A Manufacturer's Soul Mate.

As a kid, I always wondered why  every toy I bought had "Made in China" on it. No matter what I bought, the smallest of the smallest and the biggest of the biggest had "Made in China" scripted on them. As a kid, I ignored it, but as I grew up, I came to know how this "Made in India" tag dominated the world. And it wasn't just India; no matter which country you were in, every country had Chinese products. How did one of the poorest countries of the 1950s and 1960s become one of the manufacturing superpowers? One of the secrets was effective and shameless cloning.

The COVID lockdown was an eye-opener for all countries that were completely dependent on China for manufacturing. Many countries understood that small havocs in China could cause big meltdowns in their own countries. Let's start from the beginning.

The year was 1950, and China was a complete slum. 90% of the population lived below the poverty line, and food was a luxury. The population was growing, and so was poverty. As every winning story has a hero, Deng Kio Ping turned out to be the knight in shining armour for China. When Deng Kio Ping took over China as president, World War II had just ended, and hence the steel demand was at its peak. Reconstruction of ports, bridges, and roads was driving the steel demand. Mr. Ping thought that the country had an ample number of unemployed people and had the required land and raw materials for producing steel. Mr. Ping asked his fellowmen to start steel production in the country. The advantage that China had and still has is that land availability is not a problem, followed by an excessive supply of required raw materials.

Major raw materials required for steel manufacturing, like iron ore, coal, and coking coal, were available in bulk. The Chinese government helped their corporations set up manufacturing plants with long-term leases at dirt cheap rates. Once the steel production activity came to an end, Mr. Ping understood the power of manufacturing and how China could easily benefit from this golden opportunity. In order to scale this business, China started framing business-friendly policies to lure global corporations to set up manufacturing hubs in China. Interest rates were lowered, land was allotted with long-term leases, raw material availability was taken care of, and one of the major costs, the employee cost, was cheap because of the excessive supply of labor and less demand. A classic economic situation.

 Many foreign companies felt like they had found their sole manufacturing partner and hence diverted all their manufacturing activities to China. Chinese people were eager to work at any wage rate to sustain their families. As mentioned earlier, China's land parcel is 4 times that of India, so setting up gigafactories wasn't and still isn't a problem. Because of this factor, a growing population isn't an actual economic problem for the country, as China has the resources to take care of the rising population. This isn't the case with India.                                     

Being sufficient, raw material-wise, decreased their import dependency, thereby saving billions in outflows in terms of foreign exchange. This isn't the case with India. We are largely dependent on imports of key raw materials like aluminium, hydrogen, crude oil, lithium, etc. China has completely eliminated this possibility. As stated before, one of the secrets of China's success can be attributed to their cloning skills. Deng Xio Ping used to say that it doesn't matter if the cat is white or black as long as it catches the mice. Cloning basically means copying. China understood that they are good at manufacturing things and not at innovating things, and hence what they did was invite global corporations with their technologies to China, help them, and later steel their technologies and manufacture an even better product at cheaper rates. Let me remind you what the Chinese government did with Tesla. They invited Tesla to set up a manufacturing facility. Tesla was given the required land and the required resources. Tesla taught the Chinese workers how to handle their technology and how to manufacture a Tesla. A few months later, the Chinese government accused Tesla of secretly selling confidential documents to the CIA of America. They said that the camera that a Tesla car has was capturing images of Chinese military areas and was sending these documents to the CIA.

The next thing we know is that Tesla was thrown out of China and a new EV company was born in China. The company is BYD. Five years into EV manufacturing, BYD was making supernatural profits. BYD's profit for FY 2022 stood at more than $2 billion. That's how China ethically steels technologies.

                                 

Talking about copying, Mr. Deng Xio Ping simply copied what Singapore's Lee Kyun Yeu did. It won't be wrong to say that Lee Kyun Yeu saved China from poverty and pulled it out of misery. What I like about Deng Xio Ping is that it doesn't matter for him to be called a "copycat" as long as his country does well. He believes in copying things that can give his country a long-term advantage over its peers, and that's what he did. Even though China is our biggest competitor, both militarily and economically, we can still learn a lot from them to get a competitive edge for ourselves as well. We aren't taught in school that copying an idea would look like an awful crime. I believe that if someone has tried something and the idea worked wonders, then there is no harm in at least giving it a shot. In India's push towards becoming a manufacturing hub or at least a substitute for Chinese manufacturing, some steps need to be copied effectively and strategically. "It doesn't matter whether the cat is white or black as long as it catches mice," Ding Xio Ping said. 

Happy Investing.