India in the WTO

I have earlier blogged about trade relations between India and China. Mr. Mao Siwei, Consul General of China in Kolkata made some interesting remarks recently at an Industry chamber meeting. Here is what he said about India-China trade:

Ladies and gentlemen, after talking so long about world meltdown, let’s talk about something exciting. That is about China-India economic relations. For the first time, China has become India’s largest trading partner and the bilateral trade reached 51.8 billion US dollars in the calendar year 2008. Ten years ago, the figure of China-India trade in 1998 was only 1.9 billion US dollars. This is a nearly 30-fold increase in just ten years. And also the first time in history, India has become the biggest overseas market for Chinese companies undertaking contract projects. Last year, Chinese companies were awarded contracts worth 12.9 billion US dollars for various construction projects in India.

We are in the era of globalization where economic ties constitute the basis of overall relations between countries. It is very much true for China and India.

China and India are two of the largest economies and both have established their comprehensive industry systems. But at the same time, the economic strengths of our two countries are very much complementary to each other.

India is strong in knowledge-based industries, especially in IT and pharmaceuticals. So many Indian companies in these sectors have established their offices, laboratories and factories in China and their business is doing quite well.

China is strong in manufacturing and infrastructure and many Chinese companies are doing business in these fields in India.

Mr Siwei does not give any figures for Indian businesses operational within China. These would have been interesting too.

Here is what he said about energy security and India-China cooperation in the power sector:

Recently I have found a phenomenon in economic cooperation between our two countries, which has been emerging in the power sector. Here I would like to talk a little bit more about it.

Indian economic growth has been on fast track these years and the issue of shortage of electricity needs to be addressed in a very urgent manner. The Government of India has set up an ambitious target with a time frame of ten years. That is: by year 2012, all electricity demand will be fully met; per capita availability of electricity will be increased to over 1000 units; and accordingly new electricity generation capacity of 100,000 MW will be added during the period from 2002 to 2012.

Now I am sure that this target will be achieved on time or even before the due date. One of the reasons is that the Electricity Act 2003 of India has opened the door for international competition and China’s major power equipment producers and power plant builders have been quite active in the Indian market since then. Now Chinese companies have obtained many contracts for power equipment and EPC power projects. According to an incomplete statistics, over 30,000 MW of equipment will be supplied by Chinese companies in the coming few years, which accounts for over 30 per cent of the capacity addition target of 100,000 MW.

This is really a new phenomenon in the history of China-India economic relations and is a win-win situation.

For China, after 20 years’ hard efforts, its capacity of producing power equipment and building power plants is now much larger than the domestic demand. At the end of last year, the total installed power capacity in China was almost 800,000 MW, which was 5.4 times that of India at the same time. And last year also, 133,000 MW of equipment was manufactured in China, which was nearly as much as the total installed power capacity of 147,000 in India at the beginning of this year. So to maintain and develop the capabilities of power equipment manufacturing and power plants construction, Chinese power industry has to go abroad. They have found many large markets in the world, but the Indian market is one of the largest.

For India, to achieve the target of addition capacity of 100,000 MW by 2012, international cooperation is very much needed and China is a natural choice for many reasons: one, nowadays in the world, only China and India are two large economies which still rely heavily on coal-fired power generation, and in this field major Chinese companies have the latest know-how; two, Chinese equipment is reasonably cheap while its quality is comparably good; and three, because of their large capacity and rich experiences, Chinese companies can deliver goods on time and do the job faster.

Power plant is a strategic project in terms of its long life of about 30 years and its significance to millions of people. So it is understandable that the Indian side has to attach great importance to the quality issue. Recently a few Indian newspapers reported some problems of power projects constructed by Chinese companies and suspected the quality of Chinese equipments. According to my knowledge, the reported problems are teething problems and all the power equipment producers and power plant builders, no matter they are Indians or foreigners, might have the same problems. But it may not be fair that just because you are newcomers, your problems are easily the news to the media. As I know, most of the contracts the Chinese companies obtained have been awarded by Indian companies in the private sector. Definitely, it is not an easy decision for private business people to make to invest billions of Rupees in a power plant. They have to do their homework seriously and have to make their research all over the world. Finally they have been convinced that to choose Chinese equipment is in their best interests. We don’t need to doubt about their wisdom.

