Where is the industry

INFOCUS | INDIA-CHINA | TECHNOLOGY | COVER STORY

Bittersweet story

Where is the industry that turned gur into chini? |28| India-China Chronicle  July 2012

The simple, sweet gur from India was transformed into shiny white crystals of sugar in China; thus the name chini for sugar: A wonderful little tale of sharing and innovation between the two countries of the East.

S

ince ages, the flow of technology from east to west traversed through the old silk route. In 2nd Century BC, four major technologies – paper making, printing, gunpowder, silk and compass – developed in China changed the world. It is a well-known story that a Han princess smuggled silkworms and mulberry seedlings to the West via the Silk Route.

Thus, technological exchanges between east and west during the 2nd century have been well documented. It is also well documented that technologies from India moved to China and vice versa. Historians also confirm such exchanges took place during the same period when Chinese travellers were first introduced to the extract from sugarcane; molasses or what is known as gur in Indian homes. This home-based technology was adopted by Chinese travellers, which was then further developed and refined into sugar granules in China. Over a period of time, the refined sugar was introduced to Indians by subsequent Chinese travellers and thus the white crystals of sugar came to be known as chini in the Hindi heartland, a tribute to its origins.

There are many such examples of scientific knowledge being shared between the two civilizations. In the eighth century, Gautam Siddha translated Aryabhata’s astronomical signs into Chinese in his most famous work known as KaiyuanZhanjing. Gautam Siddha was a Chinese of Indian descent and he also translated the Naba-

graha calendar into Chinese.

With such a glorious past of scientific and technological cooperation between the two countries, due to known and unknown reasons such strong engagement later remained disconnected for almost four decades. Even though politically we looked at opposite directions, the Wing Sung pen was one of the most popular Chinese items available in most households in India. Likewise, Indian yoga had crossed the borders and gained acceptance in China long time ago. We may have looked away from each other for political reasons but economic and social ties remained intact overtly and covertly during this time. The West has always tried to pit the two neighbours against each other in almost all types of international discourse. For instance, the Rand Corporation, an influential US strategic think tank in its report said China and India will exercise increasing influence in international affairs in the coming decades and each country’s role on the world stage will be affected by the progress that it makes and by the competition and cooperation that develop between them. In other words, as late as 2005, the West was still pitting the neighbours against each other. Their reasons are understandable because the combined market of India and China comprise more than 30 per cent of the global market.

Status of Science & Technology Scientific research, invention, and innovation are key drivers for development and growth.

The S&T prowess of both countries are well recognised. China emerging as a superpower in manufacturing due to its concerted efforts in the building block of manufacturing technologies through transfers, development, adaptation

PD Kaushik

Adviser - Legal Affairs, ICEC

silk route

July 2012  India-China Chronicle |29|

INFOCUS | INDIA-CHINA | TECHNOLOGY | COVER STORY

BALCo Project and thermal power project in Andhra Pradesh by Chinese companies

and adoption, in the initial stages of military hardware and then subsequently diversifying into the manufacturing sector. Likewise, India adopted another route to emerge as the second largest pool of English speaking S&T personnel through its IITs and NITs, etc. Later, it focussed its abundant trained human resources on software and then diversifying into services. However, it is also true that both emerged as a science and technological super power independent of each other.

Today, China has emerged as a major innovating country in this region. It is the third largest R&D spender in the world after the US and

|30| India-China Chronicle  July 2012

Japan. In 2009, China revised its national patent law to boost indigenous developers of technology and then went on to issue 580,000 patents in the same year. In 2011, China surpassed the US and Japan in the number of patents filed, experiencing a rise of 73 per cent in domestic patent applications over last year. In other words, domestic companies were overtaking overseas companies in filing patent applications. Despite lot of criticism, China is putting a lot of effort in initiating a transition from “Made in China” to “Designed in China.” On the other side of the border in India, the overseas companies continue to dominate in filing patent applications. In 2011, 37,000 applications were filed in the Indian Patent Office. But the figures of other forms of intellectual property experienced a quantum jump. For instance, almost 170,000 applications were filed for trademark alone. In other words, there is wide gap in the absolute numbers between the two countries. However, it is also true that almost 80 per cent IPR applications filed in India receive registration as compared to 68 per cent in China.

