‘Miraculous Circulations’:
Fabric Trade from China to Dubai through the Indian Traders
Ka-Kin Cheuk
Institute for Area Studies, Leiden University, Netherlands
k.k.cheuk@hum.leidenuniv.nl
Abstract
This paper examines how Indian traders, despite continuously indebted to Chinese suppliers, can still sustain transnational trade from China to Dubai. The examination is based on long-term ethnographic fieldwork in Keqiao (2010-2012, 2016-2017), a municipal district of eastern Zhejiang Province, China. Accounting for its one-third annual turnover in China, Keqiao is the trading frontier for fabrics, the semi-finished textiles that are industrially weaved, knitted, dyed, and printed in bulk before being exported. Drawn by the trade opportunities, around 5,000 Indians have flocked to Keqiao to run global intermediary business. Focusing on their everyday activities in Keqiao, the paper shows that in addition to simply banking global capitals from Dubai, Indian traders can also turn such capital flows into what I call ‘miraculous circulations’: Chinese suppliers continue to take orders through Indian traders, notwithstanding the much-delayed payment and, in some cases, payment discounted or even defaulted. Specifically, the paper describes the ways whereby Indian traders use the capitals from Dubai to break into a lucrative local economy of export rebates, which would be otherwise reserved for Chinese suppliers only. As such, it illustrates that Indian traders not only circulate capitals transnationally, but also honing its usage in a specific China-Arabia context.
Introduction
Fang Ren , the owner of a fabric factory in Jiaxing, northern Zhejiang Province, and a trading company in Keqiao, used to trade with many Indian trade agents in Keqiao. He summarized his trade relationship with Indians as follows:
Indians always make troubles (mafan) on us, like delaying to pay us for a long time. But we still need them anyway. It’s because we can never trust the overseas buyers on such a large quantity of trade. We don’t know the trade records of the final buyers so it’s very risky to do direct trade with them. I have lived in Keqiao for years. I know which Indian agents are more reliable than the others and who can introduce us good buyers whom we can trust on.
On a late evening of December 2011, I followed Fang Ren to meet an Indian agent called Vikash. Vikash’s buyer had not paid Fang Ren’s shipment to Dubai for almost two months. While telling me that it was quite usual for Indians to pay late, Fang Ren was still anxious about getting his money back. “It’d be my third day to be there in his office,” Fang Ren said there was a large amount of money this Indian agent owed him. For the last few times, Vikash had paid after the shipment. But this time, Feng Ren still had not received any money after the shipment was sent a long time ago.
When we entered into that Indian agent’s office, I realized the agent was Vikash whom I had encountered a few times at the Sikh Temple in Keqaio. Vikash immediately recognized me, greeting me and Fang Ren at the same time. Vikash never talked with me in length in the temple, but on that occasion he told Fang Ren that “we’re good friends.” Throughout the first hour of meeting, Vikash kept talking to me, while not mentioning anything about the payment overdue. I felt awkward for I received too much attention from Vikash. I thought it might upset Fang Ren. However, Fang Ren seemed quite relax throughout my prolonged conversations with Vikash. He silently sat on an office desk, enjoying pastime himself recklessly with his smart phone and cigarette. He did not say anything when Vikash was talking with me, showing no intention to interrupt us.
It had been only after this hour that Fang Ren finally came to talk with Vikash, starting to ask Vikash for payment. “No telegraphic transfer received,” Fang Ren said, “give us the money now. It has been two months without any trace of payment.” Vikash replied with grin: “My brother, please take it easy. Our buyers haven’t paid us yet so I can’t pay you. You understand this. We are just middlemen and have no money in our own pocket. You know this year, trade is quite slow and it’s a worldwide problem. Both overseas buyers and export agents suffered.” Fang Ren had not pushed further. He just told Vikash to pay him back immediately once he received money from buyers in India.
When I and Fang Ren were about to leave, Vikash suddenly took out a piles of fabrics sample. Vikash asked if Fang Ren was interested to make a new deal, inviting him to examine the sample on-site. “We got this sample from a Chinese supplier. But his price is too high. If you can do it at a lower price we would place you a big order. Is that okay?” Fang Ren carefully examined the sample, and then replied Vikash, “No problem. We’ll make the pantone book (seka 色卡) and send it to you next week.”
