I saw the Indian hit movie 3 Idiots recently in an unusual location: a cineplex in Hong Kong. Very rarely do Bollywood flicks make the city's commercial circuit — the conventional wisdom holds that they do not appeal to local audiences. Yet my Sunday morning matinee was 80% filled, mostly with Chinese of all ages. Some took the movie at face value: the zany antics of Indian college kids. But the majority of viewers, it seemed to me, got the universal moral about breaking free from social straitjackets. They laughed when they were meant to, and didn't when they weren't. While the foreign 3 Idiots was a box-office monster, 1911, a China-backed war docudrama starring hometown celebrity Jackie Chan, bombed. Go figure: India 1, China 0.
Introducing India's
3 Idiots to a Chinese audience won't make the cut of epic attempts to break down barriers between cultures. But it does tap into a spreading consciousness that China and India and their people share a special place among today's nations — a tandem locomotive pulling the global economy while much of the rest of the world is a train wreck. You've heard the drumbeat: stupendous growth rates; ever richer consumers; geopolitical clout — a new order trumpeted by mega-events and extravagant slogans like the 2008 Summer Olympics in Beijing and "Incredible India" at Davos. "The rise of India and China," writes Robyn Meredith in her seminal book,
The Elephant and the Dragon, "has caused the entire earth's economic and political landscape to shift before our eyes." Indian politician Jairam Ramesh sums up the phenomenon in a neologism:
Chindia.
(Graphic: How the Giants Measure Up.) With Western economies reeling, the world is looking especially to China and India as saviors — whether it's buying Italian bonds or Italian bags. The E.U. is even begging Beijing to help bail out its euro-zone bailout fund. But that's only one side of the coin. There's a duality to China and India, a blend of reality and myth, internally as well as between them. China and India have an arabesque relationship. These two giants on the cusp of superpower-hood are more rivals than partners. Despite their achievements, they face enormous challenges. And though they add up to nearly 40% of the world's 7 billion population, they still live pretty much in parallel universes. Chinese and Indians, writes Indian journalist Pallavi Aiyar in her perceptive book, Smoke and Mirrors: An Experience of China, are "largely culturally untranslatable to each other."
Rivals or Allies?
As a Gujarati born, raised and living in overwhelmingly Cantonese Hong Kong — both tribes are brash and materialistic — I have long been privy to what local Chinese and Indians think of the other. It used to be downright ugly. Perceptions and attitudes, liberally spiced with racial epithets, went broadly like this: to the Chinese, the Indians were poor, superstitious and dirty; to the Indians, the Chinese were crass, godless — and dirty. Hong Kong is no microcosm of Chindia, but it reflects how, just as China and India have changed, so have the stereotypes. If before I were assumed by the Chinese to be someone's chauffeur, now I am a tech entrepreneur or investment banker. Local Indians see China afresh too, but often in just two superficial dimensions: wealth and might. My 17-year-old son's peers are only half-joking when they tell him that, because he is half Chinese, half Indian, he has it made.
(See photos of the making of modern India.) If only it were that simple. In her book, Meredith quotes Indian tycoon Ratan Tata saying, "China is the factory of the world; India can be the knowledge center of this region ... If we orient ourselves to working together, we could be a formidable force of two nations." That's ambitious — and perhaps unrealistic. China and India were once soul mates — through the migration of Buddhism some 2,000 years ago. Later, the Indian monk Bodhidharma traveled to China to spread the message of Zen. Prominent Chinese went the other way: the devout pilgrim Xuanzang, later immortalized in the classic Ming novel Journey to the West, and the great explorer Admiral Zheng He. It was a time of mutual discovery. By the 17th century, the Middle Kingdom and the subcontinent were the planet's trading powers. They then got caught up in their own worlds of feudalism and colonialism — a decaying dynasty in China, the British Raj in India — followed by decades of serial revolution and fervent socialism. Modern relations between the two countries were marked mostly by suspicion — and the occasional border war.
The contemporary period is friendlier, yet tensions are never far from the surface. Even as both governments speak of peace and prosperity, China is establishing a "string of pearls" in the Indian Ocean, unsettling New Delhi, and India is talking oil and gas exploration in the South China Sea, angering Beijing. More to the point, the close economic ties between nations that often prevent conflict do not sufficiently exist between China and India. Chinese investment in India is about 0.05% of its worldwide total, while Indian FDI in China is so low that it does not appear on many charts. Bilateral trade is growing (especially Chinese exports to India), but it's still a small proportion of their global total. Given their size and footprint, the two are nowhere as connected as they should be. Astonishingly, just a few of the two countries' cities have direct flights.
