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India v China: It's all in the
mind
By Jayanthi Iyengar
NEW
DELHI, BEIJING - Behind China's stellar economic growth
figures, there is the nagging doubt that the good times
just can't keep on rolling.
Certainly, this was
the primary concern of foreign investors present at the
recent World Economic Forum meeting in Singapore, where
the single most important concern dominating the global
investing community is not the US slowdown, but China,
its power and potential, and the worry: the intrinsic
safety of their past and future investments in the
country.
For Asians and the Association of
Southeast Asian Nations, a major concern revolves around
coping with China once it becomes a full-fledged member
of the World Trade Organization in 2005. As the producer
of 50 percent of the world's cameras, 30 percent of the
air-conditioners and televisions, 25 percent of washing
machines and 20 percent of refrigerators, the Chinese
are expected to undercut their less efficient neighbors
and beat them hollow in competing markets.
China, too, will come under pressure starting
2005, when it has to permit market access to its trading
partners. But unlike its Asian competitors, it will be
in position of comparative advantage, having used the
transition period to develop products in which it has
intrinsic strengths. These areas include machinery and
equipment, toys, consumer electronics, automobiles,
bicycles, motorcycles, precision instruments, textile
and garments and consumer goods industries.
Already, globally, the might of China cannot be
scoffed at. It already figures on the list of the US for
exclusive trading partners, rubbing shoulders with
Canada, Mexico and Japan. The admission threshold for
this exclusive club is US$120 billion in two-way trade.
Sino-US two-way trade is expected to go up further as
China opens access its trading partners, giving away its
agricultural markets to the Americans, Canadians and
Australian in lieu of market dominance in a range of
industrial products.
Knowing the fear that dogs
Asians and the world economic community, the Chinese
have repeatedly reassured them to the contrary. Yet the
emergence of the Red Dragon on the global trading scene
has forced several Asian leaders, including India's
Prime Minister, Atal Bihari Vajpayee, to benchmark their
country's competitiveness against China. Returning from
a trip to Cambodia, Laos and Thailand recently, at which
he was an observer for the first time at an ASEAN
meeting, the Indian prime minister told the press corps
accompanying him that India was in "healthy competition"
with China.
While China is a formidable threat
for India and the rest of Asia, concerns of the foreign
investors who have foreign direct investment exposure in
the country exceeding $336 billion, revolves around the
timing of their entry and exit.
As of today,
China is undoubtedly an attractive investment
destination, with consumer demand growing at rates far
exceeding expectations. This is unlike India, which has
proved expert estimates wrong - the global consulting
firm, McKinsey had estimated the Indian market to be 300
million strong - forcing many foreign investors to
relook at their investment plans.
As against
this, China has been a marketer's dream come true in
every sense of the term. Thus, while India's cellphone
penetration has been less than 1 percent of the
population, for China, it has been 11 percent. In 1991,
India and China started off from about the same base,
with less than one computer for every thousand
individuals. By 2000, China's rate of growth was three
times that of India, with more than 15 computers per
thousand persons, as compared to 4.5 for India. In 1991,
China produced 670 kilowatt hours of electricity, India
290 billion. In 2001, China's production was 1.14
trillion kilowatts hours, while India's was about 450
billion.
Add to this the undisputable fact that
China is investing heavily in roads, ports, railways,
airports and other infrastructure, and that explains the
foreign investor's repeated choice of China over India,
despite the latter being considered the next best
investment destination among the emerging markets.
Yet having said that, the fact remains that
having ridden the boom and fallen with the bust from
Mexico to Malaysia, the mood among the foreign investors
is how to get out of the way, if and when the next
bubble does bursts.
"After the Asian meltdown
[1997], doing business in the emerging markets is like
working with a time bomb ticking over your head - you
just can't lose sight of the reality even if you are
bewitched by the show," states the CEO of a
multinational company doing business both in India and
China, who prefers not to be named.
Interestingly, a reality check on India is a far
easier proposition for most foreigners doing business
here, rather than for those doing business out of China.
The democratic process and a free press make cover-ups
virtually impossible. Coalition politics further negates
the possibility of secrecy. Indians as a clan are given
to washing their linen in public. The Indian political
class has been guiltier of this failing. Indian
political commentators joke that having no "credible"
opposition party to fight with, the political leadership
within the ruling party has been reduced to fighting
with each other. Nothing exemplifies this point better
than the recent privatization debacle.
The
political leadership has been unable to check the
internecine battles within the ruling Bharatiya Janata
Party (BJP) as well as among the coalition partners of
the ruling National Democratic Alliance (NDA), despite
the knowledge that the public airing of their grievances
cannot but adversely impact the Indian image abroad.
On a purely economic level, India is visibly
poor, its cities still Third World in appearance, its
streets dirty. Private investment has been shy in
infrastructure, the government has been unable to pump
in the kind of resources necessary, and political will
has been averse to permitting FDI in real estate. The
Indian government sticks to its guns, saying that this
cautious approach to FDI in real estate had insulated it
from the Southeast Asian meltdown, but this approach
also leaves little scope for matching the skylines of
New York to Singapore and now Beijing, which is being
perceived in the Western mind as a sign of prosperity.
