Professional Documents
Culture Documents
July 2011
Contents
2
Message from Director General, CII
India and China have enjoyed a dynamic economic Indias presence in China has also increased over the
relationship which has gained much traction over the years, especially in areas of its core competency such as
last decade. Both countries represent large rapidly IT, manufacturing and R&D. However, for a synergistic
growing developing economies and have emerged bilateral economic engagement, there is need for Indian
as drivers of global growth. The opportunities in companies to tap the opportunities in the Chinese
both nations are expanding at an astounding pace as market more closely and to take advantage of its
development intensifies and a new class of consumers environment. Chinas strong presence in robust global
and workers from both sides steps onto the global supply chains is an added incentive for Indian companies
economic platform. for scaling up operations in China.
Within this scenario, the Confederation of Indian CII has been actively engaged with China through a
Industry believes that it is imperative to evolve a multi-pronged strategy including an office in Shanghai,
Chandrajit Banerjee, multidimensional balanced economic engagement partnerships with Chinese academic and business
Director General, CII of both countries that includes trade, services and institutions, and a range of dedicated events on the
investments. The series of seminars on Doing Business business as well as strategic platforms. CII works closely
with China: Emerging opportunities for Indian with the Indian government on strengthening economic
companies aims at facilitating such engagement and engagement with China, and has participated in bilateral
assisting Indian companies to achieve the next level visits of ministers from both sides. It undertakes relevant
in their presence in Chinas economic arena. This and timely research on China in order to enable Indian
endeavour builds on the already strong activity profile of companies to shape their participation in its economy.
CII with the Chinese economy.
The current series of seminars would reach out to
Bilateral trade has multiplied manifold over the last Indian businesses in key industrial regions and would
decade and today, China is Indias largest trading disseminate awareness on a range of topics pertaining
partner. Mutual investments too are going up as to doing business in China. Apart from an overview
businesses of both sides seek to leverage the benefits of Chinas economy and bilateral trade and economic
of dynamic and growing markets. The two countries relations, the seminar series would include specific
are developing their special identities in each others potential and opportunities for Indian business including
economies and proceeding rapidly on participating in identified sectors, business laws and regulations, the
each others growth and development process. mechanics of setting up business in China, and financing
options. The series would be addressed by government
China has built a presence of pre-eminence for itself officials, top business leaders, and professionals
over the recent past to emerge as the worlds largest from India and China to give a holistic and rounded
manufacturing and exporting nation. Despite the travails perspective on the issues and challenges.
of the global economic crisis, it has exhibited resilience
and continued high rates of GDP growth. A facilitative I am confident that this seminar series would greatly add
investment and manufacturing environment has value to existing China strategies and spark fresh interest
attracted global multinational companies which have for new business for Indian companies. I believe that
successfully set up business in China to address domestic it would lead to a multifaceted sustainable economic
as well as global markets. engagement between these two fast-rising Asian
powers. I wish the participants all success.
4
started to recruit English speaking employees for their in China. Due diligence is another aspect of utmost
international transactions. importance while engaging with China in a business
transaction. In all likelihood, the Chinese counterparts
Culture and history have an overwhelming impact the would have spent considerable time in studying the
traditions followed in that country and also the beliefs of Indian businesses and the company that they are going
an individual, which in turn have a direct bearing on the to deal with, well in advance.
approach towards a business transaction. Risk- taking
appetite of businessmen, speed of decision-making in a Decision making in the Chinese government is
transaction, conflict resolution between partners are all decentralized and is dispersed across various industries.
related to the culture of any country. Chinese culture too This implies that a company needs to keep track
has a profound impact on the way business is done in of policies and regulations at all levels. Even after
China. For example, relationships (Guanxi in Chinese) obtaining clearance at one level the company could be
are an important element in the success for businesses non-compliant at another level. Another implication of
in Chinese society. It helps not only in building further the decentralized decision making policy is that it can be
relationships but also in cementing bonds in difficult extremely beneficial if the company's strategic agenda is
times. Relationships with business partners, suppliers aligned to the local government's priority.
and vendors and government officials are imperative
India China trade is more than On analysis of the trade statistics, China emerges as
US$ 60 billion a year one of the most important trading partners for India. If
In the year 2010, the trade between the two countries the trade between India and Hong Kong is also added,
stood at US$ 61.74 billion. In the first six months of this China clearly is the largest trading partner for India.
year the trade between the two nations has already (Refer to Figure 1.1 and 1.2) However, while there has
crossed US$ 35 billion. The trends clearly indicate that been an increase in both the imports from China to
India-China trade could reach US$ 100 billion by 2015, a India and the exports to China from India, in the last 5
target set by the leaders of the two countries, during the years or so, the rate of Indias imports far exceeds the
visit of Chinese Premier, Wen Jiabao to India in 2010. rate of exports.