******
This paper examines how Indian trade agents like Vikash, despite continuously indebted to Chinese suppliers, can still sustain transnational fabric trade from China to Dubai. The examination is based on long-term ethnographic fieldwork in Keqiao (2010-2012, 2016-2017), a municipal district of eastern Zhejiang Province, China. Accounting for its one-third annual turnover in China, Keqiao is the trading frontier for fabrics, the semi-finished textiles that are industrially weaved, knitted, dyed, and printed in bulk before being exported. Drawn by the trade opportunities, around 5,000 Indians are now based in Keqiao to run global intermediary business, with many of them closely connected with the re-export markets in Dubai.
Fabric exports from Keqiao to Dubai is characterized by a large volume of turnover of low-cost, low-quality goods. The poor quality controls, mainly due to the low buying budgets of the buyers and low investment on production facilities from the suppliers, inevitably leads to many confrontations among stakeholders in this low-end global trade. A particularly remarkable phenomenon is that buyers in Dubai always refused to pay the Chinese suppliers on time. Whilst it is common for buyers to take quality problems as a reason not to pay first, Chinese suppliers mostly saw it as senseless excuses, but nonetheless thought that the payment would come later, still. At the same time, Chinese suppliers like Fang Ren continued to take orders from Indian agents and buyers, who might still owe them a lot of money in the previous order.
This paper aims to solve this puzzle: how Indian agents manage to convince Chinese suppliers in Keqiao that their buyer would eventually pay, despite the foreseeable delays and the possibility of defaults? I call it ‘miraculous circulations’ as the trade appears to be unstable and uncertain, but nonetheless tolerable and, above all, workable and profitable. Whilst the obvious answer, as it came to the fore of my fieldwork, is that these Chinese suppliers and Indian traders have maintained a long-term business relationship in Keqiao. So they can trust each other to a large extent, notwithstanding the inevitable tensions and conflicts between the two sides when the buyers do not pay on time. However, as I have been collecting more information about their business counterparts in Dubai, I realize that the miraculous circulations cannot be fully understood without an examination of how buyers in India finance their business operations. It is only through this understanding – as I study Keqiao as ‘Dubai inside out’ – I am able to picture how the late payments from Dubai can be acceptable and, more importantly, how it becomes a motor of facilitating continuous fabric trade between Keqiao, Dubai, and its related global circuits.
The paper is organized in the following order. It will first provide a historical overview of Indian traders moving from Dubai to Keqiao, which indicates some general changes in their business settings over the last 50 years. It also illustrates how business connections with Dubai remains important even after the Indian traders have relocated to Keqiao and thus changed the mode of their intermediary business. Then, the paper will approach the question of miraculous circulations. Focusing on how Indians seek ways to raise funds, it will reconstruct a picture of transnational capital flows through the combined lens of (1) Dubai kiting; (2) transnational value transfers; and (3) export tax rebates in China.
Between Dubai and Keqiao
For Indians who have lived in Keqiao for some time, most of them are Sindhis who also worked as middleman agents in Dubai before relocating to China , meanwhile maintaining connections with Indians in Dubai, business-related and otherwise.
Looking at the longue duree history of Sindhis, there were many historical antecedents of transnational networks among Sindhi traders, particularly those active before the Partition in the Indian subcontinent in 1947, the time when the non-Muslim Sindhis were forced to leave permanently from their home villages in today’s Pakistan (Bhavnani 2014). In fact, long-distance transnational connections were nothing new for many Sindhis, given some Sindhi-run global trading enterprises even predated the coming-of-age European dominance in the world trading economy. A body of literature provides historical accounts of how Sindhis established transnational family businesses more than a few hundred years ago (Markovits 2000; Falzon 2004). One of the most common patterns was: enlisting the services of the sons, brothers, cousins and nephews, or people they saw as ‘brothers’ within the local village communities, and dispatching them to trading sites far away from home while keeping business connections in between the locations.
