Nov 2011

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Vol 1, Issue 1, November 2011 EDITOR-IN-CHIEF Mohammed Saqib EDITOR Prashun Bhaumik EDITORIAL BOARD Abid Hussain Mani Shankar Aiyar P.S. Deodhar Dilip Cherian Amir Ullah Khan Parama Sinha Palit Chen Si (China) EDITORIAL TEAM Anchit Goel Irfan Alam Manju Hara Harshie Wahie Sumelika Bhattacharyya DESIGN Sita Raikwar OWNED, PRINTED AND PUBLISHED BY Mohammed Saqib PUBLISHED FROM A-82, Zakir Bagh, New Delhi - 110025 ADDRESS FOR ALL CORRESPONDENCE India China Chronicle K-19 (GF), South Extension - II, New Delhi - 110049 Telefax: 011-46550348 PRINTED AT Anne Print Solutions B-32, Okhla Industrial Area, Phase-I, New Delhi-110020 Tel. 011-40525878, 011-65690940 Email: info@anneprintsolutions.com All Rights Reserved. Reproduction in whole or in part without written permission is prohibited.

All advertising enquiries, comments and feedback are welcome at icec@icec-council.org The information contained in this magazine has been reviewed for accuracy and is deemed reliable but is not necessarily complete or guaranteed by the Editor. The views expressed in this digest are solely that of the writers and do not necessarily reflect the views of the magazine.

Some More Enterprise

India has more than three million registered and 10 million unregistered SMEs, producing about 7,500 items. But they urgently need to wake up to the technological changes that the past decade has witnessed. After all technology plays a vital role in helping SMEs to constantly move up the value chain and in providing a multi-prolonged strategy for maximizing business opportunities.

But the fact remains that there has been only a limited adoption of new technologies by SMEs. Compare that to the rate of change in technology and the pace of its use in business operations of SMEs it is far from being enough.

SMEs need to show a lot more enterprise.

Without doubt or prejudice, each SME has to understand that with increasing competition and globalization, their prime focus should be to continuously innovate. To survive, grow and win, they will have to continuously infuse latest technology tools in their production processes and marketing and management functions to cut cost, gain efficiency and consistency.

There is no doubt that in the coming years only those SMEs who have a strong technological base and willingness to restructure themselves will be able to thrive.

This particularly, in view of the Chinese success story and its aggressive marketing. We know that unlike India, China’s economy is greatly export driven. With the demand from China’s traditional markets – mainly the US and Europe - dwindling, the country, in its quest for new markets, has found a paradise in India’s unprotected and open markets. And the sector which is hurt the most is the SME sector with Chinese products flooding the markets with a lucrative price tag 10 to 70 per cent lower than the prices of the same products manufactured in India. There are even reports that traditional Indian handicraft items are also being manufactured by China now and sold in India.

While the question of quality has always been in doubt with anything attached to the ‘made in China’ tag, Indian authorities must now bring into place stringent quality checking of these goods. India will also have to ensure that imports from China clear quality and safety norms before being allowed to be sold or marketed in the country.

With the Chinese government giving more incentives to boost its export sector, imports into India and other neighbouring countries will continue to surge. This will not only eat into India’s domestic markets but also shrink India’s share in global markets.

But while China remains the undisputed number one producer of the world by a long distance, there is evidence that India is beginning to bridge the gap. The main reasons are increase in labour costs in China, gradual removal of direct and indirect subsidies by the Chinese government and appreciation of the Yuan. Many global SMEs who already have their manufacturing bases in China are looking to diversify their risks by establishing their operations in India.

And SMEs that are already doing business in India will continue to follow their growth path here. On the other hand, most forward looking foreign SMEs know that future growth is in countries like India and sooner or later, they will need to start doing business with India.

But for now, Indian SMEs need to be open to the idea of partnering with their global counterparts. This will open up more opportunities for both parties and will help Indian companies to globalize their operations and professionalize their managements. It is time Indian SMEs wake up to the global reality and realizes its full potential.

CONTENTS

COVER STORY

4 Feedback

Indian SMEs need green policy

Enter the Xiao ban

20 Going Green now to

6

China’s nerves of steel

Once a command economy, China was quick to re-invent itself under the pragmatic Deng Xiaoping who famously said, “The colour of the cat does not matter as long as it can catch mice.”

TALKING ALPHABETS

53 Love must not

avoid Going Red later

Greening SMEs require technological innovations and learning from other countries that have successful and cost efficient technologies which can be imported by SMEs at an affordable price.

pHOTO FEATURES

55 ICEC – A New

INTERVIEW

12 SMEs will be the

Engines of Growth

Chandni Chowk to China Entrepreneurship is in abundance in India and China, but for SMEs to truly succeed it essentially requires an enabling environment equipped with efficient and effective support systems.

|2| India-China Chronicle  November 2011

Private sector in China

42 Need to democratize

engines of growth in the coming decades

Uday Kumar Varma is a 1976 batch IAS officer of the Madhya Pradesh cadre. He took charge as Secretary, Ministry of MSME just about a year ago. A seasoned officer who has worked across a range of state and central departments, Verma has also authored two books. In a wide-ranging conversation with Irfan Alam, Mr Verma talks about the potential of SMEs in the Indian context and also the challenges and competition from China.

For private enterprise to succeed there is need to make the set up more democratic so as to keep up with global standards.

on Study Tour

The India China Economic and Cultural Council (ICEC) organized a study tour to China and Hong Kong for a 25-member delegation of the Federation of Andhra Pradesh Small Industries Association (FAPSIA) in July, 2011

61 Exhibitions &

Trade Show

In India & In China

film review

16 Little dragons in flight

China’s contribution to SMEs has proved that this eastern dragon is now well and truly awake to the sound of pattering feet of its many little dragons.

57 FAPSIA Joins ICEC

More than Courage

One of the important factors for businesses’ survival is the availability of a healthy cash flow. Yet for SMEs, maintaining a positive cash flow is often far from their reach.

Chapter

The India China Economic and Cultural Council (ICEC) launched its Gujarat chapter in Ahmedabad on August 26, 2011

PHOTO FEATURES

45 SMEs Need to Have

63 City of Life

INTERVIEW

and Death

24 India, China together

can transform the global economy

An interview with Salil Bhandari, President of the PHD Chamber of Commerce and Industry

Sustainable financing of MSMEs

28 Reduce, Reuse, Recyle

32

small business

Status and future of SMEs in China

be forgotten

A look at Chinese writing

In order to enhance sustainable financing in India, there is a need to develop institutional competencies to ensure that industry projects are fully evaluated for sustainability risk.

Face-2-Face: Individual Views

48 Shadows of the past

clarity for future

The youth and interest in doing business with each other are the two main points that emerge from a survey conducted in India and China on individual perceptions.

f e e d b a c k

Mutual Benefit Reference India-China Chronicle ( July-August 2011) the views of the Chinese ambassador Zhang Yan expressed in his speech at the conference on “India-China Economic Relations and Performance in the 21st century,” offers a road map to stability and prosperity in Asia. A mutually beneficial economic engagement between India & China holds immense potential of helping each other overcome the historical resentment against each other and providing the relationship a contemporary and progressive framework to operate within.

– Chitra Subramanium, Chennai Zen of Buddhism The article on The Zen of Buddhism in the last issue of the India-China Chronicle made for a very interesting read. It traced the origin of the religion in India and how it then spread across China. The article also reflected upon the differences in forms over period of time. But the religion flourished in China whereas in the country of its origin it was on the wane. But still there are many similarities and some common grounds between the two countries on account of Buddhism.

When we talk of India-China relations, we must remember that religion plays a very important part of culture in both countries. It was a good and informative article.

– Abid Hussain, student, JNU, Delhi |4| India-China Chronicle  November 2011

Fourth Columnists The cover story in the July-August issue on media was a real eye opener.

Today the media in its race for eyeballs is ready to blow things out of proportion.

They want more of the masala and less substance. Sensationalism has become the order of the day. But some are still balanced and fair to some extent especially while covering news of these two giant countries even as the prevailing perceptions influence the direction of thought. But then there should be a concerted effort by the media to restrict the flow of irrelevant and baseless assumptions. In the recent times we have seen that the relationship between these two countries have started taking a more positive shape and may be few years down the line in can get better. We hope the media play a constructive role towards this end.

– Sameer Verma, NDTV, Delhi The Dragon Encircles the Elephant India-China relationships in the field of trade and economy have been discussed in the article “One size doesn’t fit all.” The discussion takes in to account the growth story of the two economies though both are moving forward independent of each other.

In fact the development that have taken place are not structured trade

relationship based on state policy of the two nations but are mostly based on cost-effectiveness and entrepreneurship of people of the two nations. In Indi, the Chinese are contributing in the development of the construction sector or power generation but that too without much backing of the state policy. The thrust areas in India’s market development strategy for China are information-technology, engineering and pharmaceutical products. These slowly need to be developed in a systematic manner. There are many irritants in the development of such a trade relationship and these are lack of understanding of each-others market potential and marketing strategy, policy framework at government level etc. The Chinese attitude to remain strategically superior to its neighbour particularly India at all costs is a matter that will always act as a deterrent for development of trade. China is slowly developing closer ties with Pakistan that provides it with a ready market apart from strategically encircling India with a policy of ‘cold start’ – a policy framed

by Indian defence system against Pakistan. China has developed close ties with Bangladesh and Sri Lanka too and its presence in Tibet and Nepal is well-known apart from the territorial disputes with India.

– Amit Anand, Mumbai

PS Deodhar

C

hina has been recognized as the factory of the world for over a decade. Everywhere in the world, almost all products that super markets carry are directly or indirectly produced in China. This clearly shows that Chinese products have quality that is acceptable to quality-conscious European customers. Many in India today however believe that “Made in China” toys, luggage and other consumer goods are cheap goods of undependable quality. This happens because our Indian traders who buy from China demand the cheapest price with no respect for quality. Some Chinese

working for SME sub-contractors.

Hi-tech knowhow is a mystery till it is closely held. Once open it is often simple for recipient Chinese engineers.

Inevitably this shagirdi (tutelage) turns out to be an excellent way to learn the world’s best practices in manufacturing and process management. It has also helped China to inculcate a high quality work culture on their factory floors resulting in productivity unachievable in our factories in India. Chinese engineers and technologists are learning fast and now many are not only mastering what they learn but innovating further. The country is no more a maker of consumer goods but today it is a major producer of computer chips, IT and telecommunication products, auto-

becoming independent developers, product innovators and pace setters.

There is no other country, including India that has set such high goals in technology and made organized planning to achieve them at such a rapid pace. The proof of China’s growing strengths in technology became visible when it leapfrogged to set new global standards in cellular phones, video compression, electric vehicles etc.

The Chinese government is achieving its technological goal progressively with very clever planning.

Thoughtfully, in its initial phase, China leveraged foreign investments by the multinational technology companies to ensure this to happen. Chairman Deng Xiaoping had an extremely clear vision

Enter the Xiao ban

China’s nerves of steel Once a command economy, China was quick to re-invent itself under the pragmatic Deng Xiaoping who famously said, “The colour of the cat does not matter as long as it can catch mice.” suppliers oblige them; after all it is big business for them.

Even in western countries however people believe that the Chinese are just imitators, subcontractors for products designed in their countries. Over 66 per cent of China’s exports even today fall in this class. Multinational companies procure their production from China either from their own factories in China but by using several Chinese subcontractors, mostly from industrial clusters of Chinese SMEs. This procurement process essentially involves technology and knowhow transfer for new materials, associated technical processes and product packaging to Chinese engineers and technicians

mobiles and even commercial aircraft.

Many semiconductor fabs are also in China. Nearly 60 to 70 per cent of laptops, cellular phones, telecom products of every variety sold in the world are produced in China. Most new models are also designed in China. It may be interesting to note that till 1998, China imported 90 per cent of complete telecommunication equipment and after just four years, from 2002, this reduced to below 10 per cent.

A visit to China’s huge annual Hi Tech Show during the last two years, 2009 and 2010, have convinced us that the country is rapidly ascending on the technology ladder, climbing from mere imitators and subcontractors to

at the outset. He envisioned the need to learn from the West technological and economic progress and gave up China’s deeply Communist postures taken during Chairman Mao’s times.

Deng Xiaoping’s pragmatic approach was clear when he said, “The colour of the cat does not matter as long as it can catch mice.” The Chinese realized that joint venture was the best way to ensure transfer of knowledge and technology comprehensively. As against this, in India, we allowed our trader managed industries to import production lines and ‘buy’ technology during our Permit Raj. Instead China liberally allowed even 100% ownership to foreign investors especially when November 2011  India-China Chronicle |7|

INFOCUS | INDIA-CHINA | ECONOMY

technology was of supreme importance to China. Cheap and disciplined labour (with ban on strikes) and free access to China’s large domestic market attacked western multinationals. The ease of manufacturing in China was supplemented by quickly investing in creating a world class infrastructure with huge mechanized ports, a network of express ways and other logistic inputs.

Such incentives to technology transfer worked very well. The government in Beijing turned China into a global factory by the end of the 90s.

Almost all Fortune 500 global giants moved their manufacturing to China.

This also enabled China to rapidly get technology related to innumerable hitech industrial sectors like energy, micro-circuits, micro-mechanical devices, maglev transportation, and intelligent products with embedded controllers, sensors, actuators etc. I recollect a 1982 report from Macintosh Consultants submitted to the British government on technology. It says that the technology can’t ever be purchased; it has to be either acquired or stolen. The guys at Macintosh did not realize that greed for profits was another way that Chi-

|8| India-China Chronicle  November 2011

nese found to get and inculcate modern technologies without ever paying for them.

Research & Development China however still has a long way to go before it can catch up with the US when it comes to scientific research and reaching for new knowledge. But China has another plan for acquiring

Today we find a large number of university incubated private hightech enterprises called “Xiao ban” all over China.

They have grown into leading players of the Chinese high-tech industry.

This is helping China to evolve as a nation with its economic growth based on industrial production

R&D capabilities in modern technologies through its universities.

Till the end of the 70s, China had concentrated on R&D efforts in the fields of defence and heavy industry mostly in public sector enterprises similar to the Soviet model that we too followed. Once China embraced reforms in 1978, it gave up the Soviet model and supported personal innovation and enterprise adopting a new modern style approach. Today we find a large number of university incubated private high-tech enterprises called “Xiao ban” (pronounced shaoban) all over China.

They have grown into leading players of the Chinese high-tech industry. This is helping China to evolve as a nation with its economic growth based on industrial production and technology development rather than growth through trading.

Zhongguancun, formerly a tranquil rural suburb of Beijing, is today China’s Silicon Valley. Xiaobans here include state-of-the-art silicon foundries producing ICs with sub-micron geometry and many others developing and producing micro-mechanical peripherals. This area is home to some 30 universities including the famous Tsinghua Beijing University. The Chinese Academy of Sciences based here is also a proactive research organisation not just an administrative body. According to the Chinese Ministry of Education’s statistics, in 2003, 364 universities operated 2,490 high-tech enterprises and these earned 52.8 billion RMB, (Rs 19000 crores approx) amounting to 75 per cent of universities total revenues and generated profits of more than 4.5 billion RMB. These enterprises had 320,000 employees including 88,000 specialists in science and technology.

Many of these were university post graduate students. It is noteworthy that these enterprises also carried out their basic mission providing practical training to university students, with some 780,000 students engaged in research activities in those enterprises. Beijing Tsinghua University have been shouldering roughly half of their expenses of academic activity with profits from their affiliated enterprises. In fact the government expects university-affiliated enterprises to make up for the short-

age in its higher education budget. Indian universities and its faculties have to ponder and understand the consequences for our young due to total lack of focus on knowledge pursuits.

The university-affiliated enterprises are entitled to a series of preferential taxes including income tax. There are no limits set for liabilities incurred to a university in the event that its affiliated enterprise goes under. And by doing so, it would become possible to create an environment that allow for universities to concentrate, to a greater extent, on their original duties of education and research activities. Tsinghua is an institution that has sent out several top executives to the Chinese government, including Hu Jintao, who is today the President of China! Jiao Tong University in Shanghai is the alma mater of Jiang Zemin, the former President of China. These universities are not only China’s top elite schools but also excellent scientific institutions. It is said that approximately 7,000 graduates from Tsinghua University alone are residing in the San Francisco Bay area, including Silicon Valley, and so this university works as a supply source of human resource that supports the development of even the US economy.

R&D Joint Ventures with Chinese Industries Since 2004, the Chinese government proactively encouraged joint ventures in research and development by multinationals with Xiao bans and other Chinese partners. Chinese universities are today engaged in research and development of applied technologies with practical use. Therefore Chinese universities are attracting joint research with foreign enterprises. This is applied technology, where such enterprises develop products based on established basic technologies. Thus, foreign enterprises cooperating with Chinese universities are more than happy since they can utilize their own established technologies and other available in their countries to open up new markets in the world.