Houses in Order
Before they rescue the world, China and India need to fix their own economies and societies. They are beset by some grim news. Growth is slowing, though in China's case that helps cool an overheated economy. In both countries, exports are sliding, inflation is at painful levels, income inequality is reaching chasm proportions, and injustices like land grabs are sparking widespread protests. Cronyism is a scourge. The two have lifted countless millions out of poverty (though China has done a better job), but countless other millions — youths, workers, farmers — remain marginalized and desperate for decent livelihoods. While China doesn't follow the rules, India has too many rules to follow. China is, if not at a tipping point, certainly at an inflection, struggling to contain asset bubbles and bad loans and to rebalance its economy away from state-directed investment to consumer-led growth. India's reputation, meanwhile, has been so dented by corruption that the country's top corporations have hired U.S. consultancy Bain to craft a "Credible India" campaign. Good luck.
(See photos of China's 90 years of communism.)
Perception vs. Reality
At least India can count on a better image worldwide than China. Westerners in particular see the pair through a romantic and ideological prism. India is Gandhi, yoga, eat-pray-love. A gentle elephant; an exporter not of unfairly underpriced goods but articulate and urbane CEOs as at home in New York City as in Mumbai. China is "gutter oil"; the country you love to hate. Fiery dragon rather than cuddly panda. Mercantilist, rapacious, threatening; resented even as it is wooed.
There are two reasons for this dichotomy: Beijing's profile and swagger are bigger than New Delhi's, allowing India to escape the same scrutiny; and India is a democracy while China is an authoritarian state. All year, Beijing's leaders have systematically cracked down on political dissent and cyberspace activity; they would not have tolerated, for example, the Indian summer of anticorruption protests in New Delhi. (Remember Tiananmen?) Yet the hard truth is that India is not as free as it's made out to be. Democracy does not necessarily result in good governance. India's institutions are weak, human-rights abuses are not unknown, and money and power often buy impunity. "India's poor [have] a vote," writes author Aiyar, "but this [does] not always equal a voice." India even has its own Tibet: I don't mean Dharamsala but Kashmir.
Whose economic path, China's or India's — essentially, state capitalism vs. private enterprise — is sustainable? Which society is more durable? Which nation has a stronger sense of destiny? The entire planet wants and needs to know. In the following pages, TIME's Bill Powell and Michael Schuman face off to argue the case, respectively, for China and India as to whose template of change will prevail. It's not easy to pinpoint the killer app. But given a year of restless populaces worldwide, the winner may be the one providing the greater justice and dignity to the most people. On that score, it's still China 0, India 0
Read more:
http://www.time.com/time/specials/packages/article/0,28804,2099180_2099179_2099178,00.html #ixzz1nNhMHdufThe Case for India: Free to Succeed
If I have to endure another corporate executive blindly praising China and reflexively trashing India, I might actually gag. I'm often trapped in conversations with suits that follow the same, excruciating pattern. First, they swoon over China's stellar roadways and airports, the superior wisdom of Beijing's policy mandarins and the clinical efficiency of its authoritarian regime. Then they turn 180 degrees to rail against the feebleness of India's infrastructure, the ineptitude of New Delhi's bureaucrats and the convoluted course of Indian democratic politics. How, they ask, can India ever catch up?
When comparing India and China, most economists and business folk simply look at the wrong things. Beijing's bureaucrats may be better at building roads, but government dictates and human-rights abuses won't ensure the country's economic success. The past half-century of Asian economic history tells us that sustained development ultimately depends on entrepreneurship, a strong private sector, rule of law and political openness. India, not China, possesses these crucial building blocks of economic progress. And that is why India will overtake China as the world's premier emerging economy.
(Graphic: How the Giants Measure Up.)
When I make this argument, I usually get bewildered stares — probably the same response you're having right now. Yes, I can see why many people believe India is stuck sucking fumes behind China's great industrial machine. The Indian economy hasn't been growing as quickly as China's, nor has its industry imprinted as deep a mark on the global economy. India has more than twice as many people trapped in desperate poverty, while its fractious democracy entangles policymaking in long-winded debates and ideological tussles unthinkable within China's autocratic government. Beijing and Shanghai are connected by high-speed trains; their thoroughfares are lined with modern office towers. In New Delhi and Mumbai, the dusty lanes remain lined with barefoot beggars and cluttered with soot-belching motorized rickshaws.
But to discover which nation will win out over the long haul, we need to dig past surface appearances, down into the guts of the two economies, to learn how they tick. China's economy appears lovely on the outside but is rotten at the core, like a brightly polished Ferrari with the innards of a Pinto. India's growth engine may occasionally get smeared with manure and lost in detours, but check under the hood, and you'll find it is much more powerful than it looks — more powerful, in fact, than China's.