In Keqiao, very few Sindhis moved directly from India to China, and even less trade with buyers in India. Many young Sindhis, who came much later than those old and established agents, usually cannot afford another offices in Dubai or India, but nonetheless have extensive connections with Indians in Dubai as their frequent buyers, close friends or family members. Some of them were even born and raised in Dubai. For Indians who specialize in Keqiao-Dubai fabric trade, the significance of Middle Eastern markets tends to outweigh that of India, even though many of them become to think that the latter has been increasingly significant in recent years. So it comes as no surprise that a notable number of Indian traders run headquarter offices in Keqiao in tandem with what might be called satellites in Dubai. For those who can run offices in both Dubai and Keqiao, the details of their offices is always shown on their business cards. For those who lack strong business connections in Dubai, they would also look for buyers through global trading portals like Alibaba.com and other leading global e-commerce platforms (see Figure 1 below).
Figure 1. The business card of an Indian agent, with one side listing the contact details
of his Keqiao office (Top left) and another showing that of Dubai
(Top right); the detailed contact of a Keqiao’s Indian trader listed on an e-commerce website, indicating his targeted buyer markets as India, Dubai and Egypt (Above)
In terms of the specificity of business operation, fabric traders in Keqiao and Dubai are middleman trade agents who broker fabric trade on a commissioned basis. That is, the primary role of agents in Keqiao is to connect Dubai’s traders with Chinese suppliers, earning commissions (usually ranging from 1 to 5 per cent) from either one or both sides in completing a deal. Likewise, Dubai’s traders are middleman agents for other fabric buyers in Dubai, who were likely to be another levels of traders or factory representatives. So, this type of Keqiao-Dubai fabric trade can be called a agent-to-agent economy, with only very exceptional cases that the fabrics were directly sold to the factories or any other types of end users. Mainly because of the multilevel trade process through Dubai, transnational capital circulations tends to be complicated between different parties in the trade.
Dubai has been a key node of Indian business connections since it established its status as a regional trade centre, which can be dated back to the time of British Raj more than a century ago (Weiner 1982: 13; Ballard 2010: 53; also see Curtin 1984: 144 – 152; Ho 2006; Onley 2008; Jha 2009). Albeit the rather different focuses, Christophe Davidson (2011) and Neha Vora (2013: 94 – 97) have both studied Indian traders in Dubai . Their works illustrate that Indians’ business engagements in Dubai are attributed to their successes in long-distance trade activities covering and connecting a wide region over a long course of history. As Davidson and Vora indicate, Indian traders in Dubai did not benefit much from the discovery of oil in 1966. Nonetheless, existing regional trading networks, trader-friendly policies (e.g. no currency exchange controls) and the modern free port status laid the primary pull factors for Indian traders flocked to Dubai throughout the last hundred year.
When studying the rise of Indian trade economy in Dubai, another historical background that we should also consider here is the trade restrictions that had lasted for almost half-century in India. As part of Jawaharlal Nehru’s planned economy policies, numerous restrictions on import and export had been erected since 1947. Most restrictions were lifted only after the economic liberalization in 1991. Such long-time trade restrictions had engendered a vibrant informal trade economy crossing the Indian borders. Dubai had since been an offshore ‘Indian paradise’ for trade business (Davidson 2008: 69; Vora 2013: 95). For instance, smuggling gold, electronics and high-end textiles were vibrant between Dubai and India for a long time (Davidson 2008: 69 – 71; Falzon 2004: 44). Due to such business activities that necessitated a strong local engagements, Vora (2013: 92) point out that “Dubai operated as a rugged lawless frontier of the [Indian] subcontinent” (my emphasis added); it privileges a local sense of belonging among most Indians in Dubai, regardless of the fact that they can never become naturalized citizens in the Emirates.