Establishing R&D centres on Chinese soil is a major priority for Chinese authorities since 2004. In addition to General Motors and GE, such R&D

joint ventures are now functional for Oracle, Siemens, Lucent, Nokia, Nortel, Agilent, IBM and Hewlett Packard. In all about 215 such centres are now functional. The access to domestic business is also used to encourage foreign companies to share technology. For Intel and GE, China is today a very big market. Both share technology with China to retain that access. For instance, GE conceded key turbine technology to its Chinese competitors to gain a large turbine contract. A recent survey by Peter Buckley and his associ-

ates shows that foreign investments in China generated considerable technology spill over which Chinese companies are using to their advantage.

International Patents in Hi Tech One measure of a nation’s R&D strength is the number of international patents filed by its scientists and innovators. According to the OECD report related to hi tech ‘ICT’ (Information & Communication Technology) patents in 2005; US had a 38% share folNovember 2011  India-China Chronicle |9|

INFOCUS | INDIA-CHINA | ECONOMY

lowed by Japan (18.7%), Germany (7.7%) and China (4.2%).

Another telling fact is that only five years ago, China’s share was just 0.3%. The Chinese patents are mainly related to functional design features and packaging rather than new inventions. It is surprising to me that the share of a self-proclaimed IT superpower, India, in spite of money spinning TCS, Infosys and Wipro, was just below 0.4%! This reveals Chinese motivated efforts to get technology and neglect of making planned R&D investments by our big businesses as well as governments.

It is clear that joint ventures and foreign owned businesses in China helps spill over of technology, process and material knowledge to Chinese companies and SMEs. Even in joint ventures in R&D the technology transfer takes place. Chinese scientists and engineers working in these centres are not robots but technical talents eager to learn. The adaptation of research develops skills and insights that can later be used for core development tasks.

China today is the 7th largest recipient of overseas R&D expenditure by US firms (over one billion US dollars) according to the National research Foundation of USA. Human Resource Unlike India, every Chinese below the age of 30 today is fully literate having gone to a formal school at least for seven years followed by either university or livelihood skills training. China’s work force today is literate. Nothing helps technology inculcation better than a literate work force on the shop floor. It is reflected in China’s amazing productivity on their shop floors. China’s literacy rate is 98 per cent. However, China’s greatest human resource is overseas Chinese working and studying abroad. Chinese people from Hong Kong and Taiwan and those from other Asian nations like Singapore, Malaysia, Indonesia etc also form a Chinese technical talent pool. Post-liberation, Hong Kong immediately opened a wide window for Mainland China to the global economy.

The country is no more a maker of consumer goods but today it is a major producer of computer chips, IT and telecommunication products, automobiles and even commercial aircraft.

Over 40 per cent of FDI in China comes from Hong Kong. A well defined economic policy (that kept a wide distance from its international political policies) by the Chinese government in Beijing encouraged Hong Kong and Taiwan companies to use low cost disciplined Chinese labour as well as other incentives to move their factories to China. Hong Kong since 1997 is now a part of the PRC and the entire manufacturing in Hong Kong has now moved to Mainland China. China may have a serious militarily dispute with Taiwan but almost all Taiwanese own factories in China and many of them have settled in China. The Taiwanese have decades of experience in hi-tech. I recollect that during my visit to Shanghai in 1983, China’s only semiconductor factory had just established an IC making foundry with Taiwanese help and were producing chips equivalent to Intel’s 8080. This was the same year that China almost

|10| India-China Chronicle  November 2011

attacked Taiwan militarily!

As a policy the Chinese government encourages its students to join foreign universities. In 2005 there were 123,000 Chinese students studying in the US of whom 78,000 were from PRC and the balance was from Hong Kong and Taiwan.

Indian students also go abroad to study in hordes matching China’s numbers. We used to call that ‘brain drain.’ In 1986, while discussing this with Rajiv Gandhi, my friend Dr Abid Hussain put it differently. He said, “Brain drain is better than brain in drain.” For the Chinese, it was a way to acquire modern technology and enrich human resources.

Like Indians abroad, most Chinese students in the early 80s did not want to return home. But in 1995, only 11 per cent of Chinese PhDs chose to work in the US while others returned to China where opportunities were ever expanding. Unlike India, China offers huge incentives to return. The financial assistance comes in large measures. There is evidence that a large number of elderly successful Chinese scientists and technologists are now returning home after decades of stay in the US. They bring along with them not only technology knowhow but also executive and international savvy that are essential in the global market place.

As China gets economically stronger, its bargaining power will be stronger to get foreign companies to share and transfer technology. The Chinese have also been following Macintosh Consultants advice not to buy technology but steal it. The country already has shown nerves of steel. The Chinese government will continue to turn a blind eye to companies who blatantly indulge in piracy of intelligent property and indulge in counterfeiting patented products. 

PS Deodhar is President ofIndia China Economic and Cultural Council.

He can be contacted at psdeodhar@icec-council.org

INFOCUS | INDIA-CHINA | INTERVIEW

SMEs will be the engines of growth in the coming decades Uday Kumar Varma is a 1976 batch IAS officer of the Madhya Pradesh cadre. He took charge as Secretary, Ministry of MSME just about a year ago. A seasoned officer who has worked across a range of state and central departments, Verma has also authored two books. In a wide-ranging conversation with Irfan Alam, Mr Verma talks about the potential of SMEs in the Indian context and also the challenges and competition from China.

What is the future of small industry in India and how does it compare with that in China?

Today the size of the Indian economy taken on purchase price parity, is around US $4 Trillion. We are growing at 8% (approx.) that means roughly $320 billion worth of goods and services are added to the economy every year. $320 billion is bigger than the size of the total economy of a country like Denmark. If we manage to grow at 10%, by 2020 the size of our economy will be $8 trillion. That

would mean that we will be adding roughly $800 billion worth of goods and services every year to the economy.

This accretion will be bigger than the total size of the economy of Australia.

Now in this accretion, SMEs are bound to play a very important role. The future of SMEs, therefore, is bright. In all likelihood the present decade and the coming decade is going to belong to SMEs. Our vision in the context of MSMEs is that contribution of SME’s in national export must go to 60-70%; manufacturing should be of about

|12| India-China Chronicle  November 2011

70%. They should be able to contribute at least 25% to the GDP which, by the way is not unrealistic. This is what we are aiming to do. In China, 99% of the enterprises are SMEs. We compare to some extent in size but the Government intervention for SMEs in China is far more deep and wide.

Which are the major areas in which the Ministry offers assistance to MSMEs?

Ministry offers facilitation and in many cases direct assistance in a num-

ber of areas. These areas include; Credit and finance, infrastructure development, technology upgrades, marketing assistance and skill development.

Can you elaborate more on the marketing assistance provided to the SMEs?

Marketing assistance is a major component of recently launched National Manufacturing Competitiveness Programme (NMCP). Competitiveness is a broad term, but we have been able to identify ten components of the competitiveness syndrome ranging from manufacturing tool to providing brand equity, quality certification, IT Interventions, design interventions, making them aware of IPR concerns that they ought to know about. The National Manufacturing Competitiveness Programme is a very well conceived programme. In addition to that, we also provide substantial assistance

for entrepreneurs to participate in global fairs and exhibitions, apart from participating in domestic fairs.

Do you think China could be a market for products from Indian SMEs?

I see the future of SMEs extremely bright, in fact, my conviction is that the decade and the coming decade is going to belong to SMEs

We do believe China is a potent market but we need to really look at it more carefully and with greater comprehension.

Then, why MDA support is not provided for China?

We don’t think there is any prohibition in providing MDA for participating in fairs/exhibitions in China.

There is no embargo as far as China is concerned. People have participated in Chinese fairs and we have assisted them. China is as attractive a destination for such purposes as any other. In fact China should be a more preferred destination if we really want to increase access to the Chinese market. However, Chinese markets are not as friendly.

There are restrictions. Moreover, there is a larger question of trade imbalance between India and China. When the Chinese Prime Minister had come here last, this question was raised.

So, according to you, there is no distinction with regard to China?

No. However, our exports to China have challenges on both the sides and while there are problems of accessing the market, there are problems on our side as well, in terms of quality, in terms of technology, in terms of prices. We don’t think one can beat the Chinese in terms of pricing but where one can definitely do better than the Chinese is, in terms of quality, durability and in terms of niche products. Lots of handloom and handicraft products are very popular in China and if we can really persuade the Chinese authorities to open the window a little bit more and allow Indian goods to come in, there will be progress. The market is there and demand is there, but there are barriers in terms of policy and in terms of greater communication between the two sides.

We have observed during our several visits to China that there is a huge market for Indian handicrafts but we are not able to market ourselves properly.

When the Indian handicrafts go for exhibitions in China, all the products

November 2011  India-China Chronicle |13|

INFOCUS | INDIA-CHINA | INTERVIEW

are sold out immediately, but they are not in a position to export on a regular basis. It is not because of a lack of will or desire on the part of Indian handicraft manufacturers but there are restrictions in China on the import of Indian handicrafts. ICEC needs to really look at it; these are areas which have the potential but then what is it that is lacking and inhibits us from tapping this market?

A large section of SMEs do not have information about the various support schemes of the Government. How do you reach out to these SMEs?

The Ministry largely depends on associations to do this. We assist associations to organize seminars/workshop etc. But it is right to an extent that the penetration of information in far flung

areas needs to be improved. What we intend to do is to launch a comprehensive media campaign including using electronic media, for example, radio, it has a reach to the remotest parts of the country. Television also has very good penetration. These two mediums we have not much used so far. We are working on a media plan which will extensively use these two mediums to disseminate our programmes and schemes in addition to what we are doing conventionally.

Does the Ministry have any scheme for SME’s to make them e-ready?

Yes, it is a part of the national manufacturing competitiveness programme. This particular dimension is one of the most immediate concerns because particularly in marketing and

in other areas, IT enabled solutions can be beneficial for them. Ideally, we should cover all clusters with some kind of a computer cloud, where they are able to have access to the infrastructure without creating it. The business opportunity for IT companies in this regard is so huge. Many companies have already launched specific products that may offer a workable model. If we are able to cover 15-25% of clusters under the cloud then this will be a game changer. That will make them e-ready. E-readiness begins by making them aware, convincing them that the idea has merit, and then ensuring that they adopt it. But they adopt it and then adapt it according to their own requirement. One of the major problems of Indian MSMEs is that the details of their products are not known to the people outside. In large number

of countries while there is a general perception that Indian MSMEs are pretty strong, they are unaware of the details. How the MSMEs operate in India? What is their interface with the government? How do they organise credit? We are creating a National Portal which is going to be a very comprehensive portal. NSIC is doing it under the Ministry’s guidance and it should be ready by NovemberDecember 2011. It will have data of more than 3,00,000 enterprises in different sectors. This will be something which could easily be compared in terms of quality of content and the magnitude of the content, to alibaba. com and it should also serve the people outside India. Of course it will not be a free portal but basic information will be free and for specific information they will have to pay.

How do you foresee Indian SMEs vis-à-vis Chinese SMEs?

Uday Verma with Minister Virbhadra Singh |14| India-China Chronicle  November 2011

As far as Indian SMEs are concerned, they are going to play a far greater role in the country’s economy in the coming years. It is based on the fact that all those emerging areas where expansion is going to take place would be driven by SMEs. Look at civil aviation, Boeing have been given an order for 4 billion dollars of which 1.2 billion dollars will have to be accessed through Indian Companies under the offset clause. This is a great opportunity for Indian MSMEs; if we are able to improve access to credit and facilitate their upgrade to higher levels of technology and make them hook on to IT, then we will be able to provide necessary impetus to them to manufacture thousands of precision parts that go into making of Aeroplanes.

To make our clusters more productive, the two major initiatives that we have taken are: to reorganize and re-engineer all our interventions under five verticals, namely, Credit and finance, Infrastructure, Technology, Marketing and Skills.

All these interventions have to be provided as a package. These should not be stand alone interventions; they should be in conjunction with each other and every other. Such an effort and

their states were very active in providing. There is a point beyond which the price advantage that they have at this point of time may not continue.

Also, Thus, there is bound to be a quality issue. So we think in terms of areas where we are strong like handlooms, handicrafts, light engineering, pharma, bio-technology, nano-technology and more importantly the IT sector. At least for some time we still have the edge (in IT) and we should make the most of it. In the longer run it is our hope and wish that we become a second global manufacturing hub for at least a large number of specific products.

we are creating a national portal which is going to be a very comprehensive portal which is being done

by NSIC under the ministry’s guidance orientation of programmes are going to be far more focused and result driven.

And it will be more demonstrable. The second part of the strategy is to pick up 20-25 clusters and ensure that all these verticals are focused on these. The main idea is to deem the cluster as a unit and see that it grows in a comprehensive and integrated manner, so to become cluster of excellence.

In 12th Five Year Plan if we are able to develop at least 200 such clusters at the end of five years; 40 clusters each year, we would have done a great deal of work. Suppose we have 5-6 clusters of pharma, 5-6 clusters of leather, 5-clusters of chemicals, petro-chemicals, garments, food pro- cessing and if they are world class clusters, producing world class products then MSMEs will begin to be seen from a different prism.

What kind of challenges do SMEs usually face while doing business with China? And according to you what are the potential sectors in China which can be tapped by India SMEs?

The common knowledge is that they are very strong in manufacturing but they are also finding it difficult to maintain the prices that they have set.

Because those advantages which triggered their rise from the beginning, are weakening namely, the cheap labour and unlimited land resources which

How does one compete with the Chinese manufacturing industry?

It will be difficult. However, as I have pointed out earlier there are certain areas of manufacturing in which India can be equally strong or even stronger.

Pharmaceuticals, for example, could be one such sector. In addition, we will have to be better than Chinese in terms of quality and durability of our products. Chinese products, while known for their being inexpensive, do not enjoy great reputation in terms of quality. Our SMEs will have to work hard to maintain and improve the quality of their products. We also need to explore markets in Africa and Latin America in a far more urgent and focussed manner.

Are there any plans for a window for technology transfers from China?

We are working on it, not necessarily in the context of China. What we are working on is to facilitate SMEs to acquire new technologies. The first challenge is knowledge; many of them do not know where the technology is available. Second is to be able to make an assessment of how good or bad the technology is. Third is price, on what prices they are able to get it. One can buy Chinese technology cheap but it becomes obsolete in the next two years. One can also have European technology which may last, say for 10 years. So there could be a mix. Even today, Chinese technologies are one of our major imports. 

November 2011  India-China Chronicle |15|

INFOCUS | INDIA-CHINA | SME | FUTURE | REPORT

Status and future of SMEs in China

Little dragons in flight China’s contribution to SMEs has proved that this eastern dragon is now well and truly awake to the sound of pattering feet of its many little dragons.

|16| India-China Chronicle  November 2011

Steven Hsu and Aurora Chen

I

n 2009, China overtook Germany as the leading exporting country in the world in terms of export volume. Figures in 2011 showed that China had overtaken Japan to become the world’s second largest economy. With years of economic growth around the 10 per cent range, China has been rapidly climbing the ranks of top economies, surpassing France, Britain and Germany before toppling Japan. The remarkable growth of GDP and exports achieved by China largely depends on the strategy of market economy, which led to the rapid development of small and medium sized enterprises (SMEs) in China.

The rising importance of SMEs in China’s economy The development of SMEs in China begun with the process of economy reforms since early 1980s, when the private sector firms did not officially exist, most SMEs then were usually collectively owned, with the state still having some role. With the opening of the private economy in the reform during Deng’s era, the restructuring of state-owned enterprises (SOEs) has meant that there were many entrepreneurial opportunities available to SMEs. As SOEs closed down, the vacuum allowed entrepreneurial SMEs to flourish.

Only 30 years later, the statistics issued by the State of Administration for Industry and Commerce (SAIC) showed that China had 10.42 million of officially registered SMEs in 2009 (not including the 31.97 million registered self-employed), accounting for 99 per cent of the country’s total enterprise. Of these 10.42 million SMEs, or 65.3 per cent of them were located in eastern China. This percentage declined after 2009 due to the rapid growth of SMEs from other regions, especially western China. The flourish of SMEs in China is an explosion of entrepreneurial businesses that has never happened in human history. China has created more SMEs in the last 20 years than the total number of SMEs in Europe and the United

States combined.

The SMEs have made an impressive contribution in the Chinese socialist market economy. In 2009, the GDP of China had achieved 33.53 billion Yuan, of which 18.07 per cent was contributed by private business.

WTO statistics show that the export volume of China in 2009 was around 1200 billion USD. According to the figures in 2005 issued by Ministry of Commerce, SMEs contributed 68 per cent of China’s export. This is a much higher proportion than in any other economy in the OPEC or APEC. Moreover, about 60 per cent of national industrial output value and 40 per cent of the national revenue came from SMEs. SMEs had already become such a major force in the economic growth of China.

Besides its significant contribution to the economy, SMEs played a key role in job creation and social stability.

These days the Chinese are sparing no effort to build a harmonious society, a society without warfare, conflict, starvation and terror. The SMEs provided 75 per cent of urban job opportunities, absorbing a large amount of the unemployed and laid-off people, alleviating employment pressures of China, especially during the period of the global economic crisis in 2008.

The Chinese government has also promulgated a series of laws, regulations and preferential policies to protect and promote the development of SMEs. On June 29, 2002, the Law of the People’s Republic of China on Promotion of Small and Medium-sized Enterprises was adopted and promulgated as a policy framework for SMEs. This Law was enacted for the purpose of improving the business environment for SMEs across five aspects. a) Funding support; b) Support for establishment of enterprises; c) Encouragement for technological innovation; d) Help for market development; e) Improvement of public service system.

