Thirty years later, in spite of conquering the manufacturing sector, China continues with its tax incentives. India's decision to end the tax incentive signals the impending decline of Indian IT.
In 1978, when China was in dire straits, Deng Xiaoping went to the US to plead for more foreign currency. China had depleted all its foreign currency reserves and did not even have enough dollars to buy return tickets for Deng's delegation. The Chinese People's Bank, with just 80 employees at its head office, was the only financial institution in the country with no linkages to the outside world.
But thereafter, China liberalised and announced incentives for manufacturing and SEZs. It reduced tax rates from 55% to 25%. For manufacturing, the policy provided for zero tax for two years and just 12.5% tax for another three years. Thirty years later, China has reserves of almost $3 trillion. Its manufacturing sector at over $2,500 billion is 12 times bigger than India's . In spite of this stupendous achievement , China continues with all its tax incentives till date.
With the world recognising Chinese supremacy in the manufacturing sector, we find the "Made in China" label on almost everything we see. Indians have even found it cost-effective to worship Ganesh idols manufactured in China. Today, China is in a position to charge higher prices for their products without affecting their business, because no country will be able to respond in the short run.
