 (6).png)
8 hours ago
2
ARTICLE AD BOX
In April, the Chinese government issued a notification—Decree 834, which imposed restrictions on multinational companies operating in the country. Mint examines what this decree is all about, its motivation, its implications for India, and what the Indian government should do to counter it.
What is Decree 834?
Decree 834 is China’s first comprehensive regulation on industrial and supply chain security. While not entirely new, it creates a unified national security-driven regulatory framework for supply chain oversight. It has rattled multinational companies located in the country. Reason: It opens their commercial actions—which ‘cause or may cause substantial harm’ to China’s critical supply chain—to regulatory scrutiny. Experts are concerned about the open-ended language in the regulation, which gives Chinese authorities broad discretion to interpret what constitutes wrongful conduct. Decree 834, accompanied by Decree 835 (counter-extraterritorial regulations), substantially increases compliance costs for MNCs.
Is there more to this regulation?
Yes. While it is pegged as a measure to protect China’s supply chain security, experts opine that it is the second-largest economy’s strategic response to global supply chain decoupling measures underway today. It is a fact that global manufacturing is moving away from China for geopolitical reasons. The Asian giant is fast losing its status as the world’s factory with MNCs setting up facilities in countries such as Vietnam, India and others. Decree 834 is an attempt to trigger proactive behavioural deterrence by MNCs against shifting their manufacturing base out of China.
Why is China behaving so?
Historically, developed nations vacated low-value-high-volume production as their economies evolved and focused on high-end engineering. Stringent labour regulations and higher wage costs contributed to this. In fact, China was a beneficiary of this shift in the 1990s when MNCs set up facilities to take advantage of abundant labour and low wages. Unlike other developed nations, China wants to straddle the entire manufacturing chain, from low- to high-end and hence such restrictions.
How does it affect India?
Any restriction on the shifting of manufacturing from China will have a direct bearing on India’s China+1 strategy. India, which missed the manufacturing bus in the 1990s, is betting big on attracting a large share of the global supply chain as it weans itself off China. Also, Indian manufacturers sourcing from China will face issues, as the decree prevents supply chain mapping or audits. US suppliers insist on certifications such as non-use of forced labour under the Uyghur Forced Labor Prevention Act. Such certifications cannot be given now without an audit.
Does India need a similar framework?
Yes, say experts. It is important to have a state-backed protective environment for India-domiciled companies when conflicting extraterritorial demands land on Indian soil. The US laws and now Decree 834 put Indian manufacturers in a spot. Some nations have found a way out of this. The EU Blocking Statute gives European companies legal protection against extraterritorial demands made on EU soil. India needs a similar law, they add. Some government officials have called for a supply chain security system modelled on those of the US and China.
English (US) ·