On the policy front, both countries have adopted a more or less similar path with little divergence. For instance, the Gross Domestic Expenditure on R&D as a percentage of Gross Domestic Product or research intensity varied from 0.8 to 1.0 for both countries during 1995 to 2005 period. However, during the same period it was revealed that the share of government expenditure on R&D as a percentage of GDP was almost two times more in India than China. In other words, research intensity in India was more government driven than industry sector due to higher education funding. Conversely, the research intensity in China during the period was primarily driven by the industry than government spending. China has set its target in the recently announced 11th Plan document to raise its Gross Domestic Expenditure on R&D to at least 2.5 per cent of GDP, raising the total factor productivity to 60 per cent of GDP growth and number of internationally cited Chinese articles to rank in the world’s top five by 2020. On the other side, India’s 11th Five Year Plan (2008-2013) calls for tripling its investment in S&T, almost 2.5 per cent of GDP. Though both countries envisage increased investment on S&T, but in absolute terms China is way ahead of India.

Both countries have emerged as a powerhouse of S&T manpower in the world. China graduates 600,000 engineers as compared to 350,000 engineering graduates from India every year. However, the quality aspect of engineers considerably influences their employability at

indian companies in China

international level. McKinsey Global Institute’s survey (2005) covering 83 MNCs revealed that 25 per cent of Indian engineers were employable as compared to 10 per cent of Chinese engineers. This figure dips sharply for both countries in PhDs and other higher education courses. The main reason for low employability was attributed to lack of hands-on experience despite solid theoretical training, overall communication and cultural style. On the other side, the employability of engineers and S&T personnels between India and China is much worse because of a variety of other reasons, besides language and work culture. For instance, a motor mechanic or a technician is considered as an engineer in China. In fact, any course with engineering in the title is regarded as engineer regardless of the number of years needed to obtain the degree. Undoubtedly, both governments have recognised such anomalies and are closely engaged to sort out such issues.

India & China Exchange India-China ties have lately moved from strong to stronger in the new millennium. Bilateral trade continues to be the major success story of India-China relations. It is galloping for-

ward at a tremendous pace and recent estimates suggesting that India-China bilateral trade will touch the magical figure of US$ 100 billion by 2015. Both governments believe that bilateral trade is the most important factor to promote bilateral relations. Except border issues, both countries have made rapid progress in variety of areas like culture, society and science and technology.

Does technology flow takes place between India and China? Technology flows not only from R&D institutions to industry, it also flows from people to people, industry to industry, country to country. In other words, technology is just a subset of knowledge, and essentially knowledge is the driver of growth. The transition from gur to chini is an apt example showcasing exchange of knowledge between India and China which led to further development of knowledge for sugar making. Growing trade between the two countries is an indication of growing exchange of knowledge.

In the recent past, about US$ 231.4 million worth of Chinese investments were approved, of which only US$ 0.61 million has been the actual inflow. Major impediment in inflows from China is the Indian government’s certain re-

Chinese travellers were first introduCed to the extraCt from sugarCane; molasses or what is known as gur in indian homes. this home-based teChnology was adopted by Chinese travellers, whiCh was then further developed and refined into sugar granules in China. over a period of time, the refined sugar was introduCed to indians by subsequent Chinese travellers and thus the white Crystals of sugar Came to be known as chini in the hindi heartland