Since then, more than 250 relevant supporting documents were issued by the competent departments and municipal governments and 21 local decrees promulgated with it. Further, the State Council respectively issued 36 and 29 specific opinions in 2005 and

2009 to strengthen the support for the development of the country’s SMEs. In terms of taxation, along with a series of preferential tax policy for SMEs, the government further increased tax breaks to small firms with an annual taxable income below 30,000 Yuan from Jan 1 to Dec 31, 2010. Regarding the technological innovation of SMEs, China has set up 152 technological innovation service centres for SMEs, 1500 productivity promotion centres, 87 national university scientific and technological parks and 130 business foundation parks for returned students, which have jointly offered strong support for SMEs’ technological innovation. The government has also given preferential tax policy to innovative SMEs, encourage them to improve their technological innovation capacities, enhance product quality, promote development in energy conservation and clean production.

In terms of financing, special funds for SMEs were established in the central budget at around 10.89

(SETC) has established cooperative ties with the departments in charge of SME affairs in Japan, Canada, Belgium and other countries. A total of 12 cooperation agreements have been signed. The vast supply of work force has kept many Chinese SMEs extremely cost competitive. The International Labor Organization (ILO) database gives the monthly rate for manufacturing wages in China in 2008 at about 2,016 Yuan per month; compare this with the German wage in manufacturing at about EUR 19.51 per hour, with 38.4 hours per week.

The Chinese wage is about 6 per cent

billons Yuan in 2009. Loans for SMEs reached 14.4 trillion Yuan; about 30.1 per cent increase over the previous year. A large amount of loan projects, trust projects and over 4000 financing guarantee institutions have been set up. At the top end of the market, the establishment of Small and Mediumsized Panels and Growth Enterprise Market had raised more than 2,000 billion Yuan for over 350 SMEs before 2010.

The Chinese government has made great efforts to enhance the cooperation with APEC members and help domestic SMEs exploit more international markets. China’s State Economic and Trade Commission

that of the German. In addition, the ILO had calculated the average wages by combining state-owned units, urban collective-owned units and other ownership units. According to the figures published by the Chinese Bureau’s of Statistics (CBS), the wages for private enterprises in 2008 was only about 1,422 Yuan per month.

Chinese SMEs make a remarkable contribution to the Chinese and international markets, even though almost all SMEs were started only in the last two decades. Behind the great achievements made by Chinese SMEs, this explosion of entrepreneurial businesses is an unprecedented challenge both to China and the world.

November 2011  India-China Chronicle |17|

INFOCUS | INDIA-CHINA | SME | FUTURE | REPORT

Problems and challenges of Chinese SMEs

face some major structural and demographic changes in the coming years and decades.

1

China has relatively little professional management experience or legal infrastructure available for new SMEs. Although the figures of regulations or budgets for SMEs are all consideraby large, it will take a long time to see the effect. China is too young to handle these complex situations in a short period. The legal and social infrastructure has not developed as quickly as the entrepreneurs have. In terms of corporate governance, many of the managers in China have never had any training in management; few have ever experienced a serious downturn in the economy. If and when a major downturn does take place, the SMEs and their managers may simply not be able to deal with it. In 2008, although the statistics reflect that only 13.6 per cent SMEs were severely impacted by the economic crises, with 50.5 per cent impacted to a small extent, the profit of industrial SMEs above the designated size declined 19.3 per cent and the rate of growth of profits declined 52.3 per cent from 2007. A large amount of SMEs went bankrupt, especially the small-size enterprises.

Vast and cheap supply of labour and resources are its comparative edge of, not economic and technical efficiency.

SMEs are still focusing on those labor-intensive industries over which China historically has had a comparative advantage. Such as mining and garments industry, arts and crafts products and in other manufacturing industries like leather, furniture, foodstuff, textile, metal products and plastic products, SMEs hold over 85 per cent share of industry revenue. In capital and technology intensive industries, like ordinary machinery, metallurgy, chemicals, transportation facilities, paper making, instrument and apparatus, there are also many SMEs engaged in providing secondary services to large enterprises.

The lacks of SMEs’ independent innovation reduces its market shares in high-tech fields. But even in the sphere of labour resources which we are proud of, China also faces some major structural and demographic changes in the coming years and decades. By 2045 about 30 per cent of China’s population will be over the age of 60. Especially due to the “one child policy,” the percentage of working population will decline. In the international labour market, China’s SMEs will also face fierce competition from other developing countries with lower labour costs.

SMEs should play a key role in indus-

direct financing, improve preferential policies, and reduce the social burden of SMEs. The government also plans to increase the new Strategic Emerging Industries (SEIs)’ share of the GDP. In term of foreign investment, the government encourages foreign investors’ participation in SME development.

With the recovery from the global economic crisis in the financial services sector, many businesses, including Chinese SMEs are facing and searching for new opportunities. Following the 12th FYP, foreign businesses can expect the government to continue opening up China’s services sector, therefore seek more cooperation with national SMEs. In short, Chinese SMEs have risen from almost nothing to become a

significant international economic force over the last two decades. Although there are many challenges facing China, it should believe that the Chinese can develop faster than their predecessors’ economies. It took Europe about 800 years to go from a feudal agricultural economy to a post-industrial economy; it took North America a bit over 300 years; it took Japan about 50 years to do the same. But China is attempting to take the same journey in around 35 years, because, like geese or bicycle racers, the Chinese can ride on the bow of its leaders. China’s contribution has proved that this eastern dragon is now well and truly awake to the sound of pattering feet of its many little dragons.

3

2

In terms of theoretical research on SMEs, for instance demographic method, under China’s statistical collection methods it is not usually possible to get the breakdown by size of firms.

The definition of SMEs is quite complex and out of order. On June 18 2011, four departments of the State Council of People’s Republic of China jointly issued a new regulation about the standards for division of medium and small size enterprises; this was the eighth revision regarding the definitions of SMEs. The definitions for micro-scale enterprise were set up for the first time according to this new regulation. All these show that China will

Financial resources are still the primary difficulty.

At present, the formal financial resources are not completely available to SMEs. The reason for this situation is closely related with the country’s current financial management system.

Domestic financial management system give more consideration to large and medium-sized enterprises, like banks evaluation of risk and standards for the treatment of loans are not attractive enough to encourage banks to lend to SMEs, especially when banks have had high non-performing loans (NPL). Even the amount of loans is quite high for supporting enterprises; the loans are concentrated to large-scale and medium-sized enterprises. The current figures reflected in the bank’s corporate loans show that 49% account for large, 30% for medium-sized while only 20% for small enterprises.

4

It took Europe about 800 years to go from a feudal agricultural economy to a post-industrial economy; it took North America a bit over 300 years; it took Japan about 50 years to do the same. But China is attempting to take the same journey in around 35 years

choose to conduct their business in the Asia-Pacific region, compared to 6 per cent in the United States and 10 per cent in Europe. This trend is highly related to the development of technology in China. As China generally lacks competitiveness in fund and technology, the products of these important sectors do not have comparative advantages in the world market. New technology has allowed many Chinese SMEs to enter international business directly, so they are less dependent on being part of large firm supply chains.

Besides these internal factors, China faces significant international diplomatic and economic pressures. Global

trial structure adjustment and upgrade of China, besides its contribution to the economy. In the background of lack of resources worldwide, labourintensive and resource consumption industries are not what Chinese SMEs should be encouraged to pursue.

competition and accelerating technological development now are forcing firms to internationalize, while the problem of exchange rates and trade surpluses forces SMEs to adjust rapidly in a short period. As the global market comes later, Chinese enterprises play a catch-up role to compete with its western counterpart. 

The future of Chinese SMEs In November 2010, the Communist Party of China’s Central Committee approved the guiding principles of China’s 12th five-year plan for National Economic and Social Development (FYP 2011-2015). The National People’s Congress (NPC) ratified the plan in March 2011. The 12th fiveyear plan for SMEs will be issued in March 2012 by the Ministry of Industry and Information Technology. The 12th FYP’s guiding principles promote the idea of “inclusive growth,” which means ensuring the benefits of economic growth are spread to a greater proportion of the Chinese polpulation. The plan’s key themes are rebalancing the economy, ameliorating social inequality and protecting the environment. Three sec-

tors that will receive a major boost from the 12th FYP are health care, energy and technology.

For the development of SMEs in China, the 12th FYP expounds: China will develop SMEs vigorously, improve the legal system, promote SMEs to accelerate the mode of economic development, strengthen construction of a trustworthiness system, and enhance the quality of products and competitiveness. In term of structural adjustment, China encourages the development of industrial clusters and independent innovation. Regarding financing strategy, the government will establish effective systems in financial service and credit guarantee system. The government will also take measures to broaden the channels of

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5

Chinese SMEs need to pursue foreign markets.

On one hand, of the 10.42 million SMEs, 95.9 per cent which are domestic enterprises, the number of funded enterprises is only 0.43 million. The influential international activity outside China are still mainly performed by large-scale Chinese firms. On the other hand, 78 per cent Chinese SMEs

Steven Hsu is the Managing Director and Senior Consultant at Zhong Yin Law Firm in Beijing Aurora Chen is an Associate at the Zhong Yin Law Firm

November 2011  India-China Chronicle |19|

INFOCUS | INDIA-CHINA | SME | ENVIRONMENT

Indian SMEs need green policy

Going Green now to avoid Going Red later Greening SMEs require technological innovations and learning from other countries that have successful and cost efficient technologies which can be imported by SMEs at an affordable price.

|20| India-China Chronicle  November 2011

Shawahiq Siddiqui

U

nder the global climate negotiations, India assumes a significant role due to its inflating economy, soaring population and compelling development needs. Owing to its responsibility towards reducing carbon emissions significantly under global climate deals, India has formulated a series of sector specific Missions under the National Action Plan for Climate Change (2008).

The NAPCC envisages building India’s capacity to reduce carbon emissions. In addition to this a number of new regulations on environment protection and amendments in existing laws are being brought to reduce environmental impact of developmental activities particularly related to industries. Ban on gutka sachets in plastic is a recent example. Further, as per the current government estimates SSIs and SMEs are known for inefficient production and management processes.

Government estimates also reveal that MSMEs and SSIs contribute major amount of carbon emissions leading to adverse environmental impacts, especially at the local level. Being energy intensive, inefficiency in production and management process, leads to greenhouse gases (GHG) emissions.

Given their small size and scale of operations, their GHG contribution (and energy saving potential), though considerable, is often ignored. Thus, at the unit level the emissions may be small but the collective emissions in SSI clusters are quite high. So these emissions are significant from climate change perspective.

The Industrial Survey Report (2009) showed that small scale and medium enterprises though may be small on scale but are significant energy users having considerable carbon emitting potentials. At the same time they also have considerable energy saving potential. Following this there is a possibility that SSI and MEs may have to go through stricter norms of compliance. Under the new regulations, violations attract both pecuniary and penal consequences at a much increased level than ever before. Further, there are

new mechanisms that have been put in place for the green rating of industries and these are becoming increasingly popular and quintessential even for a small business to stand “green” in its practices. In this scenario it becomes extremely important for the SSIs and MEs to be aware of the legal norms and regulatory environment in place and display their green awareness and sensitivity to contribute to India’s endeavour on climate change.

Environmental impact of SMEs While it is widely accepted that SMEs play a significant role in the economic development in India, they also exert considerable pressure on the environment, not individually, but collectively. SMEs are voracious consumers of resources and energy and the result is a significant generation of waste byproducts. There are a number of problems that deprive SMEs from achieving

at the unit level the emissions may be small but the collective emissions in SSI clusters are quite high. So these emissions are significant from climate change perspective.

their full potential: the use of obsolete technology; lack of finance; lack of access to export markets; lack of market information; resistant to change; and decision-making at the hands of owners of these companies. These problems contribute to environmental degradation. For example, the large number of motor repair workshops is estimated to dispose 460,000 litres of kerosene directly into the soil without concern for the likelihood of serious contamination of the water supply.

Issues with performance Small and Medium-sized Enterprises (SMEs) are commonly recognized as one of the leading groups of economic activity globally, and pose enormous impacts on social issues. Most companies are currently categorized under SMEs and the goods and services that SMEs offer are diverse. Moreover, SMEs are suppliers for large enterprises. It is said that SMEs’ performance, both positive and negative, in India may be more influential than any other region in the world because of the rapid economic growth of the country. The importance of SMEs in society can be recognized by looking at the recent institutional arrangement and policy development on the environmental front. With their strong influence on economic and social matters, environmental impacts attributed to SMEs’ activities are certainly significant, not only the magnitude but also the diversity. In spite of the fact, however, measures undertaken so far have not yielded impressive results, especially when compared to those of large companies. Thus, the environmental performance of SMEs remains weak in many parts of the region and it is believed that the environmental damage caused by SMEs will grow unless innovative strategies are devised.

As threats to the environment by SMEs increase, immediate measures to improve conditions are necessary. Nevertheless, SMEs are incapable and/or indifferent to conform to environmentally-friendly practices due to financial constraints, lack of proper information and a lack of motivation. Under the current situation, international organizations, along with local and national governments, must play important

November 2011  India-China Chronicle |21|

INFOCUS | INDIA-CHINA | SME | ENVIRONMENT

roles in stimulating SMEs to improve their environmental performance.

Environmental challenges Because of their unique characteristics, SMEs face a variety of problems.

The problems need to be examined in connection with two stages of environmental performance improvement, namely, awareness and implementation. Raising awareness is significant as it relates to the establishment of a solid foundation for SMEs to move towards environmental improvement. Some of the challenges on these two aspects are noted below: Lack of knowledge and information Basically, a fundamental obstacle to improving environmental performance of the SME sector is a lack of knowledge and information concerning environmental issues. SMEs generally have a perception that the only driving force to improve environmental performance is legislative compliance. Moreover, SMEs tend to believe that their processes have little or no impact on the environment due to their small-scale production. This perception is derived from the fact that they have limited information on the operational losses in their production processes. Hence, this mental block prevents a great number of SMEs from realizing the hidden costs of inefficiencies in production.

Accordingly, SMEs keep running their businesses as usual and resist change.

In order to motivate SMEs to improve their environmental performance, critical information on costbenefits can illustrate the benefits of environmental improvement and help to develop a positive attitude regarding environment. However, it seems that such information is not widely disseminated in the SME sector.

Weak external pressures and incentives Development of an environment policy in India began with commandand-control (CAC) measures. Accordingly, regulatory instruments were applied to force polluters to comply with regulations and standards. However, due to the large number and distribution of SMEs, the command and control approach became less efficient due to resource limitations in terms of monitoring and inspecting of personnel and budget allocation. While public pressure regarding environment conservation and requirement by global markets on environmental standards increase, most companies are carefully watching the International Standard Organization (ISO) certification and the introduction of Environmental Management System (EMS) within their corporate and manufacturing facilities. Most industries, particularly those producing goods for export, are focusing on developing environmental-friendly products. However, most SMEs, unlike large-scale industries, are not fully aware of the trend in the international market since they are often isolated from it.

In addition, voluntary approaches, such as ISO 14000, green labeling, and clean technology have become other means of management of natural resources and the environment as the market created was stimulated by consumer demand. However, compared to the SME sector, large firms are more active in taking voluntary initiatives.

Lack of internal capacity Even though a number of SMEs are moving towards better performance, they are limited by constraints from taking action. The major obstacles are their weak capacity and limited resources in terms of: Financial resources – One of the

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major obstacles is the limited financial resources of SMEs since the majority is pursuing a survival business strategy.

They suffer from financial problems, such as late payment of bills and lack of access to loan financing. They find it difficult to adapt to changing markets and lack capability to attract new financial resources. As a consequence, the adoption of full-scaled EMS, such as the ISO 14001 model, or the installation of pollution abatement technologies, seems to be too costly for SMEs. Moreover, investment capital for major process improvement is another issue of concern since accessibility to financial resources is a major problem as SMEs tend to lack self-capacity to attract funding from local, regional and national financial institutions and also from international institutions and organizations. The problem has a supply and demand component. From the supply side, SMEs face difficulties in obtaining loans due to bank perceptions of high associated risks. On the demand side, SMEs often have inadequate financial statements and lack accounting records, business plans and the necessary knowledge to present their business case in a realistic and favorable light to financial sources. In order to address this problem, there is, therefore, a need for better information flow among the financial providers, the SMEs and the concerned government agencies.

Human resources – Lack of trained and qualified human resource is another barrier that requires improvement.

Generally, human resource allocation in the SME sector is limited to essential business functions, such as technical, accountancy, sales and marketing.

In most cases there are no environment personnel in the SMEs to undertake related tasks effectively.

