Govindraj Ethiraj: China's engines of growth

DOUBLE EDGE

The scenery whizzing by is somewhat similar to what you might see, in parts, on a train journey from Mumbai to Pune. Miles of industrial sheds, some spanking new, others somewhat dilapidated with dark oil and smoke patches on their walls. ISO 9000 continues to hold fascination here, or did once. The quality certification sign is displayed prominently on many signboards.

As the train progresses, the landscape periodically shifts from factories and dormitories to ponds, muddy rivers and sometimes unkempt fields with the lone thatched hut in the centre. I am reminded of home. Till of course I turn away from the window to glance towards the exit door. Just above, a rolling LCD display tells me that our train is currently doing at around 201 kmph.

I am seated in the Guangzhou-Shenzhen run of the just-launched China Railway High-speed (CRH) service. This is one of some 280 services that will come into operation this year. All will run at an average speed of 200 kmph or top speeds of 250 kmph. And I arrived in Guangzhou on a similar but double decker train, at similar speeds, straight from Hung Hom in Hong Kong. In considerable comfort I might add.

The service is barely a few months old. But it's already shaving precious hours and minutes off travel time, between Beijing and Shanghai, Shanghai and industrial centres like Suzhou and so on. The China Economic Review reports that, thanks to these new trains, part of the sixth "speed-up" effort in China, passenger handling capacity is expected to go up 18 per cent. Cargo capacity, more significantly, will go up 12 per cent.

Some $3.8 billion has already gone into this effort though there are "only" 6,000 km of high-speed tracks. So the railway ministry has promised it will more than double the high speed track by 2020. The CRH is part of a series, 1, 2, 3 etc. CRH 3, it emerged earlier this month, will roll out by year-end and will go over 300 kmph. On some sectors.

A friend who has lived in China for a while now reminds me that until a few years ago, there were no trains in these parts, forget snazzy, inter-city expresses like the one we are sitting in. And some 20 years ago, as is legendary now, the Pearl River Delta, through which we are passing, was just paddy fields and swamps.

The headlines in the South China Morning Post, among other regional newspapers this morning, are focused on the failure of the US-China trade talks, at least on the most contentious issue of currency. There is much debate about the yuan as well and the clamour to allow it to appreciate.

It feels good to star gaze and wonder what would happen if the yuan appreciated 10 per cent or even 20 per cent""most US estimates peg the under-valuation at 40 per cent. I am not sure about the numbers but I would hazard there is surely some under-valuation from an Indian standpoint""you don't have to go to China to figure that; a visit to the local toy or electrical goods shop will do.

China is worried. A recent Bloomberg news report quoting China National Textile and Apparel Council estimates says the textile industry, which accounted for 72 per cent of China's trade surplus last year, loses 8.2 billion yuan ($1.1 billion) for every percentage point of currency appreciation.

Is there, I wonder, some opportunity for a wannabe economic giant like India, since we are supposed to be in a race and all that? To put a foot into the door, if nothing else. My sense is partly yes, particularly for textiles, garments, where Indian firms have been getting a walloping. An appreciating yuan would help sweat less about the rising Indian rupee.

Before I try and answer I notice that we are now passing Dongguan, a city that is known as, among other things, the sweater capital and the furniture capital of the world. Even the battery for my Toshiba laptop (bought three years ago in the US) was made in Dongguan. Not surprising, considering close to half of all the world's computer parts come from here. The laptop too was made in China, I don't know where, though.

To return to the question, for the large part, my one-word answer is, disappointingly, no. For I don't see how 50-80 per cent of the world's consumer goods, textiles, leather products, toys, computer parts, kitchen tools or chemicals capacity can go anywhere. There is no place in the world that is infrastructure- and enterprise-ready to take this on.

China's Vice-Premier Wu Yi summed it up in Washington last week when she said that about 85 per cent of the trade surplus with the US was generated by foreign companies exporting products from China that are no longer made in the US, such as shoes. So not in the US. And surely not in India. To sum up the yuan debate, even if China loses business, we sure ain't getting much of it. And we would have if we were even half better prepared.

The first time I visited China six years ago, I was impressed with the light engineering prowess and the freshly minted expressways and highways. And noticed the terrible driving habits, not unlike on our own roads. Since then I've watched as China has added layer upon layer of world-class infrastructure. In contrast, we've added layers and layers of dreams, from bizarrely structured special economic zone projects to freight corridors.

The train glides into Shenzhen railway station. This is where the Chinese economic miracle all began. I weave through the crowds of mostly young, excitedly chattering Chinese boys and girls and think about China's powerful engines of growth. And how they are firing at a pace that I am unlikely to see at home, in my lifetime.