Why Chinese goods cost less than Indian

Despite having a higher labour cost than India, China is able to quote cheaper prices. How is it possible?

One of the main reasons is 50 per cent better labour productivity, says statistics published by Southern India Mills' Association journal SIMA REVEIW.

The labour cost per hour in China is marginally higher than in India, but its labour productivity is also 50 per cent better, which ultimately results in 25 per cent lesser labour cost of any finished product, the review explained.

It says, in China the duty drawback rate was 13 per cent on Free on Board goods, so the enterprises paid an uniform value added tax of 17 per cent at raw material stage and were eligible to claim 13 per cent on the value of finished products. The rate is likely to be further reduced in due course.

China's exchange rate was pegged at 8.26 yuan for one US dollar for the past eight years and there was lot of external pressure to appreciate the currency value. It was expected that Yuan would strengthen over the next one or two years and may be valued at par with HK dollar, which would be a five to six per cent appreciation, the statistics said.

In China, the land was 100 per cent owned by the government and enterprises could only lease the land on 39, 49, 59, 69 or 99-year basis, depending on the location.

For industrial purposes, land could be leased from $2 to $16 per sq. metres -- a one off payment for the entire period, it said.

The enterprises have to build only the superstructure and pay nominal tax and other utility fees and hence, compared to India, rental cost was almost negligible, the Review said.

Bank loan on working capital was available at maximum rate of 5.22 per cent per year and was negotiable with individual bank branch depending on the customer rating, it said.

Bank loan for capital investment in US dollar terms was at international rate and in yuan terms interest rate was two per cent per year.

Loan repayment record of most of the big borrowers was also very poor, the statistics revealed.

Besides, power cost was at least 40 per cent cheaper as compared to India.

Each provincial chief was vested with powers to waive many regulations and conditions on case-to-case basis depending on the type of investment, it said.