While smuggling of luxury goods to India was said to be very common, low-end commodities for global trade also became booming in Dubai. In contrast to smuggling economy that necessitated much insiders’ knowledge and clandestine networks, it was less risky, and thus easier to start a trade of low-cost commodities like industrial fabrics. In particular, over the course of 1980s and into the early 1990s, many Indians came to run fabric trade in Dubai. They were being drawn by the enormous trade opportunities in the market. It coincided the time when massive production sectors and wholesale markets were thriving in East Asia, particularly Taiwan, South Korea, and Japan. The rise of these Asian economies had resulted in a dramatic drop in prices of many fabric items for a long time. In Keqiao, an Indian informant who came to Dubai in the 1980s recollected that was the “golden time” for his business; such items as polyester-cotton blend poplin fabrics was so cheap in East Asia that they could easily make good profit margins by re-selling it in Dubai – he did not have to think before purchasing fabrics in East Asia as it was too cheap to bother him. On the other hand, as my Indian informants remind, the cost of traveling from Dubai to East Asia was by then expensive and global telecommunication methods like fax was not as convenient as that of today. Hence, trading through Indian middleman agents in Dubai were deemed as a good alternative to direct trade, which was still inconvenient and too costly. As such, whilst many Indians started their business from scratch in Dubai in the 1980s and 1990s, they emphasized that it was a relatively easy time for them to succeed in the trade.
Approaching the late 1990s, Dubai’s fabric market was drastically changed. It was mainly due to the increased competitions and the rapid downfall of traditional fabric export markets, particularly the fabric market in Daegu of South Korea. Against this backdrop, Indian traders found it increasingly difficult to run intermediary business by staying in Dubai only. Meanwhile, the spectacular rise of fabric economy in China, which became the major export centre for low-cost industrial fabrics, was timely for Indian traders. Continuing to capitalize on the low-cost fabric supply, Indian traders started to move parts of their business operations to Keqiao in the late 1990s, the time when it emerged as the place where world’s cheapest fabrics was distributed. It was also the time when the internet and email became common and international travels was more affordable. As such, a growing number of Indian traders realized to forge a closer relationship with the ever-expanding supply market in China was unprecedentedly important. Otherwise, their buyers would easily find their own ways to buy from the emerging Chinese market, bypassing the middleman agents. To Indian traders, one obvious way to establish more extensive connections with the local supply market was to relocate to places like Keqiao. In creating a new business base in Keqiao, Indian traders, as one of them succinctly summarized to me, had to prove their new business value to global buyers as follows: to buy through their middleman services, commissions included, would even be cheaper than the direct trade, but at the same time still reliable in terms of export documentations and quality control. So, alongside with building extensive networks in the local fabric market, Indian traders squeezed profits by always bargaining with Chinese suppliers. To Chinese suppliers in Keqiao, Indian agents are notorious as intractable deal-negotiators and price-killers in procuring cheap low-grade fabrics for the markets in Global South (Cheuk 2016: 42-52).
Despite the bad reputations, the number of Indian companies continued to grow in Keqiao until 2008, during which the local fabric sectors was badly hit by the global economic crisis. Right after the bailouts of many bankrupting fabric factories by the Chinese government, the local fabric economy gradually resumed to be more stable. But since 2011, the year when I began my fieldwork in Keqiao, there has been recessions in fabric exports, mostly due to the stagnant Chinese economy. While macroeconomic uncertainties looming large in Keqiao, many Indian traders specializing in Dubai markets managed to sustain their business, although they also said that business was not as good as before. That is to say, while these Indian traders revealed to me that they were struggling throughout 2011 and 2012, they continue to operate their business in Keqiao till now. In 2016, I returned to Keqiao for a yearlong follow-up fieldwork. Much of their business appears to survive, including those one-man companies that are run on limited budgets and always delay payment to Chinese suppliers. By stark contrast, Indian traders specializing in Brazil and Ukraine markets – once popular destinations of fabric export from Keqiao – were forced to close their business and then left Keqiao. Throughout the last five years, most Chinese suppliers still hold the same view about Dubai: an Indian-dominating market that is always plagued with slow payment and at worst defaulting issues, whilst there is still a huge demand of not-so-high quality fabrics.
In Keqiao, Chinese suppliers, like Fang Ren in this paper’s opening vignette, often complain that Indian agents or their buyers in Dubai would only refuse to pay on time when the shipments arrived at Rashid or other ports in Dubai. Payments would come after some delays, usually ranging from a few days to a few months, only after some urges from Chinese suppliers, including endless calls and frequent visits to agents’ offices. In other words, whilst Chinese suppliers would be frustrated with delayed payment, most of them nonetheless would still trust Indian agents that the payment would eventually come one day.