Table 1: Trade between India and China It is, however, important to note that even though
China is an important trading partner for India, India
2008 2009 2010 is only the tenth largest trading partner for China.
Indias exports to China 20.34 13.7 20.86 The major trading partners for China are still EU, USA,
and Japan. India ranks as the seventh largest export
Chinas exports to India 31.52 29.57 40.88
destination and ninth largest import destination for
Total India China Trade 51.86 43.28 61.74
China (Refer to Figure 2).
Trade Balance for year -11.18 -15.87 -20.02
Source: Indian Embassy in China
6
Figure 1.1: Leading trade partners in India's import basket (US$ million)
40,000
40,000
30,000
30,000
20,000
20,000
10,000
10,000
-
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
- (Apr-Dec)
2004-05 China
2005-06 U.A.E.
2006-07 Saudi2007-08
Arabia USA
2008-09 Switzerland
2009-10 2010-11
(Apr-Dec)
China U.A.E. Saudi Arabia USA Switzerland
Figure 1.2: Leading trade partners in India's export basket (US$ million)
30,000
25,000
30,000
20,000
25,000
15,000
20,000
10,000
15,000
5,000
10,000
5,000-
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
- (Apr-Dec)
2004-05 China
2005-06 U.A.E.
2006-07 Hong Kong
2007-08 USA
2008-09 Singapore
2009-10 2010-11
(Apr-Dec)
China U.A.E. Hong Kong USA Singapore
Source: Directorate General of Foreign Trade
Figure 2: Leading trade partners for China (January 2010 - June 2011)
500
450
400
Value in US$ billion
350
300
250
200
150
100
50
0
EU USA Japan ASEAN Hong Kong Korea Taiwan Australia Brazil India
Exports Imports
Source: General Administration of Customs of the PR China)
6,000
6,000
5,000
5,000
4,000
4,000
3,000
3,000
2,000
2,000
1,000
1,000
00
Ores,
Ores,Slag
Slag Cotton
Cotton Copper
Copperandand Organic
Organic Precious
Precious Plastic
Plasticand
and Iron
Ironand
and Boiler,
Boiler, Salt,
Salt,Lime
Lime Electrical
Electrical
Aticles
Aticles Chemicals
Chemicals Stone,
Stone, Articles
Articles Steel
Steel Machinery
Machinery and
andCement
Cement Machinery
Machinery
Jewelry
Jewelry and
and and
and
Mechanical
Mechanical Equipment
Equipment
2008-2009
2008-2009 2009-2010
2009-2010 Appliances
Appliances
Figure 3.2: Key exports from China to India (US$ million)
12000
12000
10000
10000
8000
8000
6000
6000
4000
4000
2000
2000
00
Electrical
Electrical Boilers,
Boilers, Organic
Organic Project
Project Articles
Articlesofof Iron,
Iron,Steel
Steel Plastic
Plasticand
and Vehicles,
Vehicles, Inorganic
Inorganic Optical,
Optical,
Machinery,
Machinery, Machinery,
Machinery, Chemicals
Chemicals Goods
Goods Iron
Ironand
and Articles
Articles Tramway
Tramway Chemicals,
Chemicals, Apparatus
Apparatus
Equipment,
Equipment, Mechanical
Mechanical Steel
Steel Rolling
RollingStock
StockCompounds
Compounds
Sound
Sound Appliances
Appliances ofofMetals
Metals
Recorders
Recorders
2008-2009
2008-2009 2009-2010
2009-2010
Source: Department of Commerce, DGFT, Government of India
8
boilers and other types of boilers that accounted for Chinese government against the backdrop of a record
US$ 944 million. Other machinery in this category trade imbalance
includes steam turbines, office machine parts, cranes, air
conditioning machinery, converters, ladles, ingot molds Bangkok Agreement between India and China
and casting machines etc. India and China had accorded Most Favored Nation
(MFN) status to each other way back in 1984. Both
In recent years, Indias trade deficit with China has been countries are signatories to the Bangkok Agreement
growing, touching US$ 20 billion in 2010. In order to under which they provide tariff preferences to each
sustain the growth in trade, this imbalance needs to be other. India provides tariff concessions on certain
corrected through increased access to Indian goods in imported goods from China, the standard rates and
the Chinese market and diversifying the trade basket. extent of concessions applied (to certain specific
The Indian government has been seeking improved products only) to top five Indias import goods from
market access in the auto-component and engineering China (refer to Table 2). No tariffs are imposed in China
sector, IT, pharmaceuticals and agro-processing from the on these products when exported from China.
