<div>While top Indian ministers were preparing to jet off to the United States in search of that elusive investment into manufacturing, a surprising drama was unfolding somewhere near the Chinese capital, where a chief executive officer of an American firm was trying hard to negotiate his release from his own factory.<br /><br />As the story goes, Charles Starnes, the CEO of Florida’s Specialty Medical Supplies, was held by his Chinese employees for more than five days after a dispute over salaries and the company’s decision to move some of its production to…well…err…India.<br /><br />Mr Starnes, we believe, had good economic reasons to move business to India. It probably made sense to shift to a low labour cost country from one where wages have increased sharply, thanks to double-digit growth over the past 30 years. Eventually, it seems, he managed to cut a decent deal and make his exit.<br /><br />The bizarre development raises two key questions. One, what is happening in China? Second, can India turn whatever is happening in China to its advantage?<br /><br />For three decades, China built its economy on a foundation of cheap labour that produced cheap products, which found buyers in droves in both developed and developing countries. That model spawned double-digit growth in what was once an extremely poor country, lifted standards of living and eventually raised awareness and demands. Such was progress that by the early part of this century, China was seen to be the only challenger to the might of the United States.<br /><br />However, an export-oriented economy can continue to succeed only if its overseas markets continue to grow. So, as long as the West and the rest continued to buy, China progressed. Of late, the Chinese growth engine is beginning to sound tired. While the economy is still growing, the pace has slowed considerably, raising serious questions about the sustenance of the world’s second-biggest economy and its ability to keep a lid on potential social unrest that might erupt due to job losses.<br /><br />The latest numbers released on 15 July shows that China’s economy grew by only 7.5 per cent in the second quarter of this year against a slightly higher 7.7 per cent in the previous three months. Industrial output was sluggish too. In effect, the once-booming Chinese economy has contracted in nine of the last 10 quarters — a fact that financial markets have sweated over.<br /><br />The government, however, seems to be just fine with the pressure on the economy and doesn’t look like introducing any measures to boost the slowdown, as it did in the aftermath of the collapse of the Lehman Brothers back in 2008 when it piped in billions of dollars into an economy that needed to be kept stable. It is now targeting a GDP growth of 7.5 per cent for 2013, the lowest in more than 20 years, and seems keen to change the growth model from export driven to domestic consumer driven.<br /><br />In an environment where it is becoming expensive to produce, there will be many others such as Mr. Starnes who would want to shift their operations to cheaper destinations. The choice could be, like in his case, between India that is hungry for investments into manufacturing and other Asian destinations – or maybe take it all back to the United States which too is looking to create jobs.<br /><br />That brings us to the second question: Can India turn the Chinese slowdown to its advantage? It too is growing, though at a rate slower than China. Millions of youth who are crowding the streets in search for jobs can be pushed into the manufacturing sector if that picks up. On the face of it, it looks like a win-win scenario for India and its government that has struggled with reforms to provide that much-needed trigger to jumpstart its rapidly slowing economy.<br /><br />However, there are problems — mostly self-created — and some that have only perpetuated the view that India is not keen on foreign investments. For one, India’s infrastructure sucks. For two, the government can’t make up its mind on policies. Three, looming general elections are holding investors back. Four, the Americans are generally fed up. Their patience is wearing thin and has been replaced with anger over what they see as India’s backward movement — away from reforms — and the government’s inability to make things happen.<br /><br />There have to be very strong reasons — size of the market and costs included - for somebody to shift manufacturing from China to India. Large multinationals — especially American — have been griping for the longest about the difficulty of doing business in India. And while various government ministers have consistently assured them that they would take action to restore confidence in the economy, little has been achieved. Too many past promises have yielded little.<br /><br />Unlike a few years ago, investors and large firms have other investment options. They might want to move out of China, but they may not necessarily want to shift base to India unless they are absolutely sure. India was once a story, now it seems a non-starter. But if it can go out and find more CEO’s like Mr Starnes and provide them with an environment in which it is easy to do business, New Delhi might do a world of good to itself. Somebody somewhere has to make a start.<br /><br /><em>(The columnist, a former newspaper editor, is President, Public Affairs, Genesis Burson-Marsteller and co-founder of Public Affairs Forum of India. He has a keen interest in China and Southeast Asia. Views are personal</em>)</div>
