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What is the reason for the low cost of China imports in the Indian market?

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  • Published date: February 6, 2024
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In recent years According to the import export data India has seen an increase in imports from China that are priced much lower than comparable domestic goods or imports from other countries.

Chinese imports now account for around 14% of India's total imports and range from electronics and machinery to toys and everyday household items.

Several factors enable Chinese manufacturers to keep costs low prices in the Indian market:

  1. Lower Labor Costs

One of China's main advantages is the lower labor and manufacturing costs there. Chinese factories pay far lower wages to workers compared to their Indian counterparts.

They are also able to run very large-scale operations with thousands of low-paid workers involved in mass assembly line production. This allows them to achieve greater economies of scale and keep costs lower per unit of output.

  1. Lower Compliance Costs

China has lower compliance costs in terms of meeting environmental, worker safety and quality standards. While standards have improved over the years, enforcement can still be lax compared to India and developed countries.

Chinese exporters are able to cut corners and save costs by not following stringent regulations. This gives them an edge over Indian companies who have to factor in compliance overheads.

  1. Generous Export Subsidies

The Chinese government provides a lot of direct and indirect subsidies to boost manufacturing and exports. These include cheap loans, tax breaks, duty waivers etc. which are not accessible to Indian manufacturers.

So Chinese firms can export goods at artificially lower prices that do not reflect their true costs of production. Their loss-making exports are supported by the government subsidies.

  1. Undervalued Currency

China has long been accused of keeping its currency, the Yuan, deliberately undervalued. An undervalued currency makes China's exports cheaper and more competitive in global markets compared to other countries.

Maintaining an artificially weak Yuan relative to currencies like the Indian Rupee allows Chinese products to be priced much lower than they would be if the currency reflected economic fundamentals.

  1. Lower R&D Costs

A significant portion of Chinese manufacturing comprises low-tech items like toys, lighters, basic electronics etc. These are often products whose R&D costs have already been recovered by developed nations that initially launched them.

Since Chinese firms do not have to invest as much in product design, they can keep production costs lower for such goods. Their focus is more on high volume mass production of mature products.

  1. Advanced Infrastructure

The global trade data shows us that China has invested heavily in creating advanced, large-scale infrastructure like ports, highways, airports and logistics networks that facilitate easy and low-cost transportation of exports.

The overall export ecosystem has greater efficiency compared to India's creaking infrastructure outside of a few areas, giving China an edge.

  1. Generous Import Policies

India's import policies are still relatively restrictive compared to other major economies.

Barriers like customs duties and import quotas apply to many products coming from China and raise their prices for Indian consumers.

On the other hand, China has far more liberal import policies that allow it easy access to key technologies, components and raw materials from around the world.


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