July 2012  India-China Chronicle |31|

INFOCUS | INDIA-CHINA | TECHNOLOGY | COVER STORY

unshaCkled flow of knowledge between india and China is a reality and this flow is ever expanding. hardware knowledge is flowing from China to india and software knowledge is flowing from india to China

strictive policies to Chinese goods and services, especially services under Mode 4 – movement of natural persons. Chinese investment is quite significant in infrastructure projects. Chinese companies have taken up projects in India to the tune of US$ 1 billion, like thermal power project in Andhra Pradesh, BALCO Project, National Highway Projects, etc. Indian delegation comprising TATA Steel, Essar Steel, SAIL, and many others steel manufacturers, held talks with China Steel and Industry Association recently to explore possibilities of collaboration in areas like technology transfer, engineering design, operation, construction and R&D. The focus of discussions remained on shifting manufacturing base from China to India, especially in equipment manufacturing like pelatisation, blast furnace and coke oven. Both China and India showed interest in expanding their engagement through an investment of US$ 120 billion in the steel industry over the next 10 years.

In the past, almost 250 major Indian companies have invested in China, as the against 60odd Chinese companies which have invested in India. But these numbers are likely to jump with the setting up of the Joint Study Group. India and China have stepped up functional cooperation in areas as diverse as culture, trade and economy, water resources, audit, personnel, mining, space, science and technology, etc. The two sides agreed to further promote cooperation in the spheres of education, science and technology, healthcare, information, tourism, youth exchange, agriculture, dairy development, sports and other fields on the basis of mutual benefit and reciprocity. Chinese investments in India have broadly followed the following trend: a) Going it Alone – Large sized Chinese companies, usually the State Owned Enterprises (SOEs) have sufficient resources and bandwidth to go it alone in any market. They prefer to set up wholly owned subsidiaries in India on their own for R&D, sales and marketing, sourcing raw materials and intermediate goods, etc. b) Trusted Joint Ventures – Few large Chinese companies with sufficient long term interests in India have chosen to partner with their most trusted local business partner. Such trust based relationship might not be synergistic in a

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conventional sense but certainly have illustrated the Chinese way of doing business. For example, one large Chinese listed company with subsidiaries in 18 countries has partnered with a small family-run business based in a small Indian town with a business presence nowhere else in India. Likewise, there are other examples where a large Chinese company has simply stuck with its first ever customer in India. Yet another large Chinese company has chosen to partner with an individual businessman who acts as their representative on the board of an Indian company. c) No Strings Attached, Only Some Contracts – Many Chinese companies daunted by the complex regulatory regime in India preferred to operate through purely contract arrangements without investing in long term assets. Such contractual arrangements include leasing capacity in an existing unit, hiring another as an exclusive distributor, and contract-

ing yet another to provide after sales support to its erstwhile customers, or any other similar combination of contracts. d) Goods in Exchange for Shares – As recently in July 2011, the RBI allowed Indian companies to issue shares to foreign companies in exchange of capital goods/machinery/ equipment or even second hand machinery but subject to certain conditions. In view of large imports of capital equipment from China, this move offered a simple and straight forward method for Chinese companies to capitalise on growth prospects of the Indian market, without having to set up their own operations or entering into JVs, etc. However, this form of entry is still in its infancy but definitely shows potential.

China has emerged as the largest trading partner of India, but India is still its tenth largest trading partner. The trade basket is an indication of what flows from India to China and viceversa. For instance, Ores, slag and ash constitute 42 per cent of Indian exports to China, followed

by cotton, copper articles, etc. During the same period, electrical machinery constitutes 30 per cent of all imports from China to India, followed by mechanical and project equipment, boilers, etc. In other words, the trade basket reveals that there is a net flow of technology from China to India. However, the growing presence of Indian IT majors in China is also indicative of knowledge flow from India to China. For instance, Tata Consultancy Services, Tech Mahindra, Mahindra Satyam (formerly Satyam Computers), NIIT, 3i Infotech, Nucleus Software, Wipro, Mindtree Consulting, and Genpact have their presence in China for a long time.

As recently as in late 2011, Infosys Technologies, HCL Technologies, Zansar Technologies, BirlaSoft, and KPIT Cummins have made additional investments in China. Thus, unshackled flow of knowledge between India and China is a reality and this flow is ever expanding.