Add to this the statements made by diplomats and
global business leaders, who have been quick to lambaste
India but slow to criticize China, perhaps emboldened by
the former's democratic process, and foreign investors
have a fair estimate of India's true state of affairs.
China, on the contrary, is an altogether
different ballgame. In 1999, when the Indian union
commerce and industry ministry Murasoli Maran visited
Beijing, leading the first official delegation to the
country in nearly two decades, his puzzled question to
members of his official entourage was, "Where do the
Chinese hide their population?"
Maran came away
impressed and unsuccessfully tried to replicate the
Chinese Special Economic Zone (SEZ) model in India, but
the Indian commerce minister's question summarizes the
contradictions that mark China. As the most populous
country in the world with population exceeding 1.3
billion, Maran was not wrong in presuming that China's
demographic problems had to be more severe than those
created by India's 1 billion people. Besides, Beijing,
with a population estimated to touch 1.25 million by
2010, had to witness milling crowds larger than New
Delhi's teeming 1 million.
Yet, even today,
casual visitors to Beijing do not see these numbers,
which are regulated with work permits. Neither do they
hear the ringing of the bicycle bells, once considered
the signature tune of the city, nor hear the cries of
displaced Beijingers as they are moved out of their
ramshackle hutongs - traditional homes, which
have a place of pride in Chinese history - to build
multi-storied buildings in central Beijing overnight.
Most cities being showcased by the Chinese are
meant to impress. But this is more so with Beijing,
where the construction and beautification of the city
has reached fever pitch in anticipation of the 2008
Summer Olympics. A fourth ring road is being added
around the city, the city systematically greened and
whole new townships are being built in paddy fields
overnight to showcase to the world the might of the
Dragon.
Yet, when one hears that hidden behind
the impressive chrome-and-glass facade are disconcerting
facts, like the occupancy rate in most high-rise
buildings is less than 50 percent, the level of
corruption in China is on par with the rest of the
world, the Chinese now prefer to put out city rather
than national GDPs, and only 1,000 Chinese towns are
open to foreign tourists, of which only 359 are open to
foreign investors - then some of the fears of the
foreign investors gain substance.
Further, there
are other pointers to what could possibly upset the
foreign investor's apple cart. The Chinese are beginning
to grapple with an aging population, with one of every
10 Chinese being over the age of 60, discrimination
against women is rampant, labor conditions are well
below international standards, and urban unemployed,
unheard of in Maoist China, is beginning to rear its
ugly head.
Estimates vary between 3.6 percent
and 20 percent, depending on whether the figures are
official or independent, which is turn raises the
uncomfortable issue of the veracity of Chinese
statistics itself. Unemployment is expected to intensify
further in 2005, when an estimated 150 million Chinese
small farmers will be rendered jobless as American,
Australian and Canadian large farmers dump their
mechanized produce in Chinese markets under the
conditions of market access.
Foreigners will
also confess in private that doing business in China is
not as free as is being made out. Indigenization is a
must in several industries. Minimum capitalization norms
are prescribed for foreign investments. And relocation
is reserved not merely for nationals. Look at how the
Chinese developed Shanghai - when the Chinese government
wanted to take the pressure off Pushi, Shanghai's
industrial area, it developed Pudong across the Yangtze
river and offered incentives, including tax holidays, to
foreign investors to relocate there. But when the
incentives didn't work, foreign investors were politely
told to relocate. "Today, the Chinese have been able to
develop Pushi as Shanghai's business district while
Pudong is being showcased as the city's new financial
center," says the research head of a transglobal realty
consultant firm, responsible for tracking developments
in India, China and the Asia-Pacific region.
Such strong-arm tactics would be impossible for
a divided house like India. But public criticism would
be so severe even before the Indian government
considered such a thing. A quick scan of the Chinese
newspapers shows that dissent has little place in the
scheme of things. Recent reports from China show that
the country blocked Internet searches ahead of the
Communist Party congress that began on November 8, while
even foreign wire news in Chinese papers is routed
through Xinhua, the official news agency. Further, even
to check out facts and figures on Xinhua's web site, one
needs authorization.
Clearly, the Chinese
undoubtedly will censor anything that is not suitable to
them, but having said that, there's a point made by a
Robert Lang (not his real name), who is familiar both
with India and China and who has been working in Beijing
since 1996. He points out that while many of the
negative attributes about China's sanitized success are
true, the fact remains that it has been able to
repeatedly replicate a Beijing in Shanghai, Shenyang,
Guangzhou or Chongqing, to name a few places.
He
points out that while the gap between the prosperous
eastern coastal towns and the poorer western interiors
can be expected, what is significant is that the gap
between the showcased cities and the poorer countryside
is beginning to shrink. He further adds, "The Chinese
people are very boring. Very little gets done at one of
their meetings. Indians are more professional. Yet the
main difference between them and Indians is that Indians
think they are the greatest but do nothing about it. The
Chinese, on the other hand, want to go out and prove to
the world they are that."
That, perhaps,
explains why India meanders while China progresses. And
this difference is perhaps not lost on the foreign
investors who have thus far chosen to live with China's
downside risk to reap large upside profits rather than
opt for a safer and open India.
(©2002 Asia
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