Opportunistic Indians ride China’s economic boom

July 30, 2016

By Ansuya Harjani, CNBCGlobalPost Writer

Buyers check out products at the Canton Trade Fair in the southern Chinese city of Guangzhou on November 3, 2009.
Mike Clarke

In the northeastern part of the industrial Chinese city of Guangzhou lies a condominium that looks like most others in the city, but it has a Hindu temple, an Indian grocery store and a caterer that supplies traditional Indian snacks.

This apartment building is home to an expanding community of entrepreneurs from China's economic rival, India, who have migrated to the capital city of the mainland's southern Guangdong province to set up businesses, in sectors ranging from procurement to food and beverage.

While these two major emerging markets in Asia boast of vibrant economies, China's superior infrastructure, ease of setting up a company and a robust manufacturing base are luring small Indian businessmen to travel further east. Plus, growth in the world's second largest economy has far surpassed India, averaging 10 percent over the past three decades.

"When I came on my first visit to China, seven years ago, I was just floored by the infrastructure. Then the Chinese yuan was eight to one US dollar; it was so, so cheap to live here, start a business and have a good life," said N. Sirumal, a resident of the Guangzhou condominium, who migrated to the city in 2006 to start a procurement company that exports machinery used for manufacturing plastic products to West Africa.

As one of the country's main trading hubs, Guangzhou the capital of Guandong province is a convenient destination for export businesses. It plays host to the Canton Fair — the country's biggest trade fair that takes place twice a year, while the province, known as the world's "factory floor," is China's biggest exporter, accounting for over 10 percent of the country's gross domestic product (GDP) in 2012.

Comparing India and China as a destination to launch a business, Sirumal said, "In India, it's a headache to set up a company, there's too much paperwork and bureaucracy." He added that factories in India often fail to deliver goods on time and are unreliable when it comes to quality control.

Sirumal, whose roots lie in India's financial capital Mumbai, said he saw much more opportunity in China, despite liberalization efforts in the South Asian economy over the past two decades.

"In China, registering the business as an export office was the easiest procedure. The Chinese are welcoming foreigners and foreign investments. There were enough lawyers to help register our business for a meager fee of around $2,000," said Sirumal.

Currently an estimated 3,000 Indian businessmen live in Guangzhou, compared to just 100 a decade ago, said Deepak Jain, an independent business consultant and chief coordinator of the Guangzhou Indian Association — an organization that hosts cultural and networking events for the local Indian community in the city.

"Integration between Indian business owners and the local Chinese community so far has been easy. Ten years ago, Chinese manufactures didn't have much experience in international trade — they needed traders. What has happened over the years is that Indian businessmen have taught them the ropes," Jain said, including teaching local manufactures how to prepare the slew of documents required to export goods overseas.

Challenges

However, operating a business in Guangzhou hasn't come without challenges, Jain said, pointing to growing competition due to the influx of foreign entrepreneurs in the city from India as well as South America and Spain, in addition to the rising cost of operating a business as a result of wage inflation.

(Watch Now: Is China's Role as 'World's Factory' Ending?)

Earlier this year, the government announced minimum wages in Guangdong would rise by an average 19 percent starting in May.

Another major impediment to foreign business owners is language.

"Language is always a challenge, particularly when your business starts to grow and you need to monitor staff and what they are doing in a different language," said 34-year-old Ashwyn Daryanani, who came to Guangzhou in 2007 and set up a company to source building materials for construction companies in the region and in Africa.

Foreign business owners in the city typically hire one or more local university graduates who are proficient in English to assist with translation.

Despite these challenges, both Daryanani and Sirumal said their decision to move to Guangzhou has been fruitful.

"Moving to Guangzhou has been a good decision. I have been able to grow my business in a way that wouldn't have been possible," said Daryanani. His business has now expanded from sourcing and exporting construction materials to other items including bicycles and tobacco-related products.

"The overall experience has been profitable and a satisfied feeling that I took the right decision at the right time," Sirumal added.

China Calling

It is not just individual Indian businessmen that have flocked to China in search of opportunity, the mainland has also attracted a host of home grown Indian corporates looking to expand their foothold.

Approximately 500 Indian companies have established a presence in the mainland, mostly through joint ventures with local firms over the past 10 years, according to data from the India-China Chamber of Commerce & Industry (ICCCI).

Bilateral trade between the two emerging economies has been on the rise over the past decade, and is estimated to reach $100 billion by 2015, from a $66.47 billion in 2012, according to Indian media reports.

"For Indian companies, China offers better manufacturing technology, labor availability, and cheaper raw materials," said Kishore Kumar, assistant director at ICCCI.

However, this compares to just 100 Chinese companies that have set up a base in India over the same time period.

"It's tough to do business in the country [India], and I would say from a policy point of view, over the last six months the picture is looking brighter. But the entrenched bureaucracy in India, that's a nightmare for India and for any multinational," said Anil Gupta, professor, global strategy and entrepreneurship at University of Maryland.

India, which has seen a sharp slowdown in growth in the past year, has recently stepped up reform efforts like opening up certain sectors to foreign investments to attract inflows. But hurdles from poor infrastructure to comparatively high interest rates remain constraints on the country's business environment.

(Read more: Why India Fails to Deliver Its Potential)

Keeping this in mind, Sirumal said he has no plans of returning to India, adding that he intends to stay put in Guangzhou post-retirement.

"I definitely want to retire in China and make it my home. With inflation under control, you can live within your means of income here with all the basic necessities such as good infrastructure, a nice community. I don't see why anybody wouldn't think of retiring here," he said.