China welcomes foreign investment and it is bound Government examination and approval for investment
under WTO rules to further open its Industries to projects can come from local, municipal, provincial or
foreign investors. China announced significant structural state authorities, depending on the size and/or industry
changes to its foreign direct investment regime in of the projects. Certain projects may require approval by
2004. The decision on reforming the investment the State Council.
system transformed a system that only allowed foreign
investment in specific, government-designated sectors. Prohibited foreign investments include projects that:
are harmful to state security or that impair the public
However, it does not supersede the old system, the interest; pollute the environment, are destructive to
centerpiece of which is the Catalogue for Guiding natural resources and detrimental to human health;
Foreign Investment in Industries. The Catalogue, occupy excessive farmland and are unfavourable to the
essentially divides Chinas economy, for foreign protection and development of land resources.
investment purposes, into three categories: prohibited,
restricted and encouraged. Projects in these categories Restricted foreign investments include projects
are subject to different examination, approval and that are: (1) technologically behind; (2) unfriendly to
registration requirements. Projects categorised as resources and the environment; (3) engaged in the
encouraged face relatively less scrutiny while those exploitation of minerals that are specifically protected
categorised as restricted are subject to stringent by the State; or (4) classified as industries that the
requirements and examination. government is opening up in stages.
10
FIEs generally refer to Chinese entities with at least 25%
foreign investment. FIEs are permitted to conduct
business activities in accordance with the scope of their
business plans as approved by the government.
for specified infrastructure, primary industry, resources Commercial Enterprises (FICE) in wholesale, retail or
saving or environmental friendly projects; and a tax trade agency services; Chinese holding companies;
credit for investment in specialised equipment. regional headquarters; operating/finance leasing
companies, fund management companies, etc.
Choice of business entity
Wholly foreign-owned enterprise (WFOE)
1. Principal forms of doing business A WFOE organised as a limited liability company is
Foreign investors may invest in China through legal generally a desirable investment vehicle for foreign
or non-legal entities. Legal entities that can be set up investors provided the investment regulations do not
by foreign investors generally include wholly foreign- require the participation of a Chinese partner. The limited
owned enterprises (WFOEs), equity joint ventures liability company offers foreign investors sole control of
(EJVs), co-operative joint ventures (CJVs) and joint stock the business operations and avoids lengthy negotiations
companies. Non-legal entities include representative offices with a Chinese partner, as in the case of an EJV or CJV.
(ROs) and branches, as well as certain CJVs. Another more
recently developed investment vehicle is the partnership. According to the Company Law, the minimum capital
requirement to establish a WFOE is CNY 30,000,
An investors particular commercial considerations, any although the actual capital requirement should be
applicable regulatory limitations and home country tax commensurate with the proposed business plan and
considerations all play a role in determining the most substantiated by projections (normally, five years) in the
appropriate entity in which to conduct business. feasibility report contained in the company formation
application. Capital may be contributed in cash or
Foreign investment enterprise (FIE) in-kind. In-kind capital contributions are subject to
FIEs generally refer to Chinese entities with at least valuation in China. At least 30% of the registered capital
25% foreign investment. FIEs are permitted to conduct should be in cash and in-kind capital (i.e. industrial
business activities in accordance with the scope of their property, machinery, technology) should not exceed
business plans as approved by the government. FIEs 70% of the registered capital of the enterprise. When
are mainly organised as limited liability companies, and capital is contributed in instalments, the first instalment
the investors ownership in a FIE is represented by the must be not less than 15% of the registered capital or
amount of registered capital it injects into the entity. FIEs the minimum capital requirement, and must be delivered
do not issue shares until they have been transformed within three months from the date the business licence
into joint stock companies. is issued. The deadline for completing the contribution
is normally two years from the date the business licence
The main forms of corporate entity for FIEs in China is issued. The company is required to arrange for capital
are the WFOE, the EJV and the CJV. In general, FIEs verification by a CPA firm in China and apply for an
can carry out manufacturing, processing, trading and/ updated business license after each capital contribution.