Hardware knowledge is flowing from China to India and software knowledge is flowing from India to China.

Face-2-Face: People’s Perception How do people living on both sides of the border feel about each other? The perception survey revealed that a large majority of Indians view the “Made in China” tag with suspoicion due to its unreliable quality and cheap pricing.

Likewise, Chinese find socio-economic disparity in India a major weakness of the Indian market. The survey threw up a variety of issues which influence business decisions considerably on both sides. For instance, there was an overwhelmingly favourable response for freer trade between both countries. On this issue, more than 80 per cent respondents from both side favoured freer trade. However, the surprise result was that those who opposed the proposition were from Indian industry and were quite diffident on the issue of freer trade with China.

Indian Response on Rank Strength of Chinese Economy Fast paced economic development 1 Excellent infrastructure 2 Huge domestic market 3 Boom in the service sector 4 Compliant and cheap labour 5 Stable currency 6 Abundant natural resources 7 Indian Response on Weakness of Chinese Economy Socio-economic disparity State ownership Weak legal regime Corrupt bureaucracy Dependency on trade Slow market oriented reforms Thriving black economy

Rank 1 2 3 4 5 6 7

Chinese Response on Strength of Indian Economy Huge domestic market Compliant and cheap labour Booming service sector Abundant natural resources Planned economic development Good infrastructure Stable currency Chinese Response on Weakness of Indian Economy Socio-economic disparity Slow market oriented reforms Corrupt bureaucracy Weak legal regime Dependency on trade High transaction costs Thriving black economy

On the other side, the business community in India, largely comprising of retailers and wholesalers, was excited about liberalising trade between both countries.

Intense competition and fear of dumping goods were the reasons for diffidence and others who were in favour of free trade gave low prices and good packaging as reasons for their response.

On a broader canvas, the Chinese respondents ranked the strengths of Indian economy and likewise Indian respondents ranked the strengths of Chinese economy. It was interesting to note that though many respondents have not visited their neighbour but were quite informed.

A large market is recognised as the strength of both countries. The Indians were quite influenced by the availability of a strong infrastructure in China, but the Chinese ranked Indian infrastructure facilities as low. Chinese respondents showed their interest in the booming service sector in India. It was understandable that both countries dealt with each other in terms of the US dollar and therefore the stability of each other’s currency was kept at a low priority.

If these observations are further explored on the basis of occupation and region, it was quite surprising that the response did not exhibit any major variation in terms of ranking. Both occupation-wise and on regional basis, the response of ranking remained the same. However, ageApril 2012  India-China Chronicle |33|

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group response showed considerable variation in terms of ranking. Responses from below 40 years, coincided with the general ranking trend, but all above 40 differed in their ranking by listing compliant and cheap labour as the strength of both economies.

The respondents were also asked to rank the weaknesses of the respective economies. Once again the results were interesting for policy makers. Respondents from both sides opined that a growing socio-economic disparity is a major weakness of the respective economy. In other words, there is a large population existing in both countries who is deprived of the benefits of development and may become a major cause off unstability in the long run.

Interestingly, respondents from both countries ranked a thriving black economy at the lowest. During interviews, it was revealed that the respondents have accepted counterfeits and

both Countries are Competitors in some areas but there are many other areas where they Can Complement eaCh other. though the story of hardware and software is old, but in reality not muCh progress has been made in this direCtion

The variations in certain cases were on account of poor understanding of the issues and their short and long term impact on the economy. For instance, the issue of black market was confused with underhand dealings in some cases.

The respondents were also requested to identify areas which they felt could be possible areas of economic cooperation. The Indian respondents showed their interest in collaborating with Chinese companies in areas like electronics, services and textiles. However, during the interviews it was revealed further that under electronics, Indian respondents were interested to collaborate in areas like solar technology, embedded technology, control systems, etc. Likewise, textile equipment and machinery were the most preferred areas in the textile category and security and surveillance, in the service sector.

