Chinese mega-manufacturers set up factories in India

Foxconn is opening a $5B facility in Maharashtra; Huawei just got a green-light for a networking gear factory; Xiaomi already runs a phone assembly plant in Andhra Pradesh that will announcing new products today.

There are enormous economic, political and military resentments between China and India — the world's two most populous nations. India accuses China of secretly financing the Naxol "Maoist" guerrillas and the two countries have long-simmering border-disputes.

More interesting is what this says about relative wages, labor availability and demographics in China and India. China's manufacturing center have thrived on a seemingly bottomless pool of cheap workers, mostly women from the provinces, who travelled to the Pearl River Delta to work in the factories that supply the world with its manufactured goods.

However, China has a looming demographic crisis, thanks to the "one child" policy that has now run for more than two generations. This, combined with increased longevity, means that the ratio of young, working-aged people to pensioners keeps tilting greywards, meaning that each productive worker is supporting more and more retired, long-living parents, grandparents and even great-grandparents.

Chinese wages have been creeping up for a decade, as the demand for workers increased and the supply stayed static. India's population, on the other hand, has a median age of 27 (to China's 36.7), and a huge supply of desperate workers, including members of "scheduled castes" who face systematic discrimination that keeps their wages low.

The government recently gave security approval to Huawei Technologies' plans to set up a manufacturing facility for network equipment in the country, though the facility still needs final approval from the ministry of commerce as it is a Chinese company, according to sources close to the matter. India and China have a border dispute.

Foxconn and the government of Maharashtra have entered into a memorandum of understanding to build a large electronics factory in the state with an investment of $5 billion, which would create employment for at least 50,000 people, state chief minister Devendra Fadnavis said after the signing of the agreement at which Foxconn CEO Terry Gou was present.

For the contract maker, India could present an opportunity to build products like smartphones both for the booming local market and for global customers, if it is able to iron out the country's significant infrastructure bottlenecks.

Foxconn to invest $5B to set up first of up to 12 factories in India [John Ribeiro and Michael Kan/IDG]

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