or service activities in accordance with the approved
business scope. There are certain FIEs incorporated A WFOE must establish a board of directors or a
pursuant to special regulations to be engaged in managing director for management structure. For
designated business activities, such as Foreign Invested corporate governance purposes, the company is
12
All capital must be divided into equal shares represented should be considered: a potential partners access to
by share certificates. They may be ordinary or preferred domestic financing, the ability to provide a domestic
shares (the latter generally have no voting rights). market for products, the skill level of labour and the
Companies must receive approval before they can issue integrity and strength of management.
'A' shares (denominated in renminbi and available to
Chinese citizens and to qualified foreign institutional A holding company can offer certain economies of scale
investors) and 'B' shares (denominated in U.S. Dollars). in operations and management through its collection of
'A' shares and 'B' shares are tradable on stock investments under one corporate identity. These include
exchanges. 'A' Shares are further divided into shares centralised purchasing of production materials, collective
owned by individuals, legal persons and the state. training of subsidiary project personnel, coordination of
Unlisted shares owned by foreign investors of qualified project management and the establishment of a single
foreign investment JSC can be traded on the 'B' share entity to market all subsidiary products.
market if approved by the Ministry of Commerce.
By contrast, JSCs offer different advantages. An
Partnership FIE opting for this corporate form can invite the
Under the 2007 revised partnership law, a partnership participation of shareholders in the company, both
is available to domestic legal entity investors, including to expand capital and to secure links with other legal
Chinese nationals. General, limited and special general entities in China. A JSC also offers greater liquidity in
partnerships are possible. Although the law does not transferring interests. Both EJVs and CJVs normally
prohibit the establishment of partnership by foreign require the prior consent of the other partners, as well
investors, the government has not announced the detailed as the original examination and approval authority to
requirements and procedures applicable to foreigners. transfer interests. Companies limited by shares need
There is no legal minimum or maximum for capital no prior consent from others to dispose of interests,
contributed by the partners to a partnership enterprise. although the promoters must wait one year from the
Capital may be contributed in cash, in-kind or in the companys first registration before assigning their shares.
form of land use rights, intellectual property rights or
services. Contributions other than cash must be appraised 3. Establishing business presence without
at a specific value. Partners may increase their capital legal entity
contributions to the partnership enterprise, as stipulated Branches: Although the Company Law provides for a
in the partnership agreement or as decided by all of the foreign company to register a branch in China, under
partners. These additional contributions should be used to prevailing practice, only the registration applications
expand the scale of business or to make up losses. of overseas companies in the financial services and oil
exploration industries are handled. A branch remains
There are no specific limits on the number of partners part of its head office and thus is not entitled to the
in a general partnership, but a limited partnership is rights and protection accorded to Chinese legal entities.
restricted to 50 partners. Each partner has equal rights A branch must appoint a Chinese legal representative
to conduct the routine affairs of the partnership. The who is liable under civil law for its business activities. A
admission of new partners is subject to the approval of branch may be closed only after a formal liquidation.
the partners and the conclusion of a written partnership
agreement. Newly joined partners have the same rights Representative offices: Foreign companies, particularly
and responsibilities as the original partners. those in the trade agency and service industries, often
choose a representative office (RO) to carry on liaison
2. Setting up a company and marketing activities in China. Although ROs allow
For foreigners, WFOEs offer a simpler approval foreign investors to enter the Chinese market with little
procedure and complete management control. Foreign initial investment, they are prohibited from direct profit-
companies also often use the WFOE form to protect making activities.
technology. WFOE status permits greater use of
renminbi to pay for business expenses and local sales. In general, an RO of a foreign company may only
To establish a JV, it is critical to select an appropriate engage in non-direct business activities in China,
Chinese partner. The following are some factors that including: acting as a liaison with clients and the head
60
49
50 45
40 32.5 31
30 25 23
20 20
20 16.5 15 17 14.5 17
12 12 12.5
10 5 5 7
0
0
Hong Kong Singapore China India
Corporate Income Personal Income Employer Social Security Employee Social Security VAT
Note: The India tax rates are as per the highest tax bracket rounded off to the nearest 0.5. Tax slabs vary as per
income. VAT being a state subject varies across states. VAT for Delhi considered for comparison purposes.