(Read "India vs. China: Whose Economy Is Better?")
Part of the reason is simple mathematics. Since the Chinese economy is more than three times the size of India's, the Middle Kingdom's growth rate will inevitably slow, allowing India to close the gap. For a developing economy, China is aging rapidly because of the distortions caused by its controversial one-child policy, giving India a demographic advantage in generating future growth. Much more important, and contrary to what many believe, India possesses a superior economic model to China's — sturdier, healthier and better equipped to maintain rapid progress over the long term.
That's because India's economy has balanced sources of growth. Strong domestic demand drives India's GDP, offering the economy protection from external shocks. China has no such cushion. Its economy is overly dependent on investment and exports. Economists believe China needs to encourage more domestic private consumption — to "rebalance" — to promote sustainable economic growth. In other words, China has to become more Indian. That became obvious during the Great Recession. India charged through the downturn because the resilient Indian consumer propelled the economy forward. When the financial crisis hit China, however, Beijing was forced to unleash a tsunami of government stimulus and credit from state-controlled banks to keep growth going. Even though the world's economists lauded the effectiveness of China's recession-fighting methods, these were, in fact, a sign of the economy's frailties.
Money Talks
Beijing's stimulus effort also exposed another Chinese weakness — a faulty, immature financial system. Though the state owns large chunks of the banking sectors in both countries, China's bureaucrats interfere much more intrusively in the credit decisions of its financial institutions, turning them into little more than arms of government policy. That makes Chinese banks more vulnerable and less efficient in allocating resources. Indian banks, on the other hand, are run on a more commercial basis. They have greater expertise in risk management and credit analysis, and as a result, they tend to lend money more intelligently and have stronger balance sheets. We cannot understate how important that is for India's future performance. "Indian banks are stronger [than China's]," explains Mark Young, head of Asian banks at rating agency Fitch in Singapore. "There is a clear link between the health of the banking sector and the capability to support economic growth."
India's corporate sector beats out China's too. Indian companies are more dynamic, better managed and financially sounder than Chinese enterprises. According to data crunched by investment bank CLSA, Indian firms outperform China's, with both wider profit margins and higher returns on equity. That's not about to change. Chinese corporations are not only burdened by more debt, they are adding debt at an alarming rate. Fitch figures that at the end of 2010, bank credit represented 139% of GDP in China compared with a mere 49% in India.
We can also make the case that India is more entrepreneurial than China. Indian firms like Infosys, Tata Consultancy Services and Wipro practically invented the entire offshore IT-services industry — a sector China is now attempting to copy. At their ever expanding campuses, these companies train and absorb thousands of new hires each year while extending their reach to every corner of the globe — management challenges Chinese executives would struggle to tackle. Arvind Subramanian, senior fellow at the Peterson Institute for International Economics in Washington, D.C., says the evidence can be found by evaluating how companies from China and India operate outside their home markets. Indian firms, he notes, not only invest more heavily overseas than China's (as a percentage of GDP), but they also tend to operate core manufacturing and service businesses in advanced economies. China, meanwhile, has focused outward investment on natural resources in Africa and other emerging economies. That, Subramanian contends, shows Indian managers can better compete head-to-head with the world's top CEOs in the most demanding markets.
(See TIME's special report "India Charges Ahead.")
Such management expertise will prove decisive as China and India lose their low-cost competitiveness. The only way either economy can keep growth roaring is to develop high-tech industries and innovative companies — a difficult leap that demands the type of smartly run companies India already has. It also requires democracy and civil liberties. By censoring the Internet, controlling the press and stifling debate, Beijing is suppressing the open exchange of information and risk-taking spirit necessary for entrepreneurial innovation. Indians, enjoying full freedom of expression and association, face no such hurdles. These basic rights in India, furthermore, are protected by an independent judiciary that can be trusted to uphold the rule of law — a crucial ingredient for economic progress.
Whether you believe India or China will own the future depends on whether you think the state or the market can generate the best economic results over the decades to come. True, China's government is more competent than India's. But can China's bureaucrats take the economy into the ranks of the most advanced? History tells us the answer is no. I dare you to name one example of an authoritarian, state-dominated economy that developed creative, innovative industries and world-beating companies. China faces that risk. On the other hand, we can make a long list of democratic, market-oriented economies with well-managed private companies that have excelled. There is every reason to believe India will be one of them.
So don't be fooled by Shanghai skyscrapers and Beijing propaganda, or misled by the chaos of Mumbai's streets and India's tendency for self-deprecation. China's state may give it an edge today. But India's private economy will give it the edge tomorrow
Read more:
http://www.time.com/time/specials/packages/article/0,28804,2099180_2099179_2099176,00.html #ixzz1nNheBotM The Case for China: The Power of Planning
In his 2005 book
Blink, author Malcolm Gladwell argued that your first impression of something or someone is often the right one. It's a maddening concept: people spend (take your pick) hours/months/years trying to figure things out, trying to arrive at the right conclusion, when, Gladwell asserts, first is best.
