Basis of China's Competitiveness Author(s): D. N. Reviewed work(s): Source: Economic and Political Weekly, Vol. 36, No. 7 (Feb.

17-23, 2001), pp. 524-525 Published by: Economic and Political Weekly Stable URL: http://www.jstor.org/stable/4410281 . Accessed: 08/03/2012 05:12
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thanVAT from this point of view since VAT is a multi-point andis supposed tax to collect morerevenuefroma widertax base. So it is moreregressivethanexcise and single-pointRST. Whenit is appreciated neutrality that of VAT is no greatvirtue, cascadingcan that can beremoved zero-rating beachieved and that methods, VATdoes not by alternative boost exports,we should reconsiderthe adoptionof VAT even by promisinga whichis an"adhoc stepping stone subsidy

to doom". Better we get on with some genuinetaxreforms namely,(a)threerates of dutyin central excise, (b) threeratesin retailsalestax,(c) reduction exemptions in drasticallyin excise and sales tax, (d) uniformityof sales tax floor rates, (e) reductionand ultimateremovalof CST, (g) origin-basedsales tax for inter-state sales, (h) giving moreservicetax to states by commonconsent,and (i) introduction of a proper audit set up. All this will constitutea much betterreform.BI3

Basis of China's Competitiveness

Absenceof a land market,productionfor export,an educated labourforce and a greater identificationof labourers in a large numberof enterprises(the townshipand village enterprises) with the results of their labour are some of thefactors accountingfor China's higherproductivityand thus competitivenessin the world market.
The Chinese internalmarket is very is China justifiably competitive. waryabout are to up Indian newspapers full of storiesof opening allof itsmarkets freeimports, China's threatto Indian industryin but internallynewer units come up to Indian markets itself.Thereasons given challengeolder establishedones. For infor Chinese industry's competitiveness stance, Nanjie village began producing to noodlesby learning fromthestaterangefromcheaplabour smugglingand instant The do capidumping. newspapers carrya few ownedunitin the Henanprovincial saner pieces, which point to Chinese tal. Butwithina few yearsthe Nanjieunit had capturedthe marketwith its better standing. industry'sinternational control taste,while and To understand China'scompetitiveness attention-to quality it is necessary mentionits international the state-ownedunit had to close down. to to role.Any traveller the west (andJapan) To takeanother examplethatwill have a will notice that most of the lower range familiar for Indianreaders, Shanthe ring has of manufactures the 'Madein China' ghai compositetextile industry given carry label. China has been producing these way to numerousvillage-basedunits. In the Chinesemarketdomesticmanumarketsfor more goods for international than yearsnow.And,ashasbeenargued facturers appliances,motorcyclesand of 20 of industrialisation, TVs, to namea few goods,havebeenable byvotaries 'export-led' theeffectsof thehigherqualityproduction to successfullycompetewith those from arenotconfined export to alone. Japan,Korea,etc. The Koreanand Japaproduction that market Exportunitsthemselvesproducefor and nesebrands nowdottheIndian market. will soonfacecompeticompetein thenational Managers intheseareas surely and workersfrom the export units also tion from Chinesebrandslike Haierand move on to set up otherproducing units, Konka in domestic appliancesand TVs know- respectively. do so, the ChinesecomTo takingtheirskills and production withthem.Thus,therearespillover panieswill also haveto set up(possiblyin ledge of with after effectsfromtheintroduction modernised collaboration Indian partners) sales for production export.This is something service,which are crucialfor appliances. Of course, a lot of shoddy goods are has theIndian from, economy notbenefited oftenwithno attention safety to due to the sustainedpolitical opposition produced, Whenbuyingelectricalgoods to production export. for standards. DN

in Chinaone has to be careful.But competitionhashelpedweedoutunitsproducing the worstgoods. Forinstance,in electrical fans the numberof manufacturers went down froma few thousand a few to The hundred. unitsthatremain on produce a fairlylargescale andfor a wide market, includingthe export market.Many still producepoorqualitygoodsfor the lowerendof themarket. Someof thisis exported, not to the developedcountrymarkets but to, for instance,Nepal, Bangladeshand India.As competitionincreasesin these markets cusincomesincrease) (provided tomersandretailers likelyto rejectthe are lowerqualitygoods. Lowerquality,however, is not alwaysa liability,particularly whenthe trade-offis betweenqualityand price.For toys thatanywayarenot going to remainusefulfor very long (whether it is becausetheybreakor becausechildren wantsomething new)youdo notneedvery high durability. Most of the industrial units producing lower-end manufacturesare not stateowned. Nor are they all owned by individual capitalists.A large proportion of China'sexplosive industrial growthtook and placein whatareknownas 'Township Thesearecollectively VillageEnterprises'. ownedindustrial ownedbythe enterprises, respectivetownshipor village. Theirsurpluses accruenot to individual capitalists but to the townshipor village authority. These TVEs, as they are called, have a numberof advantages. They are located on landownedby thelocalauthority itself, and thus do not have to pay any rentfor land.In fact, in Chinaas a whole, landis not yet a commodity,not yet real estate. Of course, a lease marketis growingin Chinaand this is likely to put an end to the advantageit has in land not being a But commodity. as yet TVEs in Chinado not haveto pay rentfor the landon which the factories are situated,resultingin a substantial price advantage. Capital too in China is substantially thanin India.China'ssavingsrate cheaper is more than 40 per cent comparedto around percentfor India.A partof this 25 savings is held not in banks but in the themselves,lesseningthe deenterprises pendenceof the TVEs on costlier bank credit for workingcapital. Theselandandcapital priceadvantages, however,are of a once-over,static type. in More important China's competitiveness is the dynamicadvantage higher of labourproductivity. benefitsof proThe ducing for exactingexportmarketshave