Technology – Utilization of outdated technology, as a result of limited

Opportunities Need for SSIs or SMEs to demand cleaner technologies with climate policies: SSIs fare strongly on two accounts. First, they have huge ramifications for national and local benefits and their sustainability is of critical importance. Second, the SSIs constitute a sector where there is inactivity on its own in terms of pollution control and climate change and needs an external impetus. As there is an understanding at the national and global scale that small scale industries and medium enterprises account for major portion of carbon emissions in India, diffusion of cleaner technologies for these industries may help. The Mission on Energy Efficiency within the National Action Plan on Climate Change has identified small-scale industries as one of the focal areas for improving energy efficiency and also reducing transaction cost. However, much of the emerging performance and trade mechanism focuses on large industrial units. It is in this context that the SSIs can view climate change policies and policy instruments not as a limitation but also as opportunities for accessing technology, finances and knowhow. Some key questions are: Can these opportunities help SSIs? Can they use these opportunities and contribute to GHG reduction? This needs to be explored and shared with SSIs through a dedicated analysis

capital investment, makes the SME sector less competitive. The majority of SMEs is relying on dated technologies that cause pollution and are inefficient.

In addition, inappropriate pollution abatement technologies result in inefficiencies in pollution treatment.

Business-as-usual – Normally SMEs function in a business-as-usual mode. They are not fully aware of new business environment, for example, non-tariff barriers, new trade and technology. The nature of the SME establishment is a major problem affecting improvement of SMEs in terms of infrastructure as the physical distribution of SMEs tends to be haphazard.

Many SMEs are located in concentrated commercial and residential areas, thus, they are unable to expand their sites and install pollution treatment facilities. Moreover, the scattered distribution prohibits the development of shared treatment facilities, while the stand-alone treatment system of SMEs is not in an economy of scale to operate efficiently.

Weak institutional arrangement – Linkages among agencies involved with SME development have not been strengthened. The network of institutions that is supposed to deliver supporting programmes to SME development is fragmented and cannot offer

of current policy instruments with the focus on SMEs and SSIs. Need for creative use of global climate finances: A demand for fiscal and financial incentives under global climate fund may also help as so far all major climate policy instruments at the national level have not provided fiscal and financial support or incentives for SMEs to either encourage them to take such initiatives or extend government support. While other sectors accounting for major energy consumption such as solar and energy efficiency projects have benefited from government support, such support has not been discussed or thought about for SMEs at the national or global level. Given the significant contribution and stake that SMEs have in the national economy and growth, there is thus a need to voice these concerns in a collective way with an informed view on the regulatory and policy environment in the country.

Learning from international experience: Greening SMEs require technological innovations and learning from other countries that have successful and cost efficient technologies which can be imported by SMEs at an affordable price. Needless to say this will require a thorough analysis of the clean technologies available in other countries including China.

corresponding services effectively.

Lack of SME-focused programmes – Many developing countries previously pursued a strategy of accelerated industrialization based on large-scale enterprises. Accordingly, development programmes and investment schemes were established in the light of large industry promotion while limited focused programmes are devoted to SME development.

Missing links – Even though there have been a number of organizations that support SME development, including academic and financial institutions and NGOs, the development goals tend to be haphazard since the network of major governmental agencies and other organizations has not been strengthened.

Gaps between international support and local implementation – Even though the greening of SMEs has drawn the attention of international organizations, international support for SME development cannot reach local SMEs effectively. The major barriers include language and adjustment of programmes to the local context.

SMEs have been struggling with these problems for many years and their challenge becomes more severe when they wish to improve their environmental performance.

Regulatory framework Current set of laws provide a complex picture that is not easy to understand. Further, the regulations have undergone a dramatic change from prohibitions to norms with the “Polluter Pays” pays principle and the principle of “Intergenerational Equity.” Initiatives have been successful only in cases where the push has come from external sources (eg. judicial order for change over to natural gas based furnaces in the glass industry in Firozabad and closure of iron foundries in Agra were a result of the public interest litigation against polluting industries to save the Taj Mahal).

The piece-meal approaches, more often, benefit only a select few. Therefore there is a need that decision makers for the industries plan and strategise in such a way that leads to lesser carbon footprint and better compliance. For this an increased awareness of current regulatory environment, norms and standards in place would be required. 

Shawahiq is an Advocate in the Supreme Court and is part of the team drafting the Renewable Energy Law

November 2011  India-China Chronicle |23|

INFOCUS | INDIA-CHINA | INTERVIEW

India, China together can transform the global economy An interview with Salil Bhandari, President of the PHD Chamber of Commerce and Industry ICC: Please tell our readers more about PHD Chamber of Commerce and Industry, its aims and objectives.

Bhandari: PHD Chamber of Commerce & Industry, established in 1905, is a proactive and dynamic multi-state apex organization working at the grassroot level and with strong national and international linkages. The Chamber acts as a catalyst in the promotion of industry, trade and entrepreneurship.

PHD Chamber’s geographical span covers 10 states of Chhattisgarh, Delhi, Haryana, Himachal Pradesh, Jammu & Kashmir, Madhya Pradesh, Punjab, Ra-

jasthan, Uttar Pradesh, Uttarakhand and the Union Territory of Chandigarh. The Chamber has identified six thrust areas namely, industrial development, infrastructure, housing, health, education and skilled development, agriculture and agri-business. Our motto is ‘In Community’s Life & Part of It’ and we contribute significantly towards the socio-economic development and capacity building in several fields. Our Chamber has a direct membership of over 1,600 corporate entities and serves more than 45,000 indirect members through its association members and secretarial affiliates.

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The membership covers trade and industry. We organize over 200 seminars, conferences and workshops every year in the region served by us.

Through this process, we are able to provide policy inputs to government and a platform to discuss new ideas.

We also provide networking opportunities with government officials, diplomats, leading names from all spheres of life and business peers.

According to you what are the commonalities and divergences between the business environment in India and China?

Today, both the Asian economies are the fastest growing economies in the world. Being the most populous countries in the world, our consumer base serves as a huge potential market for the producers and manufacturers across the globe. Major Indian companies including Ranbaxy, Bharat Forge, Infosys, ICICI Bank and Reliance have laid their footprints in China. The Chinese counterparts including Huawei Technologies, ZTE and Sinosteel have set up their base in India.

Both the countries have managed to withstand the aftermath of subprime crisis. China had provided a larger amount (around14% of GDP) to stimulate its economy whereas India managed to stimulate its economy with a significantly lesser amount (around 3%

of GDP). However, divergence from the GDP growth trend was almost the same in both the economies. In fact, China’s growth story is tilted towards a growth in exports and investments, whereas India’s growth pattern is mainly driven by domestic demand. During the last decade (2000), final consumption in India’s real GDP contributed 60% as compared with 43% in China.

Two catalysts that have facilitated China’s growth are exports and incoming foreign direct investments. Chinese industry is the engine of growth and has created huge capacity and encouraged latest technology. Even the cost of capital is very low in China as compared to India. India’s savings and investment rates are behind China. There is an urgent need to augment the rate

of savings from their present level in India to generate funds for investment.

An important factor is also the speed at which infrastructure has been created in China. However, India provides a conducive and secured environment to its business and investors in comparison to China. According to the latest World Bank report on “Doing Business in India”, availability of cheap credit, less time taking construction permits and improved tax payment structure are better in India as compared with China.

What are the emerging trends that you observe would facilitate or impede trade and cultural relations between India and China?

Leaders from both the economies have been in touch through regular visits to each other’s countries. During the official visit of Chinese Premier Wen Jiabao to India in December 2010, six agreements on cultural exchange, green technologies, media, hydrological data, and banking were signed. The year 2011 was declared as the ‘Year of India-China exchange.

Also, a bilateral trade target of USD 100 billion was set to be reached by 2015. On the FDI front, India received FDI of USD 65 million approximately from China between during 2000 to 2011. And there is still scope for investment. Even in the current scenario of rising global debts and unstable markets, it is the two Asian economies which are looked up to as the saviours of the global economy.

Acknowledge

How do you perceive China? Is it a threat or an opportunity?

China is a threat to Indian small industry. Indian industry is facing growing competition from China, both internationally and also within.

Indian SMEs are threatened by China’s low-cost products which can be imported. India must gear up to meet the challenges that China poses, both in domestic and international markets, and at the same time identify areas where we can take advantage of the large Chinese market so that the net effect on the Indian economy is largely India-China Chronicle |25|

INFOCUS | INDIA-CHINA | INTERVIEW

positive. India needs to imbibe lessons from China’s economic miracle, which is based on high productivity, low-cost production, huge capacities, world class infrastructure, attractive tax incentives, export-led growth and a clear FDI policy. China is by far the largest recipient of FDI amongst the developing countries, even though a large quantum of FDI inflows comes from overseas Chinese investors.

The lessons that India can learn from China include the fact that the Chinese reforms are backed by strong political commitment and a proactive bureaucracy for implementation.

China’s GDP is primarily contributed by its robust industry, which is the growth engine and has created huge capacity and encouraged latest technology, unlike India. Further, China has duly tapped the potential of overseas Chinese by creating an atmosphere of safety and security of investment. India has not been able to successfully lure its NRI community.

The availability of government financed world class infrastructure, particularly in the SEZs, is one of the main reasons for China attracting massive FDI. Trans-shipment of goods to the ports is easy and quick, saving on time and cost. The dismal state of India’s infrastructure is quite well known. Being highly price competitive, there is no doubt that the Chinese products would find greater access into the international markets. There are several spectrums across which India and China can do handholding, to facilitate each other’s growth story.

In the light of multilateral trading system, which are the areas you feel the Indian industry associations will be interested to collaborate with their Chinese counterparts in China?

Both India and China have huge and top emerging markets, which have become attractive foreign investment destinations. Bilateral trade for the year 2009-2010 was approximately USD 42.4 billion, between India and China.

Even today, India has a negative balance of trade with China, and we need to find out opportunities to make this balance more even. One of the important sectors

for cooperation between India and China is infrastructure development, particularly in the housing sector.

There is a surplus of houses in China and therefore the Chinese companies in infrastructure development are willing to come to India. China is well aware of India’s achievement in the IT sector and may like to collaborate with India. A number of hi-tech parks have come up with focus on IT. Another core area which has the potential to provide huge business and employment opportunities for China and India is the SME sector.

According to the government’s report of the Task Force on MSMEs, it is estimated that there are over 26 million MSMEs operating in India. This sector comprises 8% of GDP, accounts for 40% of our total exports and over 45% of total manufacturing in the

Another core area which has the potential to provide huge business and employment opportunities for China and India is the SME sector country. It employs 60 million people and is instrumental in facilitating industrialization in rural and backward areas. India has long been known for its strong entrepreneurial community.

Moreover, India and China can immensely benefit from trade because of their geographical proximities, and the SME sector can flourish from this.

According to you, which is the biggest hurdle that your members face in accessing the Chinese market?

China’s liberalization process is over three decades old, while liberalization in India is two decades old. India needs to make up for the supportive infrastructural gaps, to be able to match

|26| India-China Chronicle  November 2011

up to the pace of China’s economic and industrial growth. Both the nations need to engage in constant dialogue towards fruitful collaborations.

India and China should work towards maintaining a congenial environment, so that our communications remain focused and positive, for the common benefit of our people.

Our Experience, Your Imagination

What according to you should be the strategy for enhancing trade and cultural relations with India and China?

China’s economic miracle is a subject of study. Most of the study reports talk about its higher productivity, low cost of production, huge capacities and cross-subsidies. China’s high rate of economic growth since 1978 and grant of mutual MFN treatment in 1984 offers a degree of complementarity between the two economies. The growing economic and commercial relations between India and China has set the backdrop for a successful relationship ahead. The two neighbours can only look ahead from here, and base their partnership on community benefit for both the regions. India and China together need to set an example of solidarity, and encourage trade and cultural ties through frequent dialogues and joint programmes. And if the two come together, the global economy can witness a tectonic shift.

Tour Packages-inbound and outbound.

How do you think ICEC’s association with your Chamber can help the industry overcome hurdles in China’s market?

Have got qualified Chinese language experts in the company and also in its panel.

India China Economic and Cultural Council (ICEC), the name itself reflects that the Council is aimed at involving both the countries to develop India-China relations. ICEC can act as a facilitator and adviser for business communities, investors and partners from India, who are looking at China as their next milestone. The Council can share with us any information related to events, programmes, policy matters and new developments that could be useful to our members, and we shall reciprocate the same. This would help us contribute towards building a sound trade and investment relationships between the two Asian giants. 

Experienced in handling MICE events.

Era Tours & Travels (India) Pvt. Ltd. (Recognised by Ministry of Tourism, Govt. of India)

210 New Delhi House, 27 Barakhamba Road, Connaught Place, New Delhi-110001 (India) Tel.: (0091-11) 23323190, 23711404, 23311337 Fax: 011-66304663 E-mail: richanayal@hotmail.com, info@eraindiatours.com Website: www.eraindiatours.com

INFOCUS | INDIA-CHINA | SME | REPORT

Sustainable financing of MSMEs

RK Das

S

In order to enhance sustainable financing in India, there is a need to develop institutional competencies to ensure that industry projects are fully evaluated for sustainability risk.

|28| India-China Chronicle  November 2011

ustainable management aims at managing ecological, economic and social effects, firstly, to achieve a sustainable development of the organization and the core business, and secondly, to create with its business a positive contribution to society at large. In simple terms, sustainability is the way firms integrate social, environmental and economic concerns into their values, culture, decision making, strategy & operations in a transparent & accountable manner.

Many global players in developed countries have adopted international norms for sustainable banking, such as: The UNEP Finance Initiative (UNEPFI) suggests integrating environmental considerations into the regular business operations, asset management, and other business decisions of the banks.

IFC – Equator principle – A common standard of project finance that incorporated environmental and social issues.

Collevecchio Declaration on Financial Institutions – pro-active role by financial sector that value communities and the environment.

Micro, Small and Medium Enterprises (MSMEs) have become synonymous with growth, innovation and productivity. These enterprises are often credited with achieving greater viability and profitability compared to larger competitors by leveraging their size and dynamic business models.

As large enterprises and corporates move towards CSR (corporate social responsibility), the focus is shifting towards MSMEs to align themselves towards responsible and sustainable business operations. CSR by MSMEs offers a huge opportunity, given that 95 per cent of all registered enterprises are MSMEs and that it is the second largest source of employment. Unlike large industries which are often concentrated in a given area, there are around 6600 MSME clusters spread across India producing more than 6000 products, supplying to larger manufacturers as well international markets. CSR initiatives by MSMEs can have a much

sustainability is the way firms integrate social, environmental and economic concerns into their values, culture, decision making, strategy & operations in a transparent & accountable manner wider reach and impact on society.

Limited finances and wherewithal of MSMEs has often been cited as a barrier towards CSR initiatives. However, it can be countered that the entrepreneurial spirit which helps MSMEs become globally competitive can also be directed towards their CSR initiatives. There are a number of simple and cost effective measures that can be taken to mitigate impact of business activities on the environment.

The sector also contributes greatly

towards reducing regional disparity and thereby raising socio-economic empowerment level. The sector comprises more than 30 million enterprises creating more than 70 million employments – thus emerging as the second largest source of employment in India after agriculture. It is estimated that in terms of value, the MSME sector accounts for about 45% of the manufacturing output and around 40% of the total export of the country, directly and indirectly.

MSMEs have a significant potential to improve the ecosystem and conserve the environment. Given the geographical extent of MSMEs, initiatives for reducing pollution can result in substantial improvements across the country.

Various developing countries and advanced countries like the US, EU and Japan use compliance to various norms as a Non Tariff Barrier (NTB), such as, protecting human, animal and wild life, protecting plant health, human safety, human health, environment, etc. All these barriers are part and parcel of the enterprise’s sustainability.

There have been instances in the recent past that the US and the EU have rejected the export from India

November 2011  India-China Chronicle |29|

INFOCUS | INDIA-cHINA | SME | REPORT

due to noncompliance to the above sustainability norms.

Exporting MSMEs should not see the compliance to sustainability norms, i.e. environment and social protection as a cost, but it should be seen as a competitive advantage. Since any enterprise, be it a micro, small or medium set up to grow their respective size, profit and turnover, etc; the improvement in sustainability compliance is the opportunity which secures future business. Large and medium enterprises should create an environment in the business dealing and motivating their ancillary small enterprises to slowly move towards international standards.

Sustainable finance is the key to promote sustainability in the MSME sector by way of supporting these MSMEs to select technologies which achieve higher energy efficiency and less damage to the environment, also reduce wastage to improve resources utilization.

The need of the hour is that while financing MSMEs there should be concern on the manufacturing process and technology being used by MSMEs and also on techniques being used to

adopt the concept of Reduce (waste), Reuse and Recycle.

Green financing aims to develop long term and sustainable adoption of eco-friendly business operations by MSMEs. For this, economic feasibility is an essential need, without which none of the initiatives suggested will evince interest from the MSMEs. Initiatives under Green Financing result in direct or indirect lowering of costs either through reduction in wastage or enhancement of efficiency or lowering the energy consumption.

The immediate impact of Green

Financing is seen by businesses in their bottom lines and this gives them greater motivation to continue and enhance their focus on such measures.

Banks and financial institutions, key lending organizations to MSMEs, will have to shoulder the responsibility for sustainable development. It is expected that lending institutions demonstrate more concern towards the negative externalities and risk generated by projects financed by them and take on greater responsibility for mitigation of the same. Banks and financial institutions will be required to monitor the environmental compliance by MSMEs financed by them.