14
Drivers for inbound and outbound investment Recognising the opportunity provided by the export
Atul Dhawan, Partner, Deloitte Haskins & Sells kicks regulations from China, and the lower costs of
off the conversation by noting that while both Indian manufacturing, several medium sized Indian companies
and Chinese businesses are looking to enhance their have set up units in China, to re-export consumption
presence in the other country, albeit for different oriented goods to India, and the rest of the world.
reasons, any significant level of investments from either Indian companies are already importing large amounts
country is yet to be witnessed. of Chinese made mobile phones and other electronic
items but currently it is only a trading activity;
That said, despite concerns, investments are trickling in investments or acquisitions are yet to be made. China
from both sides. He points out that there is potential today is one of the largest consumers and producers of
in the real estate and construction sector. A large steel, added to the low cost of production in China have
number of opportunities for Chinese real estate prompted investments in engineering sector. Indian
developers and Construction businesses to exist in engineering companies are investing in China to get
India, especially since modern construction techniques access to these benefits and cater to the Indian market
have not been universally adopted here. For instance, place.
Chinese contractors are able to construct concrete slab
building foundations much quicker than their Indian He continues, saying that Chinese manufacturers in
counterparts. the technology and telecommunications sector are
already cost efficient and may not look at India for
Even though there is a potential in infrastructure sector, cost arbitrage opportunities. For example Lenovo, a
especially with Government of India promoting foreign Chinese computer hardware manufacturer already sells
direct investments (FDI) in infrastructure development laptops and other equipment in India but does not have
in road construction, up gradation of ports and airports a manufacturing base here. However, he is optimistic
amongst others, it would be unlikely that Chinese that if Chinese manufacturing and Indias research and
investors would be allowed to take controlling stakes in design capabilities could be brought together, potential
such nationally sensitive installations. business synergies could be formidable.
He advises investors and sellers alike that both need to Indian IT companies on the other hand are majorly
be transparent with their approach, and this applies to investing in green field opportunities in China, to cater
both the senior management on either side as well as to a fast growing Chinese IT market and also to service
any regulatory authorities with an interest in the tie-up. their global clients.
He warns that both Chinese and Indian management Atul Dhawan, Partner, Deloitte Haskins & Sells, gives his
cultures are different. This might add to the uncertainty personal viewpoint on recent investments from China in
when the two parties are interacting for investment Indian assets and Indian investments in China
opportunities.
16
Automobiles and auto components sector market. Such cross-investments would certainly increase
The automotive industry in both countries has seen a competition in the industry, resulting in introduction of
spurt of growth in the recent few years. An analysis products driven by consumer demand.
of the automobile production in both the passenger
vehicles segment and the commercial vehicles segment This industry in the recent past has seen some significant
was carried out from 2004 onwards. The trends indicate collaboration between India and China. For example,
that the Indian market is undoubtedly growing, with Mahindra and Mahindra Limited entered into a joint
production doubling (Refer to table 3). venture with Jiangling Motor Co Group in 2005 to
manufacture tractors in China. This is perhaps the first
The growth story remains similar in China with an venture between the auto OEM manufacturers of the
increase of more than 3.5 times over the same period two countries. Subsequently, SAIC acquired 50% stake
(Refer to table 4). in General Motors in India.
The growth in the industry indicates potential and Bharat Forge Limited is another Indian company
opportunities for companies in both these countries. which signed a Joint Venture (JV) contract with FAW
Indian companies could look at investments in China Corporation, China for its forging business. FAW is
to gain from the growth in Chinese domestic market the largest automotive group in China, with a leading
and the Chinese companies in this space could look position in both passenger car and commercial vehicle
at investments in India to cater to the growing Indian sectors.