This kind of trust and tolerance from Chinese suppliers are certainly built upon their regular, everyday deal-makings with Indian agents in Keqiao over a long period of time, which I have documented elsewhere (Cheuk 2016). But the formation of such local business links between Indian agents and Chinese suppliers cannot explain the underside of the process: how Indian agents and their overseas buyers manage to pay from Dubai? How is it possible for Indian traders to justify their late payment? What business edges can agents and buyers create in delaying the payment? What are the implications of such economy of delay on traders and suppliers in Keqiao? Based on my in-depth interviews, plus the library and internet research on trade and financing in China and Dubai, I suggest that we can approach the above questions through the combined lens of (1) Dubai kiting; (2) transnational value transfers; and (3) export tax rebates in China.
Dubai Kiting
In Dubai, trade credit kiting, as my Indian informants described, is the main way for Indian agents to finance the export deals, even if they might not have sufficient funds to do so at the beginning. Whilst the kiting circuits, based on the cases I have collected, can be highly complex, an example, with some details simplified, of how it works is shown as follows:
1. A fabric export deal is completed between an agent and a supplier in Keqiao. The fabrics is to be paid by another agent, posing as a buyer in Dubai and likely to be an associate of the agent in Keqiao. The payment method is telegraphic transfer (known as T/T in international trade) or direct payment (D/P).
2. After 20 days, the agent in Dubai receives the goods in the port, but would not immediately pay the supplier in China. Mostly it is because the agent does not have enough funds to pay the bill.
3. To generate funds, the agent in Dubai kick-starts a credit kiting process.
4. In Dubai, the agent (I call this agent ‘agent A’ hereafter) fabricates a bogus transaction with agent B (who is actually an associate of agent A, also a family member of agent A), ‘selling’ the goods to agent B.
5. Agent B arranges a 60-day letter of credit (L/C) in paying agent A for the goods.
6. On 20th day of L/C, agent A, who poses as a supplier, applies for invoice discounting from the bank – a bank financing tool that helps suppliers to quickly get bank loans, whilst the concerned deal is yet to be completed. In so doing, agent A immediately gets a bank loan amounting to up to 80 per cent of the invoiced L/C transaction.
7. Agent A can then use the bank loans to pay the Chinese supplier, who has since waiting for a while. At the same time, the goods can be sold from agent B to a real buyer in order to generate more income. Once there is a real transaction of the goods, agent A can also settle agent B’s payment to the bank, most likely on the 60th day of L/C.
8. More bogus and hence real transactions are concurrently created in other export deals, ensuring that there would be a quick and continuous capital flows for agent A to finance his business operation in Dubai and beyond.
Transnational Value Transfers
Apart from being an re-export trade centre for fabrics and many other commodities, Dubai has been an important hub for transnational value transfers, which may involve both formal and informal mechanisms. International and local banks in Dubai offer financing services, like invoice discounting and other kinds of bank loans for importers and other local traders, which, as mentioned above, facilitate (late) payments to Chinese suppliers. At the same time, Dubai also offers many facilities that can be categorized as shadow banking or informal value transfer systems (IVTS), allowing traders to circulate capitals transnationally without going through the authorized bank institutions. Particularly, Dubai is a global hub of hawala/hundi (‘bill of exchange’), through which traders can transfer cash trans-regionally and transnationally without invoices and documents (Ballard 2003; Ballard 2013). Using hawala, traders can effectively cut the cost of paying formal banking services fees and, more importantly, evade the local tax payment. The popularity of hawala in Dubai is indicated by the following quotes of John Wilson (2002: 6), an in-house economist in International Monetary Fund:
Where are such entities concentrated? We can’t tell for sure but, for various reasons Dubai, in the United Arab Emirates, has often been singled out as a location where many hawala transactions are consolidated and cleared. There are also 105 exchange houses in the U.A.E., and for some reason even as we speak the U.A.E. authorities are holding an International Conference on Hawala, with one of my mission colleagues as a featured speaker.