SIDBI has all along laid thrust on holistic support for sustainable enterprise development and emergence of competitive MSMEs. With its commitment to responsible banking and addressing the issues of climate change, SIDBI has integrated environment, energy efficiency and social standards with its lending activities. The Bank recognizes that sustainable development is the key to MSMEs survival and growth in the long run and as a principal & responsible Develop-

ment Financial Institution engaged in promotion, financing & development of Indian MSMEs, SIDBI have since inception acted proactively in the area of sustainable development of the MSME sector.

SIDBI is also leading in the area of sustainable finance to MSMEs through energy and environment based loans, viz. loans for investment in clean technology, energy efficient equipment and environment protection at concessional interest rates. SIDBI has raised dedicated energy efficiency/ environment lines of credit from Japan International Cooperation Agency ( JICA) Japan, Kreditanstalt fur Wiederaufbau (Kf W) Germany, and AFD, France, for such loans. The country’s first aggregative CDM project which is expected to provide MSMEs with additional revenue from carbon credits is being carried out on an experimental basis in steel re-rolling units in Jodhpur.

SIDBI provides green financing for specific categories, like replacing old taxis with CNG fitted machines (additional income of USD 45-50 per month and improving the social status of more than 1000 taxi drivers), auto rickshaws fitted with CNG kits (aggregate reduction of 850 tpa CO2 emissions), 500 cycle rickshaws to the poor enabling them to earn a self-sustainable living, 5000 solar lamps (to reduce health hazards) in the remote/underdeveloped areas, etc.

SIDBI has also partnered with the Ministry of MSME, Bureau of Energy Efficiency, Ministry of Power, Government of India and World Bank Global Environment Facility for implementing energy efficiency (EE) measures in MSME clusters.

SIDBI has been successful in showcasing to the MSME sector through one of it’s impact studies that small investments in EE can result in 15-20 per cent energy saving and 40 per cent improvement in productivity.

Besides energy efficiency, SIDBI is also trying to improve the environmental and social (E&S) standards in the MSME sector through the World Bank Line of Credit (LoC). It is also addressing capacity building concerns of credit officials and have trained more than 130 credit officials on the environ-

Loans for Investment

Clean Technology Energy Efficient Equipment Environment Protection

ment and risk assessment framework.

SIDBI has released several energy efficiency booklets and also supported the ISTSL to prepare a Carbon Credit Guidebook for MSMEs and update its existing basket of 800 carbon free, clean, energy efficient technologies adoptable by MSMEs. In order to attend to challenges of information asymmetry, SIDBI has brought out a knowledge series on energy efficiency in fruit & vegetable processing, ceramics and engineering clusters. These along with a “Tip sheet on Energy efficiency” (providing simple housekeeping) tips to MSMEs have also been widely disseminated.

The World Bank in collaboration with SIDBI and the Bureau of Energy Efficiency (BEE) is implementing a new initiative called the World Bank Global Environment Facility (GEF) project on financing EE in MSME industrial clusters to improve EE and reduce green house gas (GHG) emissions from MSMEs utilizing increased commercial financing for EE. The above initiative envisions supporting five clusters viz. Kolhapur, Pune, Tirunelveli, Ankleshwar and Faridabad in India by providing assistance for energy audits, preparation of detailed project reports (DPRs) and support in mobilization of financing from Indian local banks to ensure that the identified EE measures are implemented.

Green Rating To promote green rating in the MSME sector, SIDBI, in association with SMERA, launched a pilot

incentive scheme called Green Rating for the first time in the country to encourage MSMEs to get their manufacturing facilities rated on environmentally sustainable parameters. The rating establishes compatibility of an industrial unit in adhering to manufacturing process resulting in efficient use of resources with minimum environmental damage.

In addition, SIDBI also extends rebate on interest rate up to 50 bps to all units rated “SMERA Green Rating-3” and above.

In order to enhance sustainable financing in India, there is a need to develop institutional competencies to ensure that industry projects are fully evaluated for sustainability risk. It is desired that sustainability measures be integrated into business and lending policies of banks and financial institutions for greater effectiveness in environmental performance.

This is expected to become the core competence and competitive advantage of future financial markets in India and will make MSME sustainable, viable and competitive in the future. 

RK Das is the General Manager of SIDBI. He acknowledges the contribution of Amit Sethi, Manager, SIDBI towards this article. The views expressed are those of the author, not SIDBI.

November 2011  India-China Chronicle |31|

INFOCUS | INDIA-CHINA | SME | COVER STORY

Engines of Growth

Chandni Chowk to China Entrepreneurship is in abundance in India and China, but for SMEs to truly succeed it essentially requires an enabling environment equipped with efficient and effective support systems.

W

hen Akshay Kumar resettled from Chandni Chowk to China in the movie, he didn’t realize that he was also exhibiting Indian entrepreneurial skills, besides the usual Bollywood masala. The Indian entrepreneur’s skills and commitment to succeed have been well established in the form of legendary Indian institutions like Infosys, TATA, Reliance, etc. Likewise, the Indian SMEs have established themselves as engines of growth for India by catering to the needs of international markets. SMEs in China have also achieved rapid and sustainable growth over the past two decades. Such growth has increasingly contributed to Chinese economic development, as a result of which it has emerged as the manufacturing hub of the world.

Status of SMEs in India & China Globally there is no accepted definition of SMEs. Different countries use different criterion. But most definitions are based on investment ceiling and employment. According to a World Bank, there are more than 60 definitions of small and medium industries used in 75 countries. The most commonly used definitions relate to either size of employment and/or quantum of capital investment/fixed assets. Historical past reveals that in most countries, including India and China, SMEs start as proprietorships and then transforms into small business units and then grow to medium size units.

In India, the MSMEs (erstwhile SMEs) are classified into the following: (i) enterprises engaged in the manufacture or production of goods

pertaining to any industry and (ii) enterprises engaged in providing or rendering services. In 2004, the Government of India enacted the Micro Small & Medium Enterprises Act to make it in tune with global practices and to provide opportunities for technological upgradation.

On the other side, China’s definition of SMEs is broadly classified on the basis of employment, revenue and investments. The Interim Categorizing Criteria on Small and Medium-sized Enterprises (SMEs) published in 2003 and based on the SME Promotion Law of China sets the guidelines for classifying SMEs. The definition further classifies the enterprises on the basis of activity, such as industrial sector, construction sector, wholesale and retail trade sector, transportation and delivery services sector, besides hotels and restaurant sectors. This explanation

covers 99 per cent of all Chinese enterprises, contributing almost 60 per cent to the national GDP and account for 82 per cent of employment opportunities.

The SMEs are an important part of both the Indian and Chinese economies. The Fourth Census revealed that registered MSMEs in India in the manufacturing sector are of the order of 9.47 lakhs, i.e. 61.96% of the overall registered MSMEs. The number of service enterprises is 5.81 lakhs i.e. 38.04%. As far as unregistered MSME sector is concerned, manufacturing enterprises are of the order of 63.68 lakhs i.e. 25.92% and the remaining 182.04 lakhs (74.08%) belong to the service sector. Aggregating the registered and unregistered MSMEs, the manufacturing enterprises are of the order of 28.03% while the remaining 71.97% belong to

Definition of MSMEs India

Manufacturing Sector

Micro enterprises Small enterprises Medium enterprises

Investment in plant and machinery does not exceed Rs 25 Lakh More than Rs 25 Lakh and less than Rs 5 Crore More than Rs 5 Crore and less than Rs 10 Crore

Service Sector

Micro enterprises Small enterprises Medium enterprises

Investment in equipments does not exceed Rs 10 Lakh More than Rs 10 Lakh and less than Rs 2 Crore More than Rs 2 Crore and less than Rs 5 Crore

PD Kaushik

Adviser - Legal Affairs, ICEC

INFOCUS | INDIA-CHINA | SME | COVER STORY

Globally there is no accepted definition of SMEs. Different countries use different criterion. But most definitions are based on investment ceiling and employment. According to a World Bank, there are more than 60 definitions of small and medium industries used in 75 countries

the service sector. The number of women managed enterprises of the aggregate MSME sector reached a figure of 21.30 lakhs against 10.63 lakhs as recorded in the 3rd census for the MSE sector.

The performance of Chinese SMEs is far more progressive. In 2007 a total of 4,459 large companies accounted for 0.19 per cent of the total number of enterprises registered in the country; 4,2291 medium-sized businesses, or 1.78 per cent; and 2,327,969 small enterprises, or 98 per cent, of the total. Overall, SMEs made up for 99.7 per cent of the total number of companies operating in China at the time. Business revenue of SMEs accounts for 60.42 per cent of total earnings; small enterprises 6.54 trillion, or 23.70 per cent. The industrial income of SMEs accounts for 66.28 per cent; 11.77 trillion of the small enterprises are about 37.29 per cent. The SMEs are increasingly playing an important part role in employment generation. Large enterprises in China employ 20,877 thousand individuals or 18.11 per cent of the total employment; medium enterprises 35,464, or 30.76 per cent; small enterprises 58,947, or 51.13 per cent.

Commonality & Divergence There are quite a few commonalities and divergences between Indian and Chinese SMEs. At the macro-level, like the role and scope of SMEs in their respective economies, government recognition of the importance and vulnerability of SMEs, etc, are quite a common phenomenon for both countries. However, there are wide number of issues that exhibit wide divergences.

A simple SWOT analysis for instance gives a fair picture of commonalities and divergences existing between SMEs in India and China.

The SME contribution in terms of employment generation is the most common phenomenon for both economies. However, labour productivity is a major divergence. China exhibits high labour productivity which is its strength as compared to India; in fact the mind set and behaviour of labour is considered a serious weakness for Indian SMEs. Likewise, restricted access to capital or lack of adequate credit facilities is a common weakness for SMEs in India and China.

The present WTO regime requires opening up of domestic market, lowering of tariffs,

Indian SMEs: Status Report & Change Category of industries

Chinese criteria of definitions

Small (Industrial)

<300 employees, or annual revenue <30 million RMB, or assets <40 million.

Medium (Industrial)

300-2000 employees, annual revenue 30 million – 300 million RMB, assets < 400 million RMB. All other industrial units with lesser levels, classified as small enterprises.

Medium sized enterprises in construction

600-3000 employees with annual revenue 30 to 300 million RMB and assets 40 to 400 million RMB. All other units with lesser values classifies as small enterprises.

Medium sized enterprises in retail trade

100-500 employees or with annual revenue 10 to 150 million RMB. All other units with lesser values classifies as small enterprises.

Medium sized enterprises in whole sale sector trade

100-200 employees or with annual revenue 30 to 300 million RMB. All other units with lesser values classifies as small enterprises.

Medium sized enterprises in transport sector

500-3000 employees or with annual revenue 30 to 300 million RMB. All other units with lesser values classifies as small enterprises.

Medium sized enterprises in delivery services sector

400 to 1000 employees or with annual revenue 30 to 300 million RMB. All other units with lesser values classifies as small enterprises.

Medium sized enterprises hotels & restaurants

400-800 employees or with annual revenue > 30 but less than 150 million RMB. All other units with lesser values classifies as small enterprises.

|34| India-China Chronicle  November 2011

Parameters

III Census (2001-02)

IV Census (2006-07)*

1. Total No of enterprises (Lakhs)

1,05,00,000

2,61,00,000

2. No of manufacturing enterprises (Lakhs)

44,46,000 (57.74%)

73,15,000 (28.03%)

3. No of service enterprises (Lakhs)

60,75,000 (57.74%)

187,85,000 (71.97%)

4. Employment (Lakhs person)

2,49,33,000

5,97,29,000

5. Percentage of rural enterprises

55

54.38

removal of quantitative restrictions etc, which means that SMEs will have to face tougher competition in domestic and foreign markets.

Their goods have to meet tougher quality and environmental standards. In view of their insufficient capitalisation, lack of access to capital, knowhow and information as well as low skills of work force, SME’s need assistance by way of policy support and measures from government and other organisations. The SMEs in both countries in most of the cases do not have information on WTO regime and need extensive sensitisation and nurturing.

Unlike India, which neither have quality transport infrastructure nor good telecom connectivity, China has excellent telecom facilities which help SMEs to get connected to international markets for expediting their business.

High quality transportation systems in China comprising railways, waterways and roadways, as well as efficient transporting equipment have helped SMEs in transporting raw materials to the enterprises as well as finished goods to respective destinations.

Indian and Chinese SMEs, on the whole,

have not been regarded as internationally competitive compared with those in the more technologically advanced economies. They may face consumer ire if deficiencies in technology, capital, and skills for management are not improved by forging closer cooperation with their counterparts in other economies.

At a breathtaking pace, China has firmly established its position as “the world’s factory.” It enjoys such a huge manufacturing-cost advantage over other countries, not only on account of low-cost labour, but the bigger factor is the unique manufacturing spoke and hub called “supply clusters.” These interconnected groups of companies in close geographical proximity to one another are a big source of lowering the product cost. It has helped supply chains with a big business advantage. Indian SMEs have experienced the “manufacturing spoke and hub phenomenon” in only few cases only, like the Tirupur cluster.

Indian SMEs are over dependent on the domestic market. Thus, lack of adequate efforts to enter the export market. Entrepreneurs mostly remain content with the domestic market as a

November 2011  India-China Chronicle |35|

INFOCUS | INDIA-CHINA | SME | COVER STORY

Strengths

Weakness

India

China

India

China

Employability Exports Decentralisation Flexibility Innovativeness Command over language

Recognition of SMEs Labour Productivity Employment Conducive Labor Laws Literacy Level Univ-Industry Coop Entrepreneurship Value chain clusters Blue collared employ.

State of the art infrastructure

Low literacy levels Plethora of labor laws Size of MSMEs Outdated technology Mindset of workforce Lack of credit Lack of info on mkt Weak WTO knowledge Inadequate infra.

Over dependence on domestic market

Rural-urban income inequality Restricted access to capital Language barrier Lack of organisation

Opportunities

it is quite evident that SMEs in both countries confront similar and dissimilar types of constraints and opportunities.

However, SMEs in both countries also exhibit fairly rich experience for collaboration and cooperation to benefit each other in the long run

Threats

India

China

India

China

Access to technology Availability of raw material Diversification Incr. Global mkt. share Strengthening cooperation

Open regionalism Access to global market.

Conducive bus environment Peer group effect Interdependence & Regional Integration

Consumer ire Changing taste & preferences Excessive flow of imports

Lack of competition Uncertainties of opportunities.

Asia-Pacific market Withdrawal of subsidies Consumer ire

result of which their contribution to Indian exports is roughly 40%, but at the same time its share of exports in the world market is less than 1%. On the other hand Chinese SMEs are over dependent on the export market and their vulnerability was exposed recently during the global economic slowdown.

Thus, it is quite evident that SMEs in both countries confront similar and dissimilar types of constraints and opportunities. However, SMEs in both countries also exhibit fairly rich experience for collaboration and cooperation to benefit each other in the long run.

Critical Issues Despite playing a strategic role, the SME sector in both countries suffers from various problems. The SME sector is heterogeneous, dispersed, and mostly unorganized, because of which entrepreneurs and artisans/workers face difficulties in accessing government schemes.

The recent global and domestic economic slowdown further exposed the weaknesses of SME sector in both countries, more particularly the exporting firms. The SMEs have a long way to go and still lack the spark and lustre, and besides the compelling need of identifying current challenges, it is required to find effective ways of addressing these concerns, some independently and some jointly. The various expedient issues which can contribute to the competitive advantages of the sector are: 1. Policy Measures 2. Financial Support 3. Infrastructure 4. Capacity Building Initiatives 5. Other Issues

Other policy related issues may include establishing state of the art infrastructure, achieving economies of scale and pro-SME procurement policy as practiced in China. For instance, a set percentage of government contract compulsorily go to SMEs. Similarly, much potential of small firms to grow and nurture innovativeness is shaped by the kind of infrastructure, both physical and economic, available and can be accessed at reasonable costs. Unfortunately, the ramifications of infrastructural constraint faced by small firms remain one of the most neglected areas of enquiry. Moreover, the nature and implications of such infrastructural absence or inadequacy could be deeply varied as between small enterprises located in urban areas and those in rural and semi-urban areas.

Likewise, policies regarding incentives for SMEs investors, improved credit facilities, safety nets against delayed payments, technology upgradation and capacity building, improved access to global markets, etc, are common for both countries. For instance, SMEs generally suffer from weak marketing. Most SMEs do not have

One the major strengths of SMEs in China are the recognition of the importance of SMEs by the government and the proactive policy for establishing a pro-SME business environment.

However, the Chinese experience can be a lesson for policy makers in India, especially by addressing the rigidity of antiquated labour laws.

The problem of the outdated and archaic labour laws makes it extremely difficult for entrepreneurs to start businesses and the ones already started, in running them, and in case of failed ventures almost impossible to shut it. The body of legislation that shapes the industrial and labour environment in India is huge. There exists a crisscrossing network of chaotic and often-contradictory laws, such as the Minimum Wages Act, 1948; Trade Unions Act, 1926; Contract Labour Act 1970; Weekly Holidays Act, 1942 and Beedi and Cigar Workers Act, 1966, Industrial Disputes Act, all of which need overhaul. |36| India-China Chronicle ď&#x201A;§ November 2011

November 2011 ď&#x201A;§ India-China Chronicle |37|

INFOCUS | INDIA-CHINA | SME | COVER STORY

money to invest in market research and are unable to carry out design and technical improvements to keep up with market demands. Unable to take up aggressive marketing, like big industries, they cannot invest in advertising and packaging and find markets despite good quality and competent prices. This limits their ability to tap markets and attract consumers.