18
look at some of these graduates to fuel their talent to set up operations in China. TCS currently employs
requirements. However, the definition of engineering 1,200 employees (January 2011) in 5 delivery centers
in China varies from province to province and in some and plans to ramp up these numbers to 5,000 in the
provinces technicians are also termed as engineers. The next three years. TCS offers core banking system to four
Indian IT companies have to be mindful of this while major Chinese banks including Bank of China and Hua
initiating their recruitment and selection process. Xia Bank.
Infosys Technologies China subsidiary which was Genpact celebrated their ten years of operations in
set up in 2004, now drives one-third of its revenue China in 2010. Genpact reduced their cost of operations
from the local Chinese market. Infosys China plans to by locating their centers in sub-urban areas like they did
triple its current staff to 10,000 over the next 3 years. in India, when they started their operations. The Chinese
In its largest-ever investment outside India, Infosys operations cater to their clients based in Japan and
Technologies has stated that it would invest $125-150 Asia Pacific region. Currently, Genpact employs 3,000
million in setting up its own campus in Shanghai, China. employees in its China centers.
This is for the first time that Infosys has bought land
to build its own campus outside India. Most other Real Estate, Construction & Infrastructure Sector
global centers of the company operate out of rented With the continuing recovery and growth of the Chinese
or leased properties. The Shanghai campus will be economy, the impact of the World Expo 2010 Shanghai,
spread over 15 acres and developed over a period of Guangzhou 2010 Asian Games, and the commissioning
three years. Located at Zizhu Science and Technology of the high-speed rail networks, the China real estate
Park in Shanghai, the campus will have a sitting market continued to expand in 2010. However, property
capacity of 8,000 employees with facilities for software price increases have prompted the government to
development, labs, data centers, training facilities and implement various measures to cool down the market
food courts. Besides, the campus will have a 1,500- during the year. The predictions, therefore, are that the
seater auditorium, a gym and recreational centers. sector will have a lower growth in investment from its
Infosys currently employs over 3,300 people in China. 2010 rate.
It has already invested US$ 23 million in capital. The
current infrastructure can accommodate 4,200 people The high-end office leasing market in northern and
in China. Infosys China had revenues of over US$ 78 southern China experienced rental increases and high
million in fiscal year 2011. occupancy rates, which were mainly driven by growing
demand. In eastern China, office rentals in Shanghai,
TCS on the other hand set up their China operations Nanjing and Ningbo showed moderate increases while a
in 2002 thereby becoming the first Indian IT company decline in office rentals was reported in Hangzhou in the
20
road project in Shimla district. The Chinese firm was World Tourism Organization (UNWTO). This number
under much pressure because of the delay in completing represented a 9.4% increase over 2009. The only other
the project. The delay was probably due to visa issues Asian country in the top 10 list was Malaysia, with 24.6
for the workers. The new deadline for completion of the million visitors.
project is now April 2012.
India, on the other hand, was at 41 on the list, and
Construction firm Ramky Infrastructure with its joint received less than 0.5% of total world tourism at 5.6
venture partner Jiangsu Provincial Transportation million visitors in 2010. This potentially represents the
Engineering Group, a Chinese firm, had won a US$ 247 opportunity for growth in the business of tourism for
million NHAI contract for four laning of Srinagar-Banihal the country. The curious fact about India, though, is
national highway 1A in Jammu and Kashmir. that it is ranked 16th amongst countries receipt of
the tourist dollar, at US$14.2bn certainly not the
India has become the biggest destination of Chinese backpackers paradise as made out to be.
companies to contract projects outside China. According
to Indian Embassy in Beijing, the cumulative value of Multinational companies increase their presence in those
contractual Chinese investment (projects) till June 2009 markets that their customers go to this is certainly the
was US$ 29.6 billion. The overall turnover realized from case for the growth of the hotel businesses in both India
these projects till June 2009 was about US$ 11 billion. and China. The current policies in both countries also
Chinese companies have bagged several contracts favor and facilitate such investment in travel and tourism
to build steel and power plants in India. Some of the industry. The relative ease of entry in China (at least
Chinese steel makers have also set up JVs in Indian to for the hospitality companies) has helped in creating
produce steel. infrastructure to meet the inbound demand in that
country. India is still to catch up this is the opportunity
Tourism sector that is currently seeing much activity and focus.
