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‘Make in India’ roars: Hong Kong shifts industrial base from China to India

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India
Image source: mediaroom.hktdc.com

Hong Kong: Even as it promotes Hong Kong as the gateway for Indian companies to the Chinese markets, the Hong Kong Trade Development Council (HKTDC) is promoting India as an alternative manufacturing base for its industries based in China, states a research report.

“In recent years, the sustained rise in production costs on the Chinese mainland has eroded the profit margins of many Hong Kong companies with labour-intensive factories located on the Chinese mainland, prompting them to seek alternative production bases elsewhere,” the report states.

“In a nutshell, India offers many advantages as an alternative production base, along with the added advantage of having a domestic market of great potential,” notes the report.

Most of the manufacturing units in Hong Kong migrated to China to take advantage of the low costs after the region was handed over to the latter by the British in 1997.

Some of the multi-storeyed buildings that once housed garment units are now used as offices or are lying vacant.

With manufacturing units shifting base, Hong Kong has turned into a business services hub.

According to HKTDC’s report, India was the world’s second biggest exporter of textile and garment products in 2014, shipping goods worth $36 billion, behind China’s exports worth a whopping $399 billion.

The report also cites the lower import tariff levied on Indian goods by the US and the European Union (EU).

India has been an active player in Asia, securing free trade agreements (FTAs) inside and outside the region. India has also been in talks on an FTA with the EU.

Further, US import tariff rates for Indian yarn-related products range between zero percent and 2.7 percent. The weighted average import tariff rates of the EU and US on non-agricultural products from India are 4.5 percent and 2.5 percent, respectively.

On the demographic profile, the report states that the Indian median age of 27 is way below China’s 37, ensuring a good supply of young workers for many years to come.

“As an aside, China recently announced the abandonment of its one-child policy in response to the country’s ageing population, though the effect would not be appreciable over the short-to-medium term,” the report added.

According to HKTDC, the Indian wage levels are comparatively lower than what is paid in China. Furthermore, labour productivity in India is going up while that in China has been declining.

The report also cites the presence of industrial estates with plug and play facilities in India for Hong Kong manufacturers to relocate their factories rather than getting bogged down in land acquisition and other issues.

The HKTDC report cites the huge domestic market available in India for Hong Kong manufacturers apart from the country being an alternative production site for overseas markets.

Meanwhile, businessmen in Hong Kong said that the region is the best route to do business with the Chinese.

“We know the people who have shifted operations out of Hong Kong to China. It is better for Indian companies to set up an office here than landing directly in China,” Noordin A Ebrahim, director of Masterful Ltd, told reporters.

Referring to credit rating agency Moody’s Investors Service to cut Hong Kong’s long-term debt outlook due to its close link to China, Ebrahim said: “I feel it is a political judgement rather than financial.”

Ebrahim is of the view that China would not do anything to shake the confidence of the Hong Kong business community and would like to see that peace continued to prevail in the former British colony.

Hong Kong has transparent and rules-based systems, very low taxes and knowledgeable work force, he added.

“Knowledge of the local market is important while branding products for China and other markets. Hong Kong-based brand consultants would provide the same for Indian companies,” David Lo, chairman, Hong Kong Designers Association, told agencies.

“The Closer Economic Partnership Arrangement (CEPA) between the mainland (China) and Hong Kong would result in the liberalisation of trade in service between the two regions from June 2016,” Yvonne So, director, corporate communication and marketing at HKTDC, told reporters.

“Overseas companies can take advantage of CEPA by outsourcing to, or partnering with, a CEPA-qualified manufacturer or services provider in Hong Kong,” she added.

As for the human resources available, she cited Hong Kong’s nine major universities having more than 75,000 full-time undergraduate students and 8,000 taught and researched full-time postgraduates. (Venkatachari Jagannathan, IANS)

Next Story

Despite Tariff War With U.S, China’s Economic Growth is Steady

The fight between the two biggest global economies has disrupted trade in goods from soybeans medical equipment, battering exporters on both sides and rattling financial markets.