Indian respondents also favoured collaborations in engineering, chemicals, instruments,

Indian Preference for Collaboration with Chinese Firms

technology, engineering, pharmaceuticals, etc.

The Chinese response was largely influenced by the hype created by the western media on the software and biotechnology prowess of Indian companies. However, during interviews it was revealed that their response was driven by specific interest in software and bio-technology.

The software prowess of India dominates the Chinese mind and hence such an overwhelming interest. However, diversified interests in engineering and chemicals also indicate towards some serious reasons. For instance, the Chinese entrepreneurs are interested to collaborate with auto-components OEM suppliers in India because of their domination at the international level. Likewise, their interest lies in heavy engineering equipment manufacturing and electrical machinery. One of the reasons cited during the interview was to gain access to Indian market as the competition was low in these sectors but

has been made in this direction. Likewise there are many other areas where both countries can partner with each other for mutual benefit.

Performance in science, technology, and innovation has continued to strengthen in recent years worldwide, especially in India and China.

India and China have become major destinations for foreign direct investment (FDI). They are increasing their share of high-technology products and services and also broad-basing their export structures. Both countries have realised that knowledge, more importantly science and technology, play a crucial role in achieving economic development and growth. Consequently, their respective five-year plans chalk the roadmap for the future which essentially rests on S&T development. Knowledge grows with exchange as the history of India-China suggests. Foreign direct investment is another way of accessing technology and both countries

Chinese Preference for Collaboration with Indian Firms 1%

6%

5%

32%

6%

8% Software Engineering

Engineering

32%

Textiles 11% 14%

illegal copies as part of conventional business and therefore did not considered it as an important issue to determine it as a weakness of the economy. On the other hand, respondents on both sides of the border exhibited their wariness on the issue of corruption and weak legal regime. Understandably, one may have scores of laws but if the enforcement is weak then it adversely affects trust and confidence in the business environment. It was quite revealing that respondents from both sides of the border felt that each other economies were too dependent on trade and both sides ranked it at the same level.

Slight variations were observed in the ranks on the basis of occupation, region and age group. However, a large majority in each category ranked the issues as per the general trend. |34| India-China Chronicle  July 2012

Electronics

6%

21%

58%

Biotechnology

Services

Chemicals

Chemicals

Services

Others

Others

rubber, dies and tools. However, their requirements were quite specific. For example, a petrochemical plant requires bulk supply of certain essential chemicals and re-agents and the respondent felt that China can be the only source for uninterrupted supply for bulk consumption.

Likewise, dies and tools in large quantities can be obtained from China at competitive prices.

Thus, some of the responses were driven on account of accessing state of the art technology few were driven out of necessity for uninterrupted supply and fewer purely driven by competitive pricing.

Chinese respondents also revealed their interest to collaborate with Indian firms. Some of the most favoured sector identified for collaboration with Indian firms included software, bio-

that the Indian market was too large. Besides, few Chinese respondents showed interest in the BPO and KPO revolution in India.

The year 2012 has been declared as the India-China Year of Friendship and Cooperation at the BRIC Summit which was held in New Delhi. People on both sides of the border have shown deep interest and preference for closer ties. Trade volumes are growing between both countries. Now if political expediency is replaced by economic rationality, then both countries are looking at each other as partners for mutual benefits. Undoubtedly, both countries are competitors in some areas but there are many other areas where they can complement each other. Though the story of hardware and software is old, but in reality not much progress

have become the most favoured destination for the developed countries. However, both countries should now look at the future and move towards investments from a purely commodity trade perspective. Already growing trade deficit is causing a lot of heartburn, but investment flow will ease the pressure of deficit. On the other side, we must ease out restrictive policies to get the benefit of collaborative efforts.

Both nations are standing at the cusp of development; a right turn together will push them both into a different orbit. Both sides will have to show maturity and understanding for building mutual trust and confidence. We have a glorious past of cooperation and collaboration; let us now paint a future which can give hope and prosperity to billions. ď ą July 2012  India-China Chronicle |35|