Tourism has received significant impetus in the recent
decades both in China and in India, what with the new Outbound tourism
fascination for the emerging markets from the rest More Chinese people have travelled abroad in
of the world. This has largely been due to increased comparison the foreign foot-fall that their country has
business travel. Often pitted as rivals in most areas, received. The number of outbound Chinese travellers
the elephant and the dragon, however, share historic rose 20% over 2009 reaching 57.39 million last year.
connections that pre-date the Christian era. While there The Chinese tourists ranked fourth-worldwide last
are common threads of culture between the two, the year. According to the United Nations World Tourism
tourism product however is as chalk and cheese. Organization, China will be the world's fourth-largest
source of outbound tourists by 2020, with 100 million
Inbound tourism overseas visits. Official policy in China has also promoted
At 55.7 million visitors, China today is rated as the such overseas travel, and preferred nation status for
third most popular tourist destination in the world destinations have resulted in large numbers of visitors to
(after the United States and France), according to the that country (e.g., Australia in the 1990-2005 period)
22
Case studies
Case Study 1: Mahindra and Mahindra in China The new company, Mahindra Yueda Yancheng Tractor
Mahindra (China) Tractor Co. was established in 2005 Company (MYYTCL), has been formed between
as a joint venture with Jiangling Motor Co Group. The Mahindras Farm Equipment Sector, and Jiangsu Yueda
entry into the Chinese market was in line with Mahindra Yancheng Tractor Manufacturing Co. Ltd. The registered
and Mahindras strategy to become the worlds number capital of the JV is US$ 40 million. Mahindra holds 51
one tractor manufacturer. The operations in China serve per cent share in the JV.
as a center for developing more models and expanding
the product range for China and other overseas markets. The large manufacturing base could be used to not only
produce for the domestic Chinese market but also for
Mahindra is one of the fastest growing players in the low cost manufacturing base for exports. The new joint
Chinese market. Five hundred Mahindra employees venture also strengthens the distribution network of
are instrumental in manufacturing 18 to 55 HP models both the operations which would give Mahindra a much
under the FengShou brand and 60 HP under the larger presence in the Chinese tractor market.
Mahindra brand.
The new JV is located in Yancheng city, Jiangsu
The tractor industry (domestic and export) in China Province. The JVs product portfolio comprises tractors
has grown from about 56,000 tractors in calendar ranging from 16 HP to 125 HP. MYYTCL will have a
year 2003 to 2,22,000 tractors in 2008, a CAGR of 32 strong distribution network covering over 25 provinces
percent. In addition to Mahindra (China) Tractor Co., in China. It will also build on the existing exports
Mahindra in 2009 set up another tractor joint venture operations with a footprint in more than 60 countries
with Yueda Group of China. The JV ceremoniously rolled including the USA, South America, Russia, Europe and
out its 125 HP tractor under the brand name Jinma at a Africa.
ceremony at the JVs new 38,000 tractor capacity plant
at Yancheng, China. The Yueda Group has a turnover
of US$ 7.3 billion and has a presence in various sectors Figure 5: Tractor production for Mahindra in China
of the Chinese economy including automobiles and
30000
tractors, coal and mining, infrastructure and real estate,
textiles and garments, hotels and supermarkets. Over 25000
the last 29 years, Yueda has established partnerships 20000
and joint ventures with Kia Motors from Korea, French
15000
supermarket major Carrefour, Triumph from Germany,
and Fuji, from Japan. The group employs more than 10000
30,000 people.
5000
He was amazed by the Chinese manufacturers ability to On being asked about his perspective on the future
create capacities for the future. He gave an example of business opportunities with China, he said that Chinese
a unit where the owner bought 4 acres of land when he manufacturers are under cost pressure due to increase
needed only 1 acre. The manufacturer said that the rest is in labour costs. The Yuan is also under pressure which
for future expansion; an expansion which is not even on is also not a good sign for Chinese businesses. He
the drawing board yet. feels that the India-China business relations in the next
decade would predominantly be trade oriented but he
His advice to Indian businesses looking at China would added that Indian companies might look at investments
be to do the complete due diligence on the suppliers. in China to shift the production base from India.