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China
An employee working on the production line of an electronics factory is seen reflected on an equipment, in Jiaxing, Zhejiang province, China, April 2, 2019. VOA

China’s economic growth held steady in the latest quarter despite a tariff war with Washington, in a reassuring sign that Beijing’s efforts to reverse a slowdown might be gaining traction.

The world’s second-largest economy expanded by 6.4% over a year earlier in the three months ending in March, the government reported Wednesday. That matched the previous quarter for the weakest growth since 2009.

“This confirms that China’s economic growth is bottoming out and this momentum is likely to continue,” said Tai Hui of JP Morgan Asset Management in a report.

Government intervention

Communist leaders stepped up government spending last year and told banks to lend more after economic activity weakened, raising the risk of politically dangerous job losses.

Beijing’s decision to ease credit controls aimed at reining in rising debt “is starting to yield results,” Hui said.

Consumer spending, factory activity and investment all accelerated in March from the month before, the National Bureau of Statistics reported.

The economy showed “growing positive factors,” a bureau statement said.

A delivery worker pushes boxes of goods at the capital city's popular shopping mall in Beijing, April 4, 2019. The U.S. and China opened a ninth round of talks Wednesday, aiming to further narrow differences in an ongoing trade war.
A delivery worker pushes boxes of goods at the capital city’s popular shopping mall in Beijing, April 4, 2019. The U.S. and China opened a ninth round of talks Wednesday, aiming to further narrow differences in an ongoing trade war. VOA

Recovery later this year

Forecasters expect Chinese growth to bottom out and start to recover later this year. They expected a recovery last year but pushed back that time line after President Donald Trump hiked tariffs on Chinese imports over complaints about Beijing’s technology ambitions.

The fight between the two biggest global economies has disrupted trade in goods from soybeans medical equipment, battering exporters on both sides and rattling financial markets.

The two governments say settlement talks are making progress, but penalties on billions of dollars of each other’s goods are still in place.

China’s top economic official, Premier Li Keqiang, announced an annual official growth target of 6% to 6.5% in March, down from last year’s 6.6% rate.

Li warned of “rising difficulties” in the global economy and said the ruling Communist Party plans to step up deficit spending this year to shore up growth.

Beijing’s stimulus measures have temporarily set back official plans to reduce reliance on debt and investment to support growth.

Also in March, exports rebounded from a contraction the previous month, rising 14.2% over a year earlier. Still, exports are up only 1.4% so far this year, while imports shrank 4.8% in a sign of weak Chinese domestic demand.

China
Chinese leaders warned previously any economic recovery will be “L-shaped,” meaning once the downturn bottomed out, growth would stay low. VOA

Auto sales fell 6.9% in March from a year ago, declining for a ninth month. But that was an improvement over the 17.5% contraction in January and February.

Tariffs’ effect long-lasting

Economists warn that even if Washington and Beijing announce a trade settlement in the next few weeks or months, it is unlikely to resolve all the irritants that have bedeviled relations for decades.

The two governments agreed Dec. 1 to postpone further penalties while they negotiate, but punitive charges already imposed on billions of dollars of goods stayed in place.

Even if they make peace, the experience of other countries suggests it can take four to five years for punitive duties to “dissipate fully,” said Jamie Thompson of Capital Economics in a report last week.

Chinese leaders warned previously any economic recovery will be “L-shaped,” meaning once the downturn bottomed out, growth would stay low.

Also Read: ‘Credible Threat’ Leads To Closing of Denver-Area Schools

Credit growth accelerated in March, suggesting companies are stepping up investment and production.

Total profit for China’s national-level state-owned banks, oil producers, phone carriers and other companies rose 13.1% over a year ago in the first quarter, the government reported Tuesday. Revenue rose 6.3% and investment rose 9.7%. (VOA)