some of the villagers. It has also helped them to control the flooding problem. China adds additional power every year by the same amount which Spain consumes in a year. Let us take semiconductors. They have a goal to meet 70% of their own needs locally by 2025. In April 2018, when America decided to ban ZTE, Xi Jinping arranged a meeting with his industry leaders within a month—in May 2018 itself. They have 139,000 kms of railway lines; almost double that of India’s. They executed the Qinghai to Tibet train project covering 1400 kilometres –with 1000 metres of the stretch set up at altitudes of more than 4,000 meters, overcoming lots of challenges and yet, completing it one year early! Then they set up a train system through Kazakhstan and Kyrgyzstan to Europe, and it is functional. A lot of my produce is going by train from China to Germany and Spain now. Recently China had the foresight to seize the opportunity to set up the Tesla Gigafactory. It took them just 18 months to go from land approval to commissioning and start of production. This is an entirely American investment project. They were able to change their mind and did not wrangle about the factory being half-Chinese and half-American. They are agile and think in very innovative ways They develop ecosystems in clusters. We also have clusters in India, like Tiruppur and Surat in the textile industry. When we talk of Chinese clusters, they have the complete infrastructure and ecosystem of all the vendors and all the sub-assemblies available around. So this is the difference. The government provides a lot of incentives by means of tax rebates. In India, we call them as duty drawback. To cite an example, in January 2005, the global textile quota was about to be abolished, and the world was going to become a level playing field and China was expected to boom. Around February 2005, the Indian government withdrew duty drawbacks! These kinds of signals can often be very confusing to the industry. Speed, agility and support are very important part of the Chinese system. They have labour incentives. The workers and staff have a lot of respect. Among the business units within an enterprise, there are profit centres and profit sharing. The unions are generally passive. They don’t believe in gossip but only work. The government does a good job on skill development using many vocational training schools. People are getting more tech savvy. In the global Innovation Index, they are at 14, Vietnam at 42 and India is at 48. When we decided to go in for 3D designing, we invested in two licenses for India, 2 for China office and 2 for Vietnam office. But one of my Chinese suppliers called Ningbo Kashion bought 50 licenses! That is the way they go--with muscle, scale and power. The government and banks support them. They are agile and think in very innovative ways. My garment sample room in Hangzhou make samples in about six working days and we courier it out to Zara in Spain. What did my Chinese competitor do? He moved his sample room to Spain, just outside Zara. I could not beat him on that. These are some interesting things our competitors do and we learn from them. When it comes to thinking of business development… The inspiration for size came to them from USA. Once China decided to embrace the world, USA decided to embrace China and trade was going to be a big opportunity. For instance, the entire city of Chongqing is modelled on Chicago. Everything is big like McDonald and Kentucky. They like the big scale concept. The banks favour the bigger and stronger companies. Let's take the example of Midea and Galanz, two Chinese home appliance companies. Midea makes washing machines and Galanz, vacuum cleaners. They reached the peak in that category, then Midea decided to make vacuum cleaners and Galanz decided to make washing machines. They just went with the proposal, got their approvals and loans and got into production. The Canton Fair is an amazing fair held in Guangdong. It is held two times a year, in three phases because of the number of products they have to cover. It is a place where businesses get really transacted and huge orders are closed. I went in and walked around Canton Fair for the first time. I went to a booth and picked up a garment. I looked at it and made some remarks. The next day, I was back in my office and I saw that the same product which I had seen in the fair was sent to me. I did not ask for it. This is their initiative. They know how to promote and develop business! For those who cannot go to Canton Fair, there are places like the Shanghai-Mart which is a 365 days-a-year exhibition. It is one huge mall where suppliers from all over China have their stalls, all the time. There is the Yiwu City consumer product wholesale market. It is an amazing place and a Disneyland for the consumer products business. There are huge malls all around the city—one mall is only for stuffed toys, one for footwear, and one for household plastics and so on. You can go there and buy one piece or 600,000 pieces. That is how they think of their business development. In terms of capacity and delivery, the factories are so large. To traverse from Line No.1 to Line No. 20 of a T-Shirt factory, we need golf carts! Why does scale and size matter? Let's take a customer like Uniqlo. They have got an order for 100,000 pieces. They know that things may go wrong in the pre-production or planning. When it comes to the crunch, who will catch up with the delivery faster? The factory with 1000 pieces per day capacity in India or the one with 100,000 pieces capaciThey always get the benefit of doubt due to their scale. They have already gone ahead to develop base line on the electric vehicle batteries. Two of their companies are in the top five–CATL and BYD. A number of other Korean and Japanese companies are also producing in China. Of the 'counterfeit’ mindset & subcontracting I believe they struggle in a couple of areas. They have a culture of cost-cutting in the factories and there is a rampant problem of counterfeiting. There is also a problem which some people call