In Dubai, even though hawala is not exclusively used by Indians, it has been popular among Indians, particularly Sindhi traders. Indeed, in the nineteenth century there was a group of Sindhis effectively operating a similar long-distance financial networks called shah-gumastha (literally ‘owner-agent’), which helped them develop a trans-regional trade economy across South Asia, Central Asia, and the Middle East (Markovits 2000: 156-184). As it is a form of informal financing, there would be a certain level of risk for Indian trader in Keqiao to receive cash payment as such. Nonetheless, my Indian informants told me that on many occasion they had no other choices, given that their overseas buyers, particularly those in India, insisted to pay parts of their bills through hawala. Because of that, in Keqiao, India is often referred to as, to quote one Indian’s words, “one of the most difficult markets” as the import economy has been plagued by corruptions and black money issues, alongside fierce competitions. For instance, one buyer, in order to evade tax in India was only willing to pay 20 per cent of transaction value by a formal banking transfer, while paying the rest of it through cash payment from Dubai. Dubai was preferred by the Indian agent in Keqiao as he, who had stayed in Dubai for some years, had more confidence on the informal financing facilities in Dubai than those in India. So, there would be hidden cash inflows to China through this kind of informal value transfers from Dubai.
Export Tax Rebates in China
With such flow of cash into China, Indian agents in Keqiao must consider how to turn such capital flows into a good use for their local business operations. One of the good way, as it becomes obvious to agents in Keqiao, is to cut their ways into what I call ‘an informal economy of export tax rebates,’ which would be otherwise reserved for the Chinese suppliers only.
First introduced as a part of the major tax reform in China in 1994, namely the “Golden Tax Project” (Jinshui Gongcheng) (Chang 2009: 209), the rebate policy has played a decisive role in catalyzing the robust growth of export-related sectors in many parts of China (Cui 2003: 339–341), particularly in the eastern regions where Keqiao is located (Chen and Ding 2010). By and large, it has been regarded as a state-led effort to sustain the strong momentum of rapid economic growth, with a profound contribution to the export economy and China’s GDP growth: as much as 16 per cent, on average, according to Justin Li Yifu, the former chief economist at the World Bank (Cui 2003: 347–348). In Keqiao, the prevalence of the rebate scheme can be easily found in the official statistics of the local economy; for example, in 2010 Keqiao distributed an export rebate totalling 6.1 billion yuan, which surpassed its total taxation income by 5.6 billion yuan (Shaoxingxian Difangzhi Bianzuan Weiyuanhui 2011: 135). In a regressive analysis on the basis of recent export figures, Chen and Ding (2010: 75–76) postulate that every 1 per cent increase in the rebate rate would lead to an export growth of 14.45 per cent in Keqiao, thereby drawing the conclusion that the local fabric sectors are extremely sensitive to policy change in this regard.
Despite several adjustments of the rebate rate, the policy has thus far remained rather consistent in its implementation and straightforward for its users to follow. That is to say, under this policy, Chinese suppliers could claim in 2012 a one-time export rebate as high as 17 per cent for many fabric items in Keqiao. China’s tax authorities said the claimants or their representatives had to: (1) be authorized with import and export rights (Jinchukou Yewuquan), which are most likely a Chinese trading company, and (2) submit their primary and original VAT invoices (fapiao), custom manifesto, and foreign exchange records (Hashimzade et al., 2010: 11). As such, if the rebate claimants can over-invoice the export goods, which can be done by buying extra invoices by cash, there would be more tax returns from the Chinese government. As the following example will illustrate, it is through such informal economy of tax rebates where Indian agents might also get a fair share from it.
The buyer, an Indian based in Dubai, commissioned an Indian agent in Keqiao to look for 100,000 metres of fabric on his behalf. After a few rounds of negotiations, the Chinese supplier agreed to sell that volume of fabric at 15 yuan per meter, with freight, insurance, and other documentation costs inclusive in this price.
Of the contracting formalities of this transaction, however, it became an export deal of 100,000-meter deal at 21 yuan per meter, which was six yuan per meter more expensive than the actual unit price. This fabricated version was submitted to the State Administration of Taxation (SAT; Guojia Shuiwu Zongju), China’s highest tax authority. The fabrication enabled the Chinese supplier to get more VAT rebate from the deal.
