FDI in Retail - The China Story

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One of the justifications forcefully advanced by the lobbyists for allowing FDI in Retail is that it would lead to enhanced sourcing of products from India by the FDI partners to meet their Global requirements. The Government and external agencies that are advocating FDI in Retail, readily accept this reasoning to reinforce their arguments.

It may be of interest to note that China, the great success story in recent times, did not get FDI in this sector to any worthwhile degree. In the years in which China received huge FDI inflows, Retail sector received relatively miniscule amounts because FDI in this sector was not freely allowed. And yet, this period saw China becoming a Global Force as a supplier without the benefit of FDI in Retail. It is only since December 2004 that China has liberalized FDI in Retail to meet the obligations for entry into the WTO, three years before it is required to do so, but after its domestic retail sector has had an opportunity to develop to a reasonable level.

FDI in China by Sector, 1999
Sector	Number of Projects	Amount Contracted ($ million)	Amount Utilized ($ million)
Farming, Forestry, Livestock Farming, Fishing	762	1,471.70	710.15
Mining	130	322.21	557.14
Manufacturing	12,042	25,331.80	22,603.34
Textiles	535	1,198.52	1,370.89
Chemicals	867	1,758.74	1,919.28
Pharmaceuticals	198	692.62	684.41
Ordinary Machinery	485	904.47	976.69
Special Equipment	500	743.33	509.95
Electronic and Telecommunications Equipment	922	3,942.71	3,145.72
Power, Gas, and Water Production and Supply	116	1,635.19	3,702.74
Construction	247	1,096.19	916.58
Geological Prospecting and Water Conservancy	10	53.97	4.52
Transportation, Storage, and Post and Telecommunications Services	205	1,114.01	1,551.14
Wholesale, Retail, and Food-relatedServices	825	1,204.13	965.13
Finance and Insurance	3	37.08	97.67
Real Estate	669	4,177.85	5,588.31
Social Services (including Hotels)	1,474	3,016.80	2,550.66
Healthcare, Sports, and Social Welfare	28	67.27	147.69
Education, Culture, and the Arts	29	60.72	60.72
Scientific Research Services	62	133.72	110.13
Others	316	1,488.52	752.68
Total	16,918	41,223.02	40,318.71
NOTE: Totals may not add up because of rounding.
Sources: PRC National Bureau of Statistics, China Monthly Statistics, China Statistical Yearbook, 2000; Ministry of Foreign Trade and Economic Cooperation

Foreign Direct Investment Actually Utilized by Sector
	(USD 10 000)
Sector	2000	2002	2003
National Total	4071481	5274286	5350467
Farming, Forestry, Animal Husbandry and Fishery	67594	102764	100084
Mining and Quarrying	58328	58106	33635
Manufacturing	2584417	3679998	3693570
Electric Power, Gas and Water Production and Supply	224212	137508	129538
Construction	90542	70877	61176
Geological Prospecting and Water Conservancy	481	696	1777
Transport, Storage, Post and Telecommunication	101188	91346	86737
Services
Wholesale & Retail Trade and Catering Services	85781	93264	111604
Banking and Insurance	7629	10665	23199
Real Estate Management	465751	566277	523560
Social Services	218544	294345	316095
Health Care, Sports and Social Welfare	10588	12807	12737
Education, Culture and Arts, Radio, Film and Television	5446	3779	5782
Scientific Research and Polytechnic Services	5703	19752	25871
Other Sectors	145277	132102	225102

The above details show the hollowness of the claims of benefits from flow of FDI in Retail, by way of large increases in procurement by the FDI partners. Only the gullible can buy the proposition that incremental procurement by FDI partners, helped by their presence in the host country can make a material difference in the overall sense.

On the other hand, these details indicate that China’s success could be attributable more to the fact that it has attracted FDI in sectors where it counts the most and leads to a permanent advantage to the country. Unfortunately, the Indian Government, while paying lip service to secure FDI in infrastructure, manufacturing and other priority areas, is obsessed with FDI in Retail as a high priority. The talk of emulating China or Shanghai sounds nice but China had set its priorities right and it meant business. That has made the big difference.

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