Recently our Indian friends have been talking very much about energy security. Now I have a feeling that in a short term, or in next ten to twenty years, if there is one foreign country which will contribute the most to the development of India’s power sector, that country must be China.

Here is an interesting Business Standard story about little Chinatowns coming up in the Indian countryside for Chinese workers building power plants in India. I have highlighted some interesting bits.

Little ‘Chinatowns’ are springing up at different locations in India as more and more Chinese companies bag contracts to build steel and power plants in the country.

“We have executed, for a major secondary steel company, a township for 2,000-odd Chinese workers at a location in Jharkhand, where they would be erecting, commissioning and operating a combined steel and power unit,” the chairman of a leading architecture and civil engineering firm told Business Standard.

“The quarters are quite spartan, with basic sleeping and recreation rooms, and shower ranges and attached toilet units, but with the requisite engineering to permit a large number of people to use the facilities simultaneously,” added the architect.

He said it was the largest such township to be built in the country and the standards and designs were different and much closer to the Western designs than similar complexes built for Indian workers at offsite project locations.

While the steel company refused to be identified, or to name the Chinese party (saying it was commercially sensitive information), the chief financial officer (CFO) of the company confirmed that the Jharkhand unit would be using Chinese technology and rely on a core manpower team from that country to operate at the levels of efficiency promised by the Chinese equipment supplier. “We understand that the Chinese government has unofficially told their equipment suppliers that if they desired to draw support from government agencies like their export financing institutions, they would do well to use Chinese workers at offsite locations instead of using local workers as it would support jobs and families in their country,” said the CFO.

He said he estimated 3,500 Chinese workers were in East India alone, and another couple of thousand more in other locations in the country. Such residential zones for Chinese workers were coming up at three locations in West Bengal, with as many as five plants being set up using technology from the communist nation.

When contacted, two Chinese supervisors with English-speaking skills serving at projects in Bengal, said while they had problems with the quality and speed of work done by Indian workers, they found the working and living conditions comparable to the Chinese facilities.

“We find many of the foods we prefer and have collectively hired domestic staff from our country, while 60-70 of us have moved our families to Kolkata as well,” said Jin Bao, one of the two engineers. Chinese contractors acquired a formidable reputation after the EPC firm, Dongfang Electric Corporation, won at Rs 2,750 crore, the contract for the West Bengal Power Development Corporation’s 2×300 Mw Sagardighi coal-based power plant in the Murshidabad district.

The first Sagardighi unit began power generation in end-2008 with power load factor of 80-90 per cent, while the second unit’s synchronisation is due.

When contacted, sources in the Chinese consulate in Kolkata refused to comment.

Foreign teams working at projects is not new — Russians worked to build the Bokaro Steel Plant and some ordnance factories, the Germans set up the Bhilai and Rourkela steel plants and the British built the Durgapur steel plant in the past.

However, these expatriates usually lived in mixed areas in bungalows comparable to those provided to Indian officers, and not usually in separate enclaves. Besides, they were usually highly skilled supervisory staff and not expatriate blue-collar workers completely manning project erection responsibilities.

The Business Standard report also mentions allegations of violent conflict with local workers over and this is quite interesting “the quality and integrity of the work executed by local workers”. 

Interestingly, a secondary steel project in Bengal recently acquired sudden notoriety after 70-odd Chinese engineering workers allegedly beat up Indian workers following sharp differences over the quality and integrity of the work executed by local workers like fabricators and welders.

The conflict was so violent that the local police had to intervene, hospitalise a group of Indian workers and arrest some Chinese supervisors on specific assault charges, said a highly-placed bureaucrat in the West Bengal government. But he added that he did not expect such an incident to slow down the rush of Chinese project teams coming to India.

More from the Financial Times on Chinese involvement in India’s power infrastructure development.