Figure 2 illustrates how the export order was over-invoiced intentionally. In Path A, which would have been the ‘clean’ version of reporting the deal, the Chinese company would receive 2.4 yuan (i.e. [15 yuan × 16 per cent]) rebate from the SAT for every meter sold, contributing to an income of 240,000 yuan (i.e. [2.4 yuan per meter × 100,000 meter]). In Path B, which was the fabricated version, the Chinese supplier received an extra 0.96 yuan per meter (i.e. [3.36 yuan – 2.4 yuan]) from the rebate scheme. In turn, the Chinese supplier earned 40 per cent more rebate, amounting to 96,000 yuan. This amount did not include the cost of soliciting the extra invoices, which, as my Chinese informants suggested, did not cost much. As one of them told me, “even if we lose money from the [export] deal, it doesn’t matter, as long as we can still make money from the export rebate.”
Figure 2 Path (a) was the legitimate way to claim the export rebate;
Path (b) was the fabricated sale price and resulting VAT.
Source: Author’s fieldwork.
So, undoubtedly, with the increased inflow of cash, such as those from Dubai among other sources, investing it into the informal economy of export rebates would be an ideal way to earn more from the Chinese side of trade.
Concluding Remarks
Putting the above points together, it appears that the Dubai-Keqiao fabric trade leverages a full participation in creating a miraculous circulation transnationally, while retaining the appearance of legal compliance to the state authorities on both sides. As Ballard (2009) puts it, such trade can be described as the workings of “translocal and transjurisdictional network” from below. That is to say, a transnational trading network can still work effectively even though some of its operations is defined as transgressive by the state authorities. The alternating between legality and illegality is not uncommon in today’s transnational business activities (Nordstorm 2007), especially those identified within the so-called ‘low-end globalization’ in the Global South (Mathews 2011; Yang 2011; Mathews et al 2012). As Keith Hart (2000: 146) convincingly proclaims, informal economy, like those practiced in Dubai and Keqiao, is now a worldwide universal norm rather than a group-specific exception, given the “evasion of state’s rule” is so predominating in unifying “[business] practices as diverse as home brewing, street trade, the drugs traffic, political corruption and offshore banking” in the current round of globalization, which may be called as the “informalization” of global economy (Hann and Hart 2011: 115 – 116).
Fabric trade between Keqiao and Dubai is admittedly part of this seemingly universal process. But it should be remarked that miraculous circulations can only be possible if the goods is actually sent and re-sold in Dubai, which is based on real supplies and demands of fabrics in global economy. A sustainable mode of miraculous circulations, as the case of Keqiao indicates, can only be created by a real exchange of goods over a long-term trade relationship between Keqiao and Dubai. Without the shipment of real, sellable goods from Keqiao to Dubai, agents in Dubai can certainly obtain credit kiting once or for a few times, but not in a long run or forever. That is because they can only choose to disappear or be put behind the bars in Dubai when they become unable to pay the debts incurred, given that the penalty for business frauds in Dubai is high compared to many other places. Generating income through actually selling the goods is obviously important, given the low-end nature of this trade.
So, in this sense, a continuous miraculous circulations can be seen as an innovative financing technology coupled with commodity flows, whereby Indian agents contribute to a fast turn-over of low-cost fabrics in a rather long-run. It is for this reason that Dubai, despite being affected by on-going global economic uncertainties, remains the major re-export center for low-cost goods through the Indian networks, relaying China-made cheap fabrics to markets in other Middle Eastern and African countries (Keshodkar 2014). In a studies of migrants’ remittance in sub-Saharan African countries, Pieke, van Hear, and Lindley (2007) argue that imposing regulatory measures on informal value transfer system (IVTS) would be counterproductive to a sustainable development in the economies of migrants’ home countries, given that some informal monetary institutions have been effectively established by migrants from below throughout history and contemporary. Likewise, I want to proceed with a similar argument in my research, suggesting that the informal economy of miraculous circulations can be productive in facilitating low-cost global trade in the Global South, as long as it is sustained by long-term trust leading up to a real move of commodities and capitals.
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