China’s Rising Costs – India’s Big Chance

India is emerging in the spotlight of multinational companies as a wave of labour unrest and wage hikes in China’s foreign factories, making your Apple iPhone to Honda cars, portends the close of an era of cheap Chinese exports.

The debate now rippling as an undercurrent among foreign businesses in China is whether India — with cheaper labour, cheaper cost of living but crumbling infrastructure — can be a future alternative to China.

Why no rush yet

1. Many foreign companies in China want to relocate over the next three to five years

2. India may be a desired destination, but the main drawback is bad infrastructure

3. To calm fears, China on Saturday announced steep growth in GDP, investment

“Foreign firms across all sectors in China are actively looking at India and the frequency of investment inquiries from China has increased more than ever before,’’ a diplomatic source told Hindustan Times in Beijing.

Taiwan companies will consider moving factories to India, Indonesia and Vietnam in the next three to five years as costs in China rise, the Economic Daily News reported this week from Taiwan, citing Arthur Chiao, chairman of Taiwan Electrical and Electronic Manufacturers’ Association. This month, Taiwanese Foxconn, maker of Apple products, hiked wages by nearly 66 per cent after 10 workers suicides and labour unrest in its Shenzhen plant.

The company reportedly began plans to relocate some factories back to Taiwan. Honda factory workers in China are negotiating pay hikes and the right to form unions. Minimum wages are being hiked by governments nationwide from northern Beijing to southern Shenzhen.

Earlier this year, a Taiwanese shoemaker producing millions of Adidas shoes in south China’s Guangzhou — the world’s shoe factory — began expanding operations to Guntur and Kadapa in Andhra Pradesh where 3,000 workers will make three lakh shoes a month.

The tilt in mood towards India by China’s foreign investors is not a rush to relocate because investors worry that erratic power supply and poor roads escalate manufacturing costs.

In May, Microsoft CEO Steve Ballmer said in Vietnam: “Intellectual property protection in India is far, far better than it would be in China.”

“A year ago, such a comment (from Microsoft) would have been inconceivable,’’ Forbes columnist Gordon Chang told HT from New York.

On Saturday, Beijing’s commerce ministry tried to turnaround the debate by releasing impressive figures. China’s economy, which grew 11.9 per cent in the first quarter, attracted $ 38.92 billion dollars (Rs 1.82 lakh crore) in foreign direct investment from January-May, up 14.31 per cent from a year ago.

Apache, which started its first India factory over a year ago in Nellore, Andhra Pradesh, and is expanding to Guntur, Kadapa and Uttarkhand this year, did not respond to requests for an interview.

As Chinese labour is getting costlier, the Adidas shoemaker in India plans to increase its workforce.

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