The SME financing continues to be most important challenge for the creation, survival and growth of SMEs in India and China, especially the innovative ones. Shortage of working capital is widely recognized as the biggest hurdle in the growth of unorganized and organized SMEs.

The high cost of credit to SMEs also impacts the competitiveness of their products. Securing bank credits, difficulties in documentation for bank loans, and lack of collateral security are bigger problems in majority of developing countries in Asia, including India and China.

Besides, SMEs face a number of challenges which make it difficult for them to access international markets. Some of the major challenges faced by SMEs in accessing global markets are: • Market information • Price competitiveness • Cost of transport • Availability of professional management skills

• Non-tariff barriers • Domestic regulations (for services exports) Among medium enterprises, cost of production is a major concern as they are able to gather market information easily, compared to micro and medium enterprises, which are not well educated about global markets and sometimes also lack the resources to gather market information.

It is true that SMEs in India and China suffer from lack of core technologies and intellectual property rights, poor cooperation between large and small firms, limited access to finance, lack of preferential policies, etc. However, experience of both countries can benefit each other through cooperation and collaboration. Some of the suggestions for both governments are: a) Strengthen service quality among SMEs – The respective governments must ensure that initiatives funded with public money are responsive to business demands, address market failure, and provide value addition. It must also see to it that the business support network provides the targeted service to businesses. Policymakers, both at the national and regional levels, must recognize that the process of business growth has significant policy implications for government services, and determine ways to address these implications. Besides, from ensuring that employers get high-quality training from colleges and private institutions, such service providers are often the key for many small firms.

|38|

b) Learn from each other’s experience – It is imperative to learn from each other. For instance, interface between university and industry is a strength of SMEs in China, which needs to be replicated in India to build strong in-house technology development and adaptation resource. Likewise, India has considerable experience in energising rural markets through institutions and bridging rural-urban inequalities, perhaps China can gain from the Indian experience. c) Develop an Industrial Value Cluster (Hub & Spoke) Plan to Enhance SME Competitiveness – Respective governments should provide a policy framework that would serve as a guide in the setting up of industrial clusters of small enterprises. Such a framework should indicate how such clusters could be formed, provide public funds for SME clusters, and set up promotional institutions that will enhance technological collaboration among SMEs, university and research institutions. The same framework should provide business support, specifically for innovation; cultivate markets; and foster human resources, among others. It should also build financing institutions for SMEs. Where SMEs are concerned, the countermeasures to develop SME clusters should be as follows: • Improve small town infrastructure – Improved and low-cost infrastructure, such as energy, transportation, communications, and Internet, is vital to SE clusterNovember 2011  India-China Chronicle |39|

INFOCUS | INDIA-CHINA | SME | COVER STORY

ing. Small town infrastructure development could be pursued gradually but steadily while ensuring that SEs continue to produce and develop while getting the services that they need.

• Develop the industry that has competitive power – Small towns specializing in production, trade, and tourism industry should develop potentially competitive industries.

• Undeveloped small towns should develop the industry using locally available resources and potential regional markets.

This can be achieved through the industrial chain’s extension and new product research and development, external scale economy and healthy competition and cooperation within the SME cluster. d) Implement the macroeconomic regulation and supply the local government service. The government should draw up a preferential policy for the development of SMEs, help SMEs to choose appropriate region and adjust their development direction. The

local government should help cultivate entrepreneur spirit. The entrepreneurs of small-medium sized enterprise cluster have been regarded as important human resources in the development of the enterprises. It is necessary to create a suitable environment for \entrepreneur development and supply a preferential policy, complete law system, fair market rules and so on. The point is to build a culture of the local society to promote competition and cooperation in order to cultivate an innovative entrepreneur efficiently. e) The policy for SME development should focus its priority on financing. Some of the measures which could be taken up on priority basis are: • Expand the list of SME financing tools to include fiscal, banking, security market, commercial credit, and private financing sources • Build policy bank of SME • Develop a credit guarantee system • Encourage utilization of foreign direct investment and expand external markets • Develop a second board market

• Provide a finance and taxation support system for the promotion of SMEs’ technological innovation f ) Complete the technological innovation system for SMEs -- Extend fiscal and monetary support for technological innovation to SMEs that meet industry standards.

Strengthen the technological innovation system with enterprises as the core hub, and facilitate collaborative efforts among industry, university, and research institutions.

Government should promote the networking, interaction and collaboration among key innovation players, foster technological innovation alliances, establishing innovation relay centers to make it easier for SMEs to access applicable innovation resources, lower their information, transaction, and organizational costs of innovation activities. The essential elements of a complete technological innovation system rests on1) Innovative Technologies with Good Market Potential 2) Entrepreneurial Team 3) Idea 4) Products 5) Innovation Fostering System 6) Funding System 7) Free and fair Market Create innovation source – In particular, reinforce the development of technology-based SME community and lower the risks and costs of innovation activities undertaken by technology-based SMEs. Develop innovation clusters and reforesta-

tion – Guide the random innovation activities of SMEs to follow the national development strategy so as to build up innovation ecosystems representing national competitiveness. g) Encourage upgrading of the value chain, including technology-based export promotion, that is, from OEM (Original Equipment Manufacturing) to ODM (Own Design and Manufacturing) & OBM (Own Brand Manufacturing) etc.

The SME financing continues to be most important challenge for the creation, survival and growth of SMEs in India and China, especially the innovative ones. Shortage of working capital is widely recognized as the biggest hurdle in the growth of unorganized and organized SMEs.

Once again, coming back to the movie, today entrepreneurship is nurtured from Chandni Chowk to China. But it is also worth mentioning that entrepreneurship alone cannot succeed, it also requires an enabling environment and other support systems. Though Akshay Kumar in a Bollywood masala movie can do anything and get away with anything. But in the movie Chandni Chowk to China, he would not have succeeded in his mission without collaborating with the locals, or in other words the requisite support systems. Likewise, entrepreneurship is in abundance in India and China, but for SMEs to truly succeed against all odds, it essentially requires an enabling environment equipped with efficient and effective support systems.  November 2011  India-China Chronicle |41|

INFOCUS | INDIA-CHINA | PRIVATE ENTERPRISE

Private sector in China

Need to democratize small business For private enterprise to succeed there is need to make the set up more democratic so as to keep up with global standards.

|42| India-China Chronicle  November 2011

Zhang Weixin

W

ith the spread of reform and opening up as well as the state’s encouragement towards the development of private sector, China’s private sector enjoys broader prospects of development and plays a positive role in developing productivity, expanding employment, meeting diverse demands of society and facilitating economic prosperity.

In 1978, the third plenum of the 11th CPC Central Committee made the important decision of initiating reform and opening up, ushering in a new era for the development of China’s private sector. Until now, there are already more than 30 million registered private companies in China, taking up an ever increasing share of the overall national economy.

The introduction of foreign advanced technologies and managerial expertise have also helped to increase the competitiveness and size of small and medium sized enterprises (SMEs), which thus gained handsome profits and attracted more people to start their own business. As a result, the private sector has expanded its scope of business activities, prompting the state to open up more harbours and coastal cities, which in return further fueled the growth of the private sector.

At the same time, the entry of foreign-funded enterprises also brought fierce competition for Chinese private enterprises. All these factors have contributed to the growth of the Chinese private sector over the past 30 years as well as their remarkable achievements.

Private SMEs have many advantages in term of growth. Firstly, self-funded SMEs are highly independent. When they set up their own business, private businessmen raise fund either through wealth accumulation or joint investment, sometimes even bank loans. This makes them pay more attention to business performance and leads to greater efforts in elevating the company’s profitability. Due to low debt ratio, SMEs have less debt burden and are flexible in use of funds.

They also have a strong risk aversion capability because their products are mostly low-tech daily products and their operations are scattered and highly market-based, putting them in a better and safer position during economic crises.

Despite these advantages, private SMEs have many problems too.

Firstly

Product quality is not very high, quality awareness not strong enough, technological content is low and brand expansion ability is limited. Especially for small sized private companies, they are not efficiently opened up and their quality management is generally weak. Secondly, “family business” is the main feature of the management mode of Chinese private enterprises that manifests in centralized leadership, autocratic decision-making, and duel identity of both asset owner and manager.

Family business will further lead to patriarchal management, i.e. the ownership of the company belongs to one or a few main investors, and the company is led by a strongman that exercises highly centralized management.

Such kind of management mode can easily lead to “autocracy.” Lack of effec-

self-funded SMEs are highly independent.

When they set up their own business, private businessmen raise fund either through wealth accumulation or joint investment, sometimes even bank loans. This makes them pay more attention to business performance and leads to greater efforts in elevating the company’s profitability.

tive internal and external regulation, feedback, checks and balances against main investors, decision-making in the company is less correct and accurate, especially so when the manager makes ambiguous decisions and his underlings only know of its implementation.

The biggest advantage of China’s private sector is its large number of inexpensive labour force. Labourintensive enterprises take up a very big proportion. However, as economy continues to grow and is about to reach new level, private enterprises should get ready and take the initiative to improve their sci-tech innovation ability. Under the competitive pressure of multi-national corporations that boast advanced technologies, without sci-tech innovation, one can be easily defeated by opponents and will suffer from the import and export restrictions of other countries. Therefore, only through improving innovation capability and increasing technological content of products can private SMEs become more competitive and take up more market share.

Private SMEs should vigorously improve quality and pay high attention to quality management. They should break the closed management system of family business, better use IT approaches to obtain various management information and set up product quality guarantee system including quality control units with clear responsibilities, procedures and resources etc. It is also important to adopt the most advanced quality standards to the whole process of production from raw material purchase, manufacturing to marketing so as to ensure high product quality.

For products already sold but having quality problems, SMEs should take timely remedy measures. Only high quality can win trust and endorsement from customers and better development in future as well. At the same time, enterprises should actively participate in the fight against fake and shoddy goods to help straighten out market order and create a sound environment for fair competition, under which private SMEs can give full play to their advantages and strengthen their competitiveness. They should also learn from western quality management to

November 2011  India-China Chronicle |43|

INFOCUS | INDIA-CHINA | PRIVATE ENTERPRISE

India-China cooperation in SMEs

improve product quality and adopt international quality certification to improve their products’ international reputation.

Most private entrepreneurs highly value human resources but face serious talent and trust crisis for the time being. The fundamental reason is because of their concept of “capitial hiring labour” as well as a lack of talent incentive system. Competition for talent is a key feature of knowledge economy. But for private business entrepreneurs, not enough attention to talent and cronyism prevent outstanding talent to genuinely integrate into private enterprises. As a result, private enterprises are backward in management and poor in efficiency. To solve this problem, firstly it is imperative to set up modern and new type of management model, with emphasis on improving executive competence, increase their management experience, and give them trainings in marketing, human resources, finance and policies so as to cultivate a contingent of high-calibre private entrepreneurs that know better about business, management and market.

Still miles to go …

Anil Bhardwaj

C

Secondly

Private enterprises should recruit talents of various kinds to elevate the overall quality of the enterprise and improve its current human resources situation. It is important to value both internal promotion and external recruitment. While strengthening internal development of talent, attention should also be paid to support externally recruited talent. Use of people should be merit-based, and outstanding talented people should be given more freedom in management so that their talents can be put into full play.

Use of people should be merit-based, and outstanding talented people should be given more freedom in management so that their talents can be put into full play.

Thirdly

They should establish their own organizational institutions and corporate culture. The success of corporate management lies in sound institutions which can ensure the operation of enterprises according to certain procedures and reduce cost of uncertainties.

Fourthly

They should take scientific management methods, use various incen-

tive approaches that are compatible with the corporate culture, formulate scientific and rational regulations and rules, and set up fair, just and complete assessment system to cultivate employees’ sense of ownership and guarantee the enterprise’s long-term stability and development.

Private SMEs have an important position in China’s national economy.

|44| India-China Chronicle  November 2011

With their own advantages, they have played important roles in promoting economic growth, expanding employment, driving technological advancement and maintaining social stability.

They have also satisfied people’s diversified needs, thus becoming necessary and useful supplement to state-owned economy. Therefore, it is a priority for us to solve their difficulties and provide better development environment for them.

The remarkable contribution of SMEs in China is immense. They have not only improved social service and strengthened government support but also provided human resources and promoted technological innovation. In the future, they should better cooperate with enterprises across the world to promote common development. 

Zhang Weixin is Director General of World Confederation for Small and Medium Enterprises (WCSME) and Executive Chairman of China Privately Owned Enterprise Cooperation Development Association

hina has emerged as a manufacturing powerhouse over the last two decades. The quantum of export of its manufactured goods has risen so rapidly that it has raised concerns in many countries. But slowly the world is coming to terms with China’s rise as well as discovering the potential of one of the world’s largest and fastest growing markets.

In India, perceptions about China have undergone substantial change since the early 90s when India embarked on a systemic economic reforms programme in 1991 resulting in massive lowering of duties and abolishing of Quantitative Restrictions (QRs) on imports. The process was accelerated after India’s accession to WTO in 1995. Meanwhile Chinese exports grew rapidly: from US$ 760 million in 1994-95 to US$ 1167 million by 1997-98 and crossed $ 2 billion mark in 2001-02. It took to an even higher growth phase after the complete removal of QR restrictions in India from 1 April 2001. From 1995-96 to 200001, Chinese exports grew on an average of 13 per cent annually and more than 46 per cent annually from 2001-02 to 2004-05!

It was during this period that the fear of Chinese swamping Indian industries, especially the small and medium enterprises, was at its peak. It also led to anti-dumping duties on many Chinese products. Till then China was on the radar of Indian traders only, now SMEs also started looking at it seriously. Indian industry, including SMEs, started visiting trade fairs in China and mounting trade delegations. Such enhanced business to business contact was facilitated by a higher level of political engagement: The visit of Indian President KR Narayanan in 2000 to China, Premier Zhu Rongji’s

visit to India in 2002, Prime Minister Vajpayee’s visit in 2003 and Chinese Premier Wen Jiabao’s visit in 2005.

In the process, India discovered China which was undergoing tremendous transition: From the major supplier of cheap, mass produced consumer durables, China was emerging as producer of a wide range of sophisticated industrial products and machinery.

While in 1993-94, the share of low tech mass produced items such as textiles, footwear etc was over 42 per cent of China’s exports, by 2007 it came down to less than 22 per cent. Simultaneously, the share of exports of machinery and instruments rose from less than 22 per cent in 1993-94 to over 51 per cent by 2007. Riding high on FDI, China strategically attracted technology-intensive manufacturing in number of areas such as electronic/computer hardware, machine tools, robotics, plastics and chemicals among others.

The diffusion of advanced technology in China during the period has been rapid and its industry leapfrogged from manual/ mechanical processes to massive automization of operations.

Since 2005, Indian industry is taking a more nuanced approach to China: Admiration for some of their better production processes, technology and scale of operations coupled with productive workforce. They realize that with better infrastructure and strategic support from public authorities, Chinese companies can be formidable competitors indeed. But better understanding is slowly leading to spotting of areas of cooperation like never before.

FISME – the largest body of SMEs in India has been actively engaging with Chinese companies. It has been sending and receiving a large number of trade delegations annually for many years. According to FISME, while the bulk of Indian MSMEs are still stuck with low productivity and manually operated machines, thanks to large

number of collaborations with Japan, South Korea and Taiwan, their Chinese counterparts have quickly moved from manual to automatic and the genre of machines operated through digital technologies. The number of suppliers of small plants, machines and equipment and the range they offer is mind boggling.

FISME has identified huge scope of imports of plants and machines from China for Indian SMEs to help upgrade and scale up their processes.

While there is potential in almost all segments, opportunities in a few areas are especially noteworthy such as packaging (for alternative medicines, processed food and cosmetics), rubber and plastics, textiles, machines for garment industry, pollution control equipment, small scale plants for a range of consumer durables among others. Tooling and process machinery for painting, plating and coating also have enormous opportunities. Many Indian companies, even SMEs, are using China as a manufacturing base for exports to other countries.

Indian strengths in manufacturing are largely unknown in China; India is largely known for IT software. Also, opportunities for India are currently limited in manufactured exports to China owing to its huge domestic manufacturing base, cost advantages and excess capacities built over the years. More rigorous efforts are required by Indian companies in identifying niches. Exporting to China also becomes precarious because of lack of harmonization of technical standards and absence of Mutual Recognition Agreements (MRAs) between our testing labs. There is a lot of ground to be covered under the ‘Trade Facilitation and Promotion’ agenda by both countries. 