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alreadybeen mentioned.This in turn is made possible by the high level of educationof Chineseworkers.The virtually of universal workers (with literacy Chinese residualilliteracybeing confined to the elderly and some in minorityareas) enables higher productivity than India's current65 per cent or so literacy. Literacy maymakepossiblehigherprowhichis helpedif thereis some ductivity, with the object of producidentification that tion,anidentification wouldvarywith status or (village-based migrant), abilityto influencedecisionsaboutuse of income, differencesbetween groupsand classes, etc. The fact thatthe TVEsdo not lead to the same accumulation profits in the of handsof a few individuals whilethe mass of workersare madeto sufferthe conseas quences of adjustment, in the usual makesfor a privately-owned enterprises, of identification workerswith the greater enterprises,and thus stimulateshigher productivity. The identification the workerswith of the objectof production even higherin is the case of the handfulof villages where allenterprises, are farms, collecincluding tively owned.Theyaremorecomprehensive in the attentionthat can be paid to For workers. instarice, whenHuaxivillage decided to switch its textile production line fromsynthetics highervaluewoolto this lens, it carried out withoutlaying-off any workers,not even migrantworkers. Worker-ownedcollective units in the have shownsimilarflexBasquecountry ibility in dealingwith marketdownturns and shifts in production. This should be to contrasted the continued oppositionof coirworkers' unionsin Kerala mechanito sation,leadingto theshiftof theseprocessing units across state bordersto Tamil Nadu. Where workers beartheburden only of adjustment, no attention with beingpaid to its social costs, the only resultcan be a highlevel of alienation workers of from the enterprises. Since all these enterprises, whether collectivelyor privatelyowned, compete in thesamemarket, theyhaveto meetthe normal to standards remain in productivity the market. Whilethe collectively-owned TVEs achieve with may higher productivity somereliance identification workers on of with the enterprises, privately-owned 'sweat enterprises dothesamethrough may shop' labourpractices. In comparison the west or Japan, to lowerwagesdocomeintoplayin allowing Chinato developas a manufacturing hub.

But this is not the case in comparison to, say, India, where workers' wages (and even more so disposableincomes after houserentsarededucted) muchlower are than in China.Overallthe absence of a land market,productionfor export, an educatedlabourforce and a greater identificationof labourers a large number in of enterprises TVEs)with the results (the of their labour are some of the factors accountingfor China's higher productiin vity andthuscompetitiveness theworld market manufacturing for bases.Theseare thefactors haveenabled tobeatother that it rivals in southeast and south Asia in hubs developingas manufacturing for the world economy. In China's export drive there are elements of disposing of unsold products below cost and of aggressivelyseeking marketshare.But these are partof any market instruments. capitalist enterprise's Inanycase,whatis dumping oneperson to is pricecompetition another, there to and is a -verythin line dividingthe two. The base for being able to sustainsuch practices, however, depends on continuing higher productivity.China's TVEs and otherexportingunits are not state enterprises,whichcansubsidiselosses through to recourse thepublic The exchequer. TVEs haveto standon theirown financially and cannot existfora longwhilemaking losses. Thus,evenaggressive practices, marketing

like dumping,need a base of higherproductivityto be continuedfor morethana short while. Insteadof seekingrefugein protection, as many Indian manufacturing associations are demanding (with not a little political support from a new rainbow coalitionrangingfrom Hindufundamentalistsacrossthepoliticalcentre,upto and includingwhat used to be the left), the betterresponseis to upgrade productivity, so as to increase the quality and price competitivenessof one's own industry. for whichis even more Vietnam, instance, liable than India to being swampedby Chineseexports,hasbeenableto meetthe its challengeby improving own qualityin areaslike beer,plasticgoods and cycles. There is no other way than increasing for to productivity Indian industry meetthe challengeposed by Chineseexports. The developmentsof the last two decadesor so haveresulted theshiftof the in focusof theworldeconomy manufacturing to 'thesouth',dominated China,southby eastAsia, Mexico andBrazil.SouthAsia, is in behind this India, stilllagging including China'saccumulation has respect. strategy beenbasedonreliance developing on itself as one of the key centres,if not the main Whether centre,of worldmanufacturing. China's strategy can be the basis of a hegemonic system of accumulation, however,is yet anothermatter.E

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