24
Way forward
While this document attempts to cover some of the Currently trade balance between India and China
key sectors of mutual interest, India and China have a is substantially in favor of China. Even though the
lot more to tap into. The challenge lies in being able Indian government is urging the Chinese government
to identify how the two could get past the political to grant access to certain categories of products like
and cultural differences to benefit from each others pharmaceutical and agro products and encourage
experience and expertise. imports from India, we could be looking at at-least
few more years of trade deficit for India by the time
China is presenting itself as a good location for business the trade in these sectors begin to impact the overall
for Indian IT companies. Several Indian IT companies numbers. Having said that, Indian companies should
have invested in China to cater to their clients in Asia- be looking at exporting services, where India has an
Pacific region especially in Japan and multinational expertise and edge over China. These services could
companies located in China. The Indian IT companies be in the area of finance and accounting, IT and
should be targeting the growing Chinese domestic infrastructure management.
market of IT and IT enabled services. The Indian IT
companies have to ramp up their employee strength in With the growth and development of tier two cities
China and capabilities of the Chinese centers to cater in both India and China, and the need for rapid
the sophisticated demands of Chinese companies more urbanization, companies in the two countries could look
efficiently than the local Chinese players. The Indian at projects in infrastructure, transportation and power
government could look at seeking more market access distribution.
in this area.
These opportunities exist, however, people to people
Indian manufacturing companies especially in the interactions need to be further developed and this is
automotive sector, both in OEM and component possible only if the two countries encourage people-to-
space, are investing in China to take advantage of the people exchanges through increased cultural exchanges,
large domestic Chinese market. Also to use China as student exchange programes, and tourism, amongst
a low-cost manufacturing base for certain models / others.
components for Indian market and exports to other
countries. Indian companies should look at a globally The task which lies ahead is to continuously engage
integrated supply chain model for their manufacturing with each other, build stronger relationships, both
and operations. They must integrate their Chinese, culturally and economically for a long term benefit to
Indian and other operations to achieve economies both countries.
of scale and look at leveraging expertise from each
production center. This would give them a competitive
advantage which would be difficult to replicate in the
short term.
26
About CII
The Confederation of Indian Industry (CII) works to CII has taken up the agenda of Business for Livelihood
create and sustain an environment conducive to the for the year 2011-12. This converges the fundamental
growth of industry in India, partnering industry and themes of spreading growth to disadvantaged
government alike through advisory and consultative sections of society, building skills for meeting emerging
processes. economic compulsions, and fostering a climate of good
governance. In line with this, CII is placing increased
CII is a non-government, not-for-profit, industry led focus on Affirmative Action, Skills Development and
and industry managed organisation, playing a proactive Governance during the year.
role in India's development process. Founded over 116
years ago, it is India's premier business association, with With 64 offices and 7 Centres of Excellence in India, and
a direct membership of over 8100 organisations from 7 overseas offices in Australia, China, France, Singapore,
the private as well as public sectors, including SMEs South Africa, UK, and USA, as well as institutional
and MNCs, and an indirect membership of over 90,000 partnerships with 223 counterpart organisations in
companies from around 400 national and regional 90 countries, CII serves as a reference point for Indian
sectoral associations. industry and the international business community.
About Deloitte
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member
firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal
structure of Deloitte Touche Tohmatsu Limited and its member firms.
Deloitte provides audit, tax, consulting and financial advisory services to public and private clients spanning multiple industries. With a globally
connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and deep local expertise to help
clients succeed wherever they operate. Deloittes more than 170,000 professionals are committed to becoming the standard of excellence.
Disclaimer
In this material Deloitte refers to Deloitte Touche Tohmatsu India Private Limited (DTTIPL).
This material and the information contained herein prepared by Deloitte Touche Tohmatsu India Private Limited (DTTIPL) is intended to provide
general information on a particular subject or subjects and is not an exhaustive treatment of such subject(s). None of DTTIPL, Deloitte Touche
Tohmatsu Limited, its member firms, or their related entities (collectively, the Deloitte Network) is, by means of this material, rendering
professional advice or services. The information is not intended to be relied upon as the sole basis for any decision which may affect you or
your business. Before making any decision or taking any action that might affect your personal finances or business, you should consult a
qualified professional adviser.
No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this material.
2011 Deloitte Touche Tohmatsu India Private Limited. Member of Deloitte Touche Tohmatsu Limited.