Anil Bhardwaj is Secretary General of Federation of Indian Micro and Small & Medium Enterprises (FISME), New Delhi

November 2011  India-China Chronicle |45|

INFOCUS | INDIA-CHINA | SME | FINANCE

U

SMEs Need to Have More than Courage One of the important factors for businesses’ survival is the availability of a healthy cash flow. Yet for SMEs, maintaining a positive cash flow is often far from their reach. |46|

S-trained chemist Wang Xiaochuan’s Sundia MediTech Company Ltd—a private, Shanghaibased clinical research firm—enjoys brisk business even during tough times, thanks to a continuous flow of contracts from renowned drug-makers, partly boosted by the recession-proof pharmaceutical sector.

What was started six years ago by a group of Chinese returnees who are medical practitioners—and was once considered ambitious, new and daring in China—is now a much sought-after business model.

Global drug-makers are known for outsourcing research for drug discoveries to contract research organizations.

As a contract research organization, Sundia’s services help drug-makers slash costs up to three-fold when compared to their peers in the United States, Wang claimed.

Stronger-than-expected growth of new clientele ensured Sundia’s revenue to jump 50 per cent last year alone, up from its annual average of 30 per cent. Currently, Sundia employs 500 skilled workers, has low staff turnover, is debt-free, enjoys robust orders from its multinational clients and has a strong, professional management team from diverse backgrounds, Wang claimed.

Figuratively speaking, this success story from a small company is one in a hundred in China.

How much is enough?

To date, China has over 50 million small-and medium-sized enterprises (SMEs), which account for 80 per cent of the country’s jobs, 60 per cent of gross domestic product (GDP) and half of the national tax revenue, according to the Ministry of Commerce.

One of the important factors for businesses’ survival is the availability of a healthy cash flow. Yet for SMEs, maintaining a positive cash flow is often far from their reach.

Despite government measures to assist SMEs, the amount of funding and further tax reductions continue to nag officials.

Take for example the well-known 7 billion yuan (US$1.03 billion) Torch Project and InnoFund set up by the Ministry of Science and Technology to help technology-based SMEs develop and commercialize new technologies.

“The size of the fund is clearly too small for this huge country with millions of qualified technology-based SMEs,” said Ge Dingkun, assistant professor of strategy and entrepreneurship at the China Europe International

Business School (CEIBS).

He suggested a common practice among foreign private equity firms and venture capitalists. “The government could have funds for different technological fields, for different industries and for different development stages.”

However, the key challenge is to ensure the effectiveness and efficiency of the usage of these funds by SMEs. “I have locally developed technologies that are cheaper and can rival the quality of foreign companies, and I provide employment to China’s best,” said He Yuanping, chief financial officer at Beijing OriginWater Technology Co Ltd, a water treatment services SME listed on the Shenzhen Stock Exchange.

“Government support usually goes to state-owned enterprises, universities and research institutes. But who is really at the forefront of the economy?” he asked.

Beijing enacted a slew of expansionary fiscal and monetary policies last year to counter the impact of the global financial crisis, including generous tax reductions for SMEs, making it easier for them to get loans.

All these measures seem to have brought China through the impact of the global financial crisis as the

The size of fund is not enough November 2011  India-China Chronicle |47|

INFOCUS | CHINA-INDIA IT SECTOR | REPORT

country recorded GDP growth of 11.9 per cent in the first quarter this year after 8.7 per cent growth in 2009.

Hidden gems While the majority of the SMEs are in the service sector, the downside is their difficulty in obtaining loans from banks.

Due to the nature of the service sector—that thrives on talent, innovation and being asset-light—SMEs in this important sector couldn’t possibly show strong collateral, such as fixed assets, to banks.

“Being asset-light is good for efficiency but not good for loan approval,” said Patrick Chovanec, associate professor of the International MBA program at Tsinghua University.

“Ironically, it’s like punishing those who are innovative and efficient when a lot has been spoken about the need to improve the service sector,” he added.

“The least efficient businesses usually get funding because of their heavy assets.”

Many SMEs blame Chinese banks

for acting like government agencies, pushing them to become more marketdriven commercial entities.

But China Europe International’s Ge thinks otherwise: Lending to SMEs poses much greater risk of loan defaults for banks. “The solution (is to) improve the lenders’ knowledge, skills and ability to discover, assess, price and manage risk inherent in making loans to SMEs,” he said.

Chovanec said partnering with foreign banks will help Chinese lenders improve their product range, develop local skills, improve credit ratings and become more commercially-driven.

On the flip side, SMEs’ financing problems have a boom in investment opportunities for foreign private equity firms and venture capitalists.

These firms are trying to deploy as much money as possible in China because of the growth opportunities. And discovering businesses that have good growth potential is key in the private equity and venture capital businesses.

Major private equity firms such as Kohlberg Kravis Roberts & Co recently said it aims to raise US$800 million to invest in Chinese companies. Texas Pacific Group invested over US$30 million in ShangPharma Corporation, a Chinese pharmaceutical and biotechnology research and development outsourcing company.

|48| India-China Chronicle  November 2011

In February, Carlyle Group partnered with one of China’s largest conglomerates, Fosun Group, to form a yuan-denominated fund to invest in emerging Chinese companies.

Chicken or egg?

While China focuses on pursuing technological advancement, a shift to develop stronger soft skills is equally important compared to technological skills.

“Technology and/or the product are only a small piece of the puzzle to being profitable. It takes leadership, managerial skills and strategic planning skills to turn an invention into a product and a product into a profitable company,” said Ge, who is also an entrepreneur.

For He, both technological and soft skills are important for Beijing OriginWater, but a skills shortage and rising labour costs stand in his way.

“These (issues) give me headaches every year.”

SMEs also feel they are not equally protected by the law when compared to large companies such as state-owned enterprises. Damage claims or legal disputes involving SMEs which usually entail small amounts, cannot be legally addressed, as China doesn’t have a “small court” system.  (Courtesy: China Daily)

INFOCUS | INDIA-CHINA | SURVEY

PD Kaushik

YES

?

NO

Face-2-Face: Individual Views

Shadows of the past

clarity for future The youth and interest in doing business with each other are the two main points that emerge from a survey conducted in India and China on individual perceptions. |50| India-China Chronicle  November 2011

A

nationwide survey in India and China has revealed the gap in knowledge existing in the minds of ordinary citizens on both sides of the border. It is surprising that when any Indian meets a Chinese at any location, both talk about the long standing relationship between India and China.

Buddhism and people to people contact centuries ago are the other talking points. But after India’s Independence and the subsequent establishment of the People’s Republic of China, public memory seems to fade. The survey was an attempt to revive the memories on both sides of the border and the results were startling.

Public opinion was tabulated from all five directions of India and China, viz. north, south, east, west and central. The opinions on various aspects of India and China were obtained from government officials, industrialists, academicians, entrepreneurs, media persons, housewives, etc. Thus, the opinions covered a vast cross-section of society to make it more representative in a general sense. Undoubtedly, the opinion has a gender bias as a large section of respondents from both sides of the border were male. However, there are quite of few female respondents also who have expressed their opinion.

In overall terms, the individual opinion is the key for any policy initiative. The results so far reveal that almost one out of every four respondent was undecided in China.

For instance, a simple query like do you want improved relations between the two countries, resulted in almost 20 per cent Chinese response as undecided. Likewise, around 8 per cent Indians were undecided on the same query. In the development of a concrete action plan, a clear ‘Yes’ or a clear ‘No’ is of immense help. Both countries must strive through public policy intervention to convert a strong ‘No’ into ‘Yes’ for everlasting peace and cooperation in the region.

A major reason which was shared by many who responded with a ‘No’ in India was because of China’s strong relationship with Pakistan. And the

Chinese ‘No’ was on account of the support extended to Dalai Lama and subversive activities in Tibet. One can question the rationale for the reason, but if it leads to such a public opinion so be it and serious efforts are required at the governmental level to change it.

But what about the undecided population? Especially for a democracy, public opinion matters a lot. Political expediency supersedes economic rationality. This section of the public easily gets swayed by news reports and media hyped sensationalism. And therefore a government has to shift the focus from straitjacketed policy interventions to other forms of soft options. Lessons from the past reveal that soft options have influenced society and culture more than any

nese. It is interesting to note that there is still an insignificant minority view in both countries, who exactly feel the opposite. Around 3 per cent Indians and 7 per cent Chinese do not want improved relations between the two countries. Though a minority, but still it is imperative to understand the background of the respondents to formulate a coherent view on their choice.

The strong preference for improved relations in India is evenly distributed among all occupations. However, it is interesting to note that such is not in the case of China. Mainly “others” and “business” exhibited a strong preference for improved relations with India.

The Chinese media was somewhat not convinced on this issue with a very low preference (almost 9 per cent) for im-

Improved Relations 100 80

Indians Chinese

60 40 20 0

Yes

Can’t Say

No

kind of direct or indirect government intervention, e.g. influence of western culture through Hollywood and McDonald was monumentally high than PL-480 or monetary assistance.

Thus, the following observations will aptly assist in charting the roadmap for a set of policy initiatives which need to be taken up for building stronger ties between the two neighbours.

Improved Relations On improved and peaceful relations, 92 per cent Indians and 75 per cent Chinese wanted improved relations between India and China.

Around 5 per cent Indians and 19 per cent Chinese opted for “can’t say.” This response may be indicative of the lack of awareness about India among Chi-

proved ties with India. Almost 18 per cent government officials and 13 per cent academicians in China favoured improved relations with India.

In the regional distribution, North India showed a strong preference for improved relations with China, closely followed by west and south. Only 17 per cent from the eastern region preferred improved ties with China. However, the western region in China showed a strong preference (36 per cent) for improved ties with India, followed by north (24 per cent) and central (15 per cent). The major business regions in China, east and south, favoured less for improved relations with India.

In age-wise distribution, it is interesting to note that the youth on both sides strongly preferred improved rela-

November 2011  India-China Chronicle |51|

INFOCUS | INDIA-CHINA | SURVEY

tions between India and China. Almost 31 per cent in the 19-30 age group and 31 per cent in 31-40 age group in India showed their preference for improved relations with China. On the other hand, there was an overwhelming support (63 per cent) in China for better ties with India in the 19-30 age group followed by 26 per cent in the 31-40 age group. However, about 4 per cent preferred improved ties in the 50+ age group in India and almost identical was the response from the Chinese in the same age group; perhaps they were still living in the shadows of the past.

Occupationwise Distribution: Indian Preference for Improved Relations with China

across all occupations, mainly among the business community and media.

There is a strange paradox in the perception of the Indian business community, which turned out to be the highest (57 per cent) among the respondents who preferred no business ties with China.

The business community in China, followed by “Others,” exhibited a strong interest in the Indian market. But the Chinese media showed little interest in business (10 per cent). More academicians than government officials in China exhibited their preference for the Indian market in a somewhat cautious manner. Though small, but respondents from academics and media were among those who emphatically denied any strong business ties with India.

The preference for doing business with China was more or less evenly distributed across all regions of India.

However, the southern region showed the highest preference for improved business ties with China, closely followed by north. Central India showed a lukewarm business interest (17 per cent) in China, perhaps because of the low level of industrialization. In China, the West showed a relatively better interest in India (34 per cent), closely followed by the North (23 per cent) than other regions. The industrially developed regions of China, the

Regional Distribution: Undecided on Improved Relations 60 50

Others 19%

Academic 20%

40

India China

30 20 Business 20%

Media 20%

10 0

Government 21%

North

West

South

East

Central

Preference for Doing Business 70 60 50

Regional Distribution: Chinese Preference for Improved Relations with India

it is interesting to note that the youth on both sides strongly preferred improved relations between India and China.

Almost 31 per cent in the 19-30 age group and 31 per cent in 31-40 age group in India showed their preference for improved relations The analysis of undecided responses gives an interesting insight into the perception of people on both sides of the border. In the “business” category, almost 39 per cent in India and 30 per cent in China remained undecided on the issue of improved relations between the two countries. Perhaps, Indian manufacturers fear excessive inflow of Chinese goods once the relations between India and China improve, and vice-versa. Media, on the other hand, remained lowest in the undecided category in both countries on this issue. In other words, me-

40

India China

30 Central 15%

20 North 24%

0

East 13%

South 13%

dia on both sides of the border have very strong views on this subject whether favourable or unfavourable. The western region in China and eastern region in India have conflicting views on strengthening India-China ties, which keep the respondents from these respective regions “undecided.”

It is important to understand that youth, especially the 19-30 age group,

|52| India-China Chronicle  November 2011

10

West 35%

forms the major group which remain undecided in both India and China.

Lack of awareness or ignorance about their neighbour will not be in the interest of both countries. In fact, a fairly large number of undecided youth in India and China in the business category is a major strategic challenge to safeguard short and long terms business interests.

Yes

No

Business Interests Business interest is often a major motivation for improving bi-lateral relations. It was observed that about 61 per cent Indians wanted to do business with China, but 30 per cent were against having any business ties with China. The usual understanding of “doing business” is exporting goods and services. However, in this case, the proposition included imports, exports and investments. On the other side, 61 per cent Chinese showed their interest to do business with India, but 13 per cent exhibited their reservations over strong business ties. It is important to note that 26 per cent of the Chinese respondents opted for “can’t say,” as against 9 per cent from India.

The Indian preference for doing business with China was evenly distributed

Can’t Say

Occupation Distribution: Chinese Preference for Improved Business Relations

Government 17%

Others 29%

Business 32%

Media 10% Academic 12%

November 2011  India-China Chronicle |53|

INFOCUS | INDIA-CHINA | SURVEY

business with China. The highest number of undecided respondents hailed from the central region, closely followed by east.

Undecided respondents were more than double in China than India. It may be due to the overall lack of awareness about each other or poor projection of India in China and vice-versa.

India is either misrepresented in China or there is widespread ignorance about the present day India. The Chinese business community was found to be mostly undecided on the issue of doing business with India, closely followed by others. Most of the undecided respondents hailed from the northern and eastern regions of China. Besides, a cumulative 89 per cent of the undecided respondents were in the age groups

Regional Distribution: Indian Preference for Improved Business Relations with China

Central 17%

North 21%

East 18%

West 20% South 24%

THE INDIAN PREFERENCE FOR DOING BUSINESS WITH CHINA WAS EVENLY DISTRIBUTED ACROSS ALL OCCUPATIONS, MAINLY AMONG THE BUSINESS COMMUNITY AND MEDIA.

Agewise Distribution: To Do Business 70 60 50 40

India China

30 20 10 0

<18

19-20

31-40

East (13 per cent) and the South (14 per cent) remained uninterested in the Indian market.

The youth in India exhibited a strong business interest in China. The 19-30 and 31-40 age groups showed a cumulative preference of 63 per cent for doing business with China. A far better interest (93 per cent) existed in China in the same age groups for the Indian market. Undoubtedly the future pros-

41-50

>50

pects for both India and China seem far better than the past, especially with the current and future generations believing in improved business relations.

Inadequate knowledge about China in India, which may be the reason for the indecision, was found to be highest among the business community and academics. Indian respondents from the government and media were less indecisive on the issue of doing

|54| India-China Chronicle  November 2011

of 19-30 and 31-40 age groups. Thus, will it be safe to surmise that there is a strong possibility that the business community in the East and South, especially youth, are relatively ignorant or sceptical about the Indian market?

Thus, three important points emerged clearly in this perception survey, viz. (1) ignorance (2) business interest complements the need for improved relations, and (3) youth will play a major role in changing public perception. For (1) and (3), the focus should be on soft options for better marketing of Brand India and Brand China. For instance, a soft option can be improved cultural ties and better opportunities for people-to-people contact. For (2), a direct government intervention is needed in terms of easing travel formalities between the two countries, special incentives for facilitating business by identification of complementarities, and the sharing upgrading of technologies. 

Love must not be forgotten A look at Chinese writing

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eing an admirer of Chinese literature I can stay submerged in its vast variety of novels that speaks volumes about the nature of the Chinese society. Chinese literature, in general, has had a rich history of literary experimentation. From the classical Chinese texts of Confucianism, Daoism etc. to the classical ‘Prose,’ classical ‘Poetry’ with its golden period in the Tang dynasty, the ‘Drama’ of the Yuan dynasty going on to the ‘Fiction’ as the popular genre of the Ming and Qing dynasties, Chinese literature as the mirror to society has reflected all changes in the socio-political and cultural life of China.

The 20th century has been quite a journey not only for the Chinese society and state but also for Chinese literature for it witnessed progressive changes right from the turn of the century to the end of the century.

Though there were other forms of poetry that emerged in the latter half of the 20th century, fiction retained its position in the new century as the popular literary genre. The contemporary Chinese novels, in particular, provide an insight into different aspects of contemporary Chinese society. Many social issues and different concerns find expression in the world of fiction in order to reach out to

the common people. There are many writers who write on diverse issues that contemporary Chinese society has been grappling with, such as women’s issues, the large middle class, floating migratory population, urban and rural divide and the socially economically marginalized people.

Chinese novels, depending on their length, are of three kinds: short, medium and long ( ). Out of the three, the short length novels are basically narrative of the short story kind, the medium length novels can be termed as novella (a narrative longer than short story but shorter than a novel) and long length novels are usually an extended narrative like a full-fledged book.