as ‘quality fade’. The quality of products starts declining over a period of time. One has to patrol a lot to achieve the quality standard. This I believe is because of their mindset of frugality. They believe that one should not spend too much and they look if something can be cut down to a cheaper level. Not always do they take approvals and permission for that change! The counterfeit business is also because of their mindset. They feel, “Why should only some people have Louis Vuitton bags?” They go around copying Louis Vuitton because that doesn't need any marketing. They have Land Wind car which is a direct copy of a Range Rover. It was launched almost at the same time when the Range Rover was launched. These interesting anomalies exist and one keeps wondering how they manage to do that. Subcontract is a way of life. They don't think anything wrong about it. They take it for granted. They don't always ask for permission. Subcontract is something you have to live with if you're producing or sourcing from China. The factories are profit centres and they decide whether to do in-house or subcontract. They think it is cheaper to buy outside. This is not only for apparel but many other engineering industries too. The mysterious ‘shadow factories’ & the 'third shift' There are ‘shadow factories’ in China. They project at the front a factory as the face to the client and behind them are other factories, which don't always follow all the compliances and laws of the land. When faced with quotas or restrictions on the amount of export from China, they wriggle out by moving the goods to Singapore, Cambodia or Dubai, repack, re-document and re-export. Then, we have the famous China's third shift philosophy. If they get an order for Hugo Boss shirts, in two shifts, they will make Hugo Boss and, in the third shift, they will make a precise copy and these will be sold in other outlets. Where they falter are in the areas of product integrity. German engineers from Bosch once walked around a factory in China looking at the ball bearings. They were so experienced and by the hand-feel of the bearings found out that something was wrong. When questioned, the supervisor scratched his head and said that they are made in another factory. The infant milk powder case was very famous. The milk powder had melamine plastic components which were added to increase the protein content of the powder. It does not just happen by default; it has something to do with the culture. I had placed an order for shirts and when I went for inspection, nothing was going on in the factory. When asked about my order, they said they are made in another place called Anhui. At Anhui, I saw that every house in a village was making my shirts! Jianyu Gongchang and the question of ethics My Quality Controller once went to a factory for inspection. They replied that the job had been subcontracted. As my QC insisted on inspection, with a lot of reluctance, he was taken to a state prison. Their state prisons referred to as Jianyu Gongchang have a lot of workshops not only for tailoring but also engineering and other industries. My QC brought back samples. They were pretty good. But something bothered me. Is prison factory production humanely acceptable or not? I raised the question to ETI (Ethical Trading Initiative) in the UK and they said, “No, Sorry. We cannot approve and you better pull back.” China is often blamed for ‘dumping’ because of their mass production. One has to be very careful about IP issues with them. Can India do a China? Can India become as big as China? They started reforms in 1978 and we in 1991. We are now at $3.2 Trillion GDP and they are $14 trillion. 15 years back, China was at 3 trillion. So we are 15 years behind them. As time progresses, maybe we will ramp up. It is not about trying to be as big as China but trying to have our own position in global business. I feel that we must give economy the primacy and which I believe is not being given. We should cast a vision for 2047, when our country will be 100 years old. We should be forward-looking. Our policy should not be two steps forward and one step backward. Government should try to lay the carpets out, offer incentives, remove the barriers, lower operating costs and try to make the factories thrive. We should pitch for FTAs like Vietnam. Vietnam was working on free trade agreements with USA and Europe. Their Europe FTA has come through. Their Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) with Canada and Australia has come through. Free trade agreements are very important to boost the business. We have to benchmark and improve our ease of doing business. All the parameters on ease of doing business are very relevant and directly contribute to the growth of Indian industry. We should partner with Taiwan and Singapore for electronics to move away from our dependence on China. We import about 66% of our electronic products from China. We should take Koreans and Japanese as our mentors. Wherever the Koreans and Japanese have gone, they have developed the industries very well. Japanese bring in the quality angle while Koreans bring discipline into business. We have to make world-class quality and execution our brand! We have to set a time plan for self-reliance. We can't say that we will stop importing from China from tomorrow. We have to sharpen the saw in terms of skills, competencies and logistics infrastructure. We should try to develop Northeast India where there is a lot of potential. That will also help us in keeping these states closely bonded with us. We have to maintain our software-as-a-service (SaaS) leadership and Start-up leadership. We have to be assertive. We should try to be a little more powerful. Chinese people respect that. n
The people want to be safe and respected. They are a collective lot and do not stand up as individuals. They work as a team. They look up to the government, and the government unites them.
I believe they struggle in a couple of areas. They have a culture of cost-cutting in the factories and there is a rampant problem of counterfeiting