How China dumps its products in India

M.M. Sury
M.M. Sury | Retired Associate Professor of Economics
Updated Sep 16, 2020 | 06:05 IST

Chinese manufacturers produce different qualities of a product for different markets including poor quality cheap goods for low-income countries.

Dumping (Representational imahe)
Dumping (Representational imahe)  |  Photo Credit: BCCL

Dumping is a practice of selling goods in a foreign country at a price below their domestic selling price, after allowing for differences accruing from transportation expenses, tariffs, and other cost justifications. Many governments view the activity as an unfair competitive practice and frequently expose those engaged in dumping to an anti-dumping duty. Dumping duty is an additional import duty imposed to offset the effect of dumping which is found to materially injure the domestic industry. 

It is well-known that a large number of low-priced shoddy and spurious products from China are flooding Indian markets. Indo-China trade was resumed in 1978 after it remained suspended in the wake of Chinese aggression in 1962. With China’s accession to the World Trade Organization (WTO) in December 2001, bilateral trade between the two countries received further impetus. 

The deluge of imports from China has adversely affected India’s manufacturing sector, particularly micro and small industries. Dumping by China has forced many industrial units to operate at below capacity levels and in some cases to shut down. This has negatively affected local employment. Though the quality of Chinese products is often questionable, their availability at a low price has created a large market for them. 

Why are Chinese goods more price-competitive than similar Indian goods? Chinese competitiveness is mainly the result of efforts and support of the Chinese government. A large number of companies which dominate exports are government-controlled enterprises. China is not recognized by WTO as a market economy mainly because of the lack of transparency in its trade policy. 

While China has been long accused of manipulating its currency to maintain export competitiveness, it has also been found guilty of unfair trade practices like export subsidies which are in contravention to WTO regulations. The Department Related Parliamentary Standing Committee on Commerce (Chairman: Naresh Gujral) which presented its report to the Indian Parliament on July 26, 2018 was informed by revenue authorities that Chinese government gives rebates to the tune of 17 percent to exporters. 

Further, regional provinces in China extend tax incentives and rebates and compete with each other to attract industries in their region. They also promote exports by extending sizeable incentives such as logistics compensation for long distance freight, which makes Chinese products cost-effective. 

Apart from above WTO non-compliant trade practices, Chinese competitiveness is also the result of an enabling policy environment, often opaque, wherein the government ensures that factors of production (land, labour, capital) are available to the manufacturers at the cheapest costs. Lending rates in China are industry-friendly (6 percent or even lower); while in India banks charge one of the highest lending rates from industry, anywhere between 11 and 14 percent. 

Chinese manufacturers produce different qualities of a product for different markets including poor quality cheap goods for low-income countries. These low-quality products have a negative impact on the environment. For instance, import of impure chemicals results in low quality agro-chemicals (pesticides) for farmers. Similarly, poor quality toys, colours, firecrackers, rakhis, diyas, statues of gods and goddesses from China are health hazards for Indian families, particularly children. 

The methods adopted for dumping cheap goods in the Indian market include under-invoicing of goods, entry of prohibited goods by mis-declaration, re-routing goods through other countries and smuggling, both at sea and on land. As recently reported (HT July 13), measuring tapes and their components of Chinese origin were being exported to India through Singapore and Cambodia. The government, therefore, imposed anti-dumping duties, effective July 8, 2020, on these products originating from China or any other country for a period of 5 years.

India can ill afford to be a dumping ground for Chinese products which cause harm to local manufacturing and lead to increase in trade deficit. In fact, there is widespread global outrage against China’s illegal and dubious trade practices. While US and EU have been quite aggressive in addressing these concerns, India has been less proactive in adopting trade defence measures provided under WTO.  

The dumping of Chinese goods has negatively impacted domestic industries, some of which are labour-intensive and have traditionally been large employment generators, e.g. textiles. The Committee referred to above made the shocking revelation that dumping of Chinese solar panels led to a loss of nearly 2 lakh jobs as nearly half of the domestic industry capacity remained idle. It also revealed that as on April 18, 2018, definitive anti-dumping duty was in force on 144 products out of which 102 products were Chinese.

Downsizing or closing down of units has affected tax collections and impinged upon the Make in India programme. Further, the closure of units has stressed the banking sector which is already reeling under the burden of huge non-performing assets (NPAs). 

Post-Covid-19, the global economy is unpredictable and volatile and every country has to manage under uncertainty. Aatmanirbhar Bharat Abhiyan (Self-reliant India Initiative) announced by Prime Minister Narendra Modi on May 12, 2020 is a timely call, given the prevailing global environment. Moreover, the recent incidents on the Indo-China frontier have angered the nation which is now keen to impose economic costs on the adversary. The most effective way to do this is to boycott Chinese goods, which, in most cases, are harmful to health and environment. In short, it is time to dump China.

M.M. Sury is a guest contributor. Views expressed are personal.

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