Speaking specifically for contemporary China, there has been a lot of literary experimentation in terms of the selection of themes, styles and narration in fiction. Writers of the New Period Literature (after 1976) were comparatively bold and were not controlled by official dictum as far as their creativity was concerned. Unlike in Mao’s China, many writers ventured into forbidden territories to reform and encourage from within the system. They preferred not to start directly from an ideological and political point of view but rather November 2011  India-China Chronicle |55|

ICEC – A NEW CHAPTER chose to reflect life like a mirror and judge the shortcomings in the system. However, as the economic reforms spread, Chinese society started to register many manifestations of inequality, including gender inequality. The most prominent examples of gender inequality were female infanticide, illegal trafficking of women, prostitution, discrimination in the workplace and so on. It is under these circumstances that a new brand of women writers came to the fore and started to write about the concerns of women and their journey of self-discovery.

These women writers reflected the growing consciousness among women and the challenges faced by Chinese women. Zhang Jie ( ) is certainly the pioneer in crafting women protagonists that showcase the emerging image of women in Chinese society.

Zhang Jie started to write quite late in her life; her first work came out in 1979 when she was already 40 years old.

She created waves in the literary arena with her unconventional themes of educated urban Chinese women who had to make a choice between love and marriage or love and career. Since Zhang Jie grew up in the idealistic climate of 1950’s, thus, her characters are drawn on impressions of both Confucian morality and socialist ideals. Most of her ‘central’ characters are women who stay divided between conflicts of love, marriage and career.

Zhang Jie’s early works are the best examples of the New Realist trend (1976-1981) which serves humanity rather than politics. Her Love Must Not Be Forgotten is a trendsetter as it rediscovers the existence of romantic love that was mostly suppressed under political sloganeering. The novel clearly distinguishes between the private world of women and public world of society. When concepts like humanism and human nature were emerging as new trends in literature, Zhang Jie was delving into such sensitive issues. Quite obvious in her work The Ark, Zhang Jie boldly portrays women’s disaffection with conventional values and behaviour.

Also, despite her special concern for women’s fate, Zhang Jie has a special place for the principles of socialist society and shows all her character striving to contribute their energy and talent towards the improvement of a socialist society. Therefore, all three women protagonists of The Ark

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he India China Economic and Cultural Council (ICEC) launched its Gujarat chapter in Ahmedabad on August 26, 2011. HE Mr Zhang Yan, Chinese Ambassador to India, was the Chief Guest at the launch which was attended by representatives of several leading corporate houses, government, trade and industry bodies.

At the launch some leading corporate houses like the Adani Group shared their experiences of working in China, while two Chinese companies who are doing business in India namely ZTE and Huawei Telecommunications presented their views on doing business in India.

During the visit, Excellency Zhang Yan met Mr Narendra Modi, Chief Minister of Gujarat. Apart from building bridges for cultural relations between China and Gujarat, they discussed about stronger economic relations.

Excellency Zhang Yan also invited Mr Modi to visit China which he accepted.

As part of its, the ICEC – Gujarat chapter and the Ahmedabad Municipal Corporation (AMC) jointly organized a tree planting campaign under the INDIA

and the protagonist of Emerald, apart from seeking their individual identities, also lay stress on their professional commitment.

Zhang rejects the supposed premise of gender equality in China since liberation even though most of her women characters are educated, efficient and devoted professionals; Zhang Jie seeks an equality that did not make gender distinctions but allowed people to live as individuals rather than as men and women, a style that is uniquely her own.

It can be said that Zhang Jie has primarily worked on two themes in her major works with female protagonists; one is her portrayal of Chinese society and social duty as in her Leaden Wings and another the more dominant one, is the trials and tribulations of women caught in the different facets of life including love, marriage, profession, that can be found in Love Must Not Be Forgotten, The Ark and Emerald.

All a must read!! 

MANJU HARA is a Research Scholar at Jawahar Lal Nehru University.

|56| India-China Chronicle  November 2011

CHINA GREEN INITIATIVE, where 500 trees were planted by students from various schools and colleges of Ahmedabad. Each plant was named after the student and each student was given a “Vrukshmitra” certificate.

With ICEC kick-starting its operations in Ahmedabad, the people and the business community of the state can now easily avail the many important services offered by the ICEC. The major services and activities of the ICEC include import sourcing from China, buyers/ distribution system for export to China, technology hunting, JV partnership identification – both sides, taking & hosting trade delegations, translation services, starting Chinese language courses in Ahmedabad, scholarships to study in China , China business tour planning with appointments & factory visits, exhibition plan – factory visit, inspection of goods, reference/ credibility check – all industry verticals, press coverage in China, tourism & cultural events – like building a culture centre at Kailash Mansarovar, research for the governments of India & China, advocacy in India & China, etc.

H.E. Mr. Zhang Yan giving the inaugral speech at the launch of Gujarat Chapter

H.E. Zhang Yan with Mr. Narendra Modi, Hon’ble Chief Minister of Gujarat

Mr. P.S. Deodhar addressing the audience at the launch of Gujarat Chapter

Chinese Delegation meeting Mr. Gautam Adani, Chairman, Adani Group

November 2011  India-China Chronicle |57|

FAPSIA JOINS ICEC ON STUDY TOUR

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Mr. Jagat Shah, chairman, Gujarat chapter addressing the audience at the launch

Mr. M.V. Rabade, CEO, Adani Power, China

Mr. Weimin Yao (Rajiv), Vice President, Huawei, addressing the audience at the launch

Mr. Dinesh Sharma, VP, ZTE India tagging a plant with RFID tag

he India China Economic and Cultural Council (ICEC) organized a study tour to China and Hong Kong for a 25-member delegation of the Federation of Andhra Pradesh Small Industries Association (FAPSIA) in July, 2011. The delegation was led by Dr V Hanumantha Rao, President, FAPSIA and comprised prominent industrialists from FAPSIA’s members. The purpose of this visit was to explore business opportunities in China in three sectors – Plastics; General engineering/fabrication; & Foundry.

During the visit, the ICEC organized several meetings with relevant companies and industry associations apart from

industrial visits. The delegation also visited ProPak China 2011 in Shanghai, which is the premier trade exhibition for packaging and processing technologies in China. The delegation has come back with lots of information with regard to the development of their business, which will help not only their industry but also the Andhra Pradesh region in generation of employment and launching of new projects.

We propose to take several such trade & investment delegations from various industry verticals & Indian states to China. If you are interested in any such visits, kindly mail at: irfan@icec-council.org

Meeting with Shenzhen Supreme Plastics Development Co. Ltd. Mr. MahendraBhai N. Patel, President, Gujarat Chamber of Commerce & Industry addressing the audience

Mr. Ji Ping, Political Counsellor, Chinese Embassy, planting a tree

Networking Lunch with the Top Industrialists from Gujarat

H.E. Mr. Zhang Yan distributing the certificates to the students during the tree plantation

|58| India-China Chronicle  November 2011

At the Hong Kong Airport

Delegation visiting Guangzhou Construction Machinery Parts Association

November 2011  India-China Chronicle |59|

Shows

Exhibitions&Trade Delegation visiting Guangzhou Highteen Plastics Co

Delegation visiting Shenzhen Shi Xing Hong Precision Machinery Equipment Co., Ltd.

S. No.

The delegation visiting the Shenzhen Guang-ju Thai Plastic Industry Co, Ltd

Meeting with Shenzhen Machinery Association

At the Tiananmen Square, Beijing

|60| India-China Chronicle  November 2011

Interaction with Chinese consultants on How to do Business with China

Delegates visitng Bund in Shanghai

A visit to the Forbidden City, Beijing

Exhibition

Date

Venue

In India  In China Products/Sectors Covered

1

International Leather Goods & Garment Fair

03- 05 OCT

Pragati Maidan, New Delhi, India

International market of leather goods and garments

2

Real Estate World Congress

07- 08 OCT

Grand Hyatt Mumbai, Mumbai, Maharashtra, India

Real estate industry

3

Techtextil India

10-12 OCT

Bombay Exhibition Centre(BEC) Mumbai, Maharashtra, India

Technical textiles, non wovens and innovative apparel fabrics

4

MIFBEC

12-14 OCT

Bombay Exhibition Centre(BEC) Mumbai, Maharashtra, India

Food and beverage processing, hospitality and packaging industry

5

Silk Utsav

12-18 OCT

Gayathri Vihar Palace Ground, Bengaluru, Karnataka, India

Manufacturers, traders, exporters, designers and people associated with the silk Industry

6

MEDTEC India

19-20 OCT

Novotel Hyderabad Airport, Mumbai, Maharashtra, India

Medical industry

7

International Handicraft and Handloom Fair

20-22 OCT

Mayfair Hotel Bhubaneswar, Orissa, India

Handloom and Textiles Industry

8

Ibex India

03-05 NOV

Mumbai World Trade Centre, Mumbai, Maharashtra, India

Banking technologies, services & equipment

9

Taiwan Textile Fair

09-11 NOV

Apparel House, Gurgaon, Haryana, India

Fibres and yarns to fabrics, home textiles, trimmings and apparels

10

Clean n Green India Expo

11-13 NOV

NSIC Exhibition Complex New Delhi, India

Field of tree plantation, landscaping, gardening, arboriculture, and other green activities

11

INDIA INTERNATIONAL TRADE FAIR

14-27 NOV

Pragati Maidan, New Delhi, India

Prefect business opportunity, expert strategies and overall information of the market in the broader perspective

12

India Warehousing and Logistics Show

17-19 NOV

University Grounds Ahmedabad, Gujarat, India

Warehousing, Material Handling, Cold Storage and Transportation

13

P-Mec India

30-02 DEC

Bombay Exhibition Centre(BEC), Mumbai, Maharashtra, India

Pharmaceutical-Machinery & Equipment

November 2011  India-China Chronicle |61|

INFOCUS | CHINA-INDIA IT SECTOR | REPORT

S. No.

Exhibition

F I L M R E V I E W

Date

Venue

1

China Traditional Chinese Medicine Fair

08-10 OCT

Jinhan Exhibition Centre, Guangzhou, Guangdong, China

Pharmaceutical factories, decoction pieces factories, processing machinery factories, planting base and distributors

2

China (Shenzhen) International Logistics & Transportation

12-14 OCT

Shenzhen Convention & Exhibition Center Shenzhen, Guangdong, China

Railway, Shipping & Aviation industry

3

China Education ExpoBeijing

15-16 OCT

China World Trade Center (CWTC), Beijing, China

Education Professionals looking to maximize access to the latest trends and innovations in education

4

Intertextile Shanghai Apparel Fabrics

18-2 OCT

Shanghai New International Expo Centre (SNIEC), Shanghai, China

Apparel Fabrics

5

AgrochemEx

20-22 OCT

Shanghai Everbright Convention & Exhibition Center, Shanghai, China

Crop protection industry

6

World Renewable Energy Asia Regional Congress and Exhibition

28-31 OCT

Chongqing University, Chongqing, China

Development in Building and Environment, Renewable Energy, Building new facilities, new technologies, new materials, new products, and new technology promotion

7

Metalworking & CNC Machine Tool Show

01-05 NOV

Shanghai New International Expo Centre(SNIEC), Shanghai, China

State of the art technology, machinery design, tools and parts manufacturing for the IT, Electrical, Electronics, Shipbuilding, Aerospace and Automotive Industries

8

Environmental Protection Technology & Equipment Show

01-05 NOV

Shanghai New International Expo Centre (SNIEC), Shanghai, China

Environmental Protection Technology

9

China International Regimen Expo

06-08 NOV

China National Convention Center(CNCC), Beijing, China

Healthcare Industry

10

Shanghai International Wind Energy Exhibition & Forum

16-18 NOV

Shanghai World Expo Theme Pavilion, Shanghai, China

Wind Energy Industry

11

Bio China

18- 20 NOV

Suzhou International Expo Center, Suzhou, Anhui, China

Biotech industry

12

Rubber Tech China

22-24 NOV

Shanghai New International Expo Centre(SNIEC), Shanghai, China

Rubber Technology Industry

|62| India-China Chronicle  November 2011

City of Life and Death

Products/Sectors Covered

Directed by : LU CHUAN

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line that sums up City of Life and Death, a retelling of the World War II Nanjing massacre, comes from the film’s protagonist, Kadokawa: “Death is easier than life.”

He captures the terror of the 250,000 Chinese refugees in the eastern Chinese city who, having survived the mass slaughter of invading Japanese troops, faced torture in the international “safety zone” established by Nazi businessman John Rabe.

The film, by acclaimed Chinese director Lu Chuan, retells the Japanese occupation of Nanjing in the winter of 1937-1938. The Chinese government puts the figures for those massacred at 300,000, and the tragedy remains a source of tension with Japan, seen in China as not taking responsibility for the atrocities.

What sets Lu’s version apart is its sympathetic portrayal of the aggressors. Hideo Nakaizumi plays Kadokawa, a Japanese soldier, who reveals his humanity and naivete as horrors escalate around him.

The movie opens with the Japanese bombardment of Nanjing, and loyal Chinese troops trying to stop their fleeing comrades. We follow the street-by-street fighting between the ragtag remains of the defending army and the invaders – fairly standard war-movie fare, until the killing begins in earnest.

Japanese soldiers mow down prisoners in pre-dug mass graves, in fields, at the edge of a river, or set them alight in boarded-up buildings.

to wonder what eventually happens to Kadokawa. Most Chinese characters in the film, even key ones like Mr Tang, Rabe’s secretary, and Miss Jiang, an assistant to the foreigners in the safety zone, would eventually be killed.

Lu shows us intimate scenes from Japanese camp life, the result of two years pouring over the diaries of Japanese soldiers and other primary documents. We see Kadokawa’s initiation as a killer and how he loses his virginity to a comfort woman, Yuriko. He then naively falls for her.

Violence Cut In a nation where the Nanjing massacre has come to symbolize the decades of martyrdom that prefaced Communist redemption of the nation (in the lore of the current regime, at least), even the government censors found Lu’s film too violent, and asked for scenes of raped and murdered women to be cut.

Why sit through two hours and 18 minutes of such grim history? One reason is Nakaizumi, who manages to weave an air of mystery around his character and leads the audience November 2011  India-China Chronicle |63|

INFOCUS | CHINA-INDIA IT SECTOR | REPORT

Body in Barrow Later, he mistakes a Chinese woman, a hostage from the international zone traded for the safety of the rest of the refugees, for Yuriko, and then watches the same woman’s body carted off in a wheelbarrow like trash.

Black-and-white cinematography by Cao Yu reveals a morbid beauty in scenes of Japanese troops tamping down the earth in a strange tap dance on recently filled graves.

The cruelest officer turns his back to choke back tears as a Chinese prisoner is executed.

The sympathetic portrayal of Kadokawa, and his growing horror at the unfolding violence, has made the film controversial in China, where documentaries about the Sino- Japanese war are a staple on state-run television and the Nanjing episode features in every child’s civic education.

Perhaps it’s a coincidence that Lu’s ambivalence toward the aggressors jives with a recent trend in Western movies, such as “The Reader,” which explore the complexities of war.

Government Choice The film is one of 10 chosen by the government to commemorate the 60th anniversary of the People’s Republic.

Called Nanjing! Nanjing! in China, it drew 300,000 to 500,000 moviegoers a day in the first 10 days of its release and has a box-office tally of 170 million yuan ($25 million) to date, making it the top-grossing film in China this year, said Isabelle Glachant, an associate producer for the movie.

Lu is one of five Chinese directors to break the 100 million yuan mark in box office sales, a club that includes China’s most famous directors overseas, such as Zhang Yimou (Raise the Red Lantern.)

Homage to past masters The scope, breadth and bravissimo of classic world cinema is gapingly absent from the filmic scene as we know |64| India-China Chronicle  November 2011

it. A Tree of Life, Carancho, Certified Copy or Midnight in Paris become all the more precious. Chinese filmmaker Lu Chuan joins the ranks of the greats with his richly humane war epic, City of Life and Death.

Deep blacks, grays and whites form the timeless imagery of Yu Cao’s gorgeously antiquated camera work, framing a series of interconnecting tales and characters involved in the Japanese invasion of China in 1937. This entire device conceptualizes the lost aesthetics of history and cinema, recalling and surpassing Spielberg’s Schindler’s List. Lu’s eye casts our hearts forcefully but gently into the shoes of these men and women, Chinese and Japanese, torn in the machinations of battling nations.

Containing many of the most alarmingly Eisensteinian battle sequences in some time, Lu personalizes the political and aesthetizes the unthinkable, rooting us in the horrors and sympathies of mankind. His cast is sheer brilliance at shining souls of the past; Ye Liu, Wei Fan, Hideo Nakaizumi, Yuanyuan Gao and many others palpitate the fates of the formerly faceless. All aspects of the work fuse spellbindingly, forging a firm place in our hearts and minds as a formidable war picture, human drama, work of art.

Lu pays homage to his past masters, communicating the lineage which is our art form. Eisenstein, Rossellini, Ford, Fuller, and Coppola have burned themselves into his mind, and he, in turn has burned himself into our hearts.

Operating in a more demanding, ambitious mode than in his sleek poaching thriller Kekexili: Mountain Patrol, Lu must have felt the weight of interpreting a storied national tragedy in only his third feature film, and notwithstanding the technical means by which he creates a disturbing and vivid picture of Nanking’s six weeks of sexual assaults and massacres, City of Life and Death doesn’t take the extra step of pondering the causes of the sadistic frenzy; it just is. 