So here's a
Blink test. How many times have you heard a CEO or business leader from a third country — say the U.S., Japan or South Korea — who, after finishing an Asia run, collapses into a chair and says: "Oh man, that China, what a mess. But I'll tell you what, I
love India"? I have lived and worked in China eight of the past 10 years and met a fair number of executives under those circumstances. And the answer to the question is: not once.
(Graphic: How the Giants Measure Up.)
That — blink! — is for very good reason. China's extraordinary economic momentum is not only real, it's not going away. Indeed, the economy is moving to a new phase: one driven, at the micro level, by an unrelenting shift up the technology curve, and at the macro level by the explosion of domestic demand. China is now the world's second largest economy after the U.S., having grown nearly 10% per year through the first decade of this century. Income growth per capita in 2010 rose 9%. Manufacturing productivity is expanding 10% a year. The country — unlike India — continues to run a huge current account surplus and will be posting only a slight budget deficit this year. It also has over $3 trillion (and counting) worth of foreign-exchange reserves and, in a world in which the developed nations are engaged in beggar-thy-neighbor currency devaluations, a steadily strengthening renminbi.
China's skeptics — in particular those who believe the India "model" will eventually win out — always make the same argument: the only reason China has grown faster than India is because it has a strong state that has force-fed growth (just as, some argue, the Soviet Union did in the 1950s). The government simply snaps its fingers and orders its state-owned banks to finance the construction of high-speed railways, digital networks, airports, bridges, subway systems and sports stadiums. To which the Chinese would plead: guilty as charged. Those who are fixated on the narrowness of fixed-capital investment ignore the fact that global manufacturers would
not have come had the country's infrastructure been as poor as — well, let's face it — India's.
The issue of the Chinese government's significant role in the country's growth invariably gets wrapped into politics. People who make the case that China is better governed than India often get labeled as commie lovers or apologists for an admittedly authoritarian state that routinely throws annoying dissidents, artists and journalists in jail. Don't confuse the issue. Governance, in the China-vs.-India context, should be defined — as Arvind Subramanian writes in
Eclipse: Living in the Shadow of China's Economic Dominance — not as some bureaucrat ordering up a new bridge to be built and raking off a nice little cut for himself. What it means, says Subramanian, is "creating the conditions so that the private sector can flourish."
(See pictures of the making of modern China.)
This is precisely what one-party governments once did in East Asia: think Taiwan, South Korea and even Japan in its miracle years. Take one of China's examples. Several years ago, the authorities decided that the industrial base of Chengdu, the provincial capital of Sichuan province, needed to be massively upgraded. Critically, the upgrade included both physical and human capital. The government built roads and rail lines. It set up an enormous industrial park outside the city, replete with state-of-the-art telecommunications networks. More important, its local universities, technical institutes and vocational schools beefed up courses in electronics and engineering.
This was of a piece with what has been happening nationwide. China is churning out competent, skilled workers at an extraordinary pace. In their book
Run of the Red Queen, U.S. academics Dan Breznitz and Michael Murphree argue that "the Chinese education system is producing ever larger numbers of graduates who, while limited in skills to conduct advanced original research, are perfectly suited — and probably better suited than their foreign counterparts — to excel in other stages of innovation." Intel was one company that transferred much of its manufacturing base from Shanghai to the Chengdu park. "Nobody put a gun to our head and said move here," says Bruce Aitken, Intel's financial controller for the Chengdu site. "We're here because we wanted to be here once we saw what was taking shape."
Building for Success
Is China's infrastructure overbuilt and undermaintained? Yes. We saw it this past July when faulty software led to a horrific collision of a new bullet train around the prosperous town of Wenzhou, near Shanghai. But as Andy Rothman, chief China economist for CLSA Securities, argues, the past decade was precisely when China should have developed its infrastructure: "The idea that all these companies, whether domestic or foreign, would have built all these factories in places like Chengdu or Dalian or Chongqing without the government's role in creating the backdrop is just crazy." And now, not surprisingly, the government is slowly but surely ratcheting down the amount it spends on infrastructure, removing some inflationary pressure from the economy and making it unlikely that there is any sort of hard landing in China's future.
Those who contend that India will eventually surpass China as an economic power always make the same point: the relative inferiority of Indian governance and infrastructure only highlights the vibrancy of the country's private sector. After all, they say, look at how rapidly India is growing
despite all its governance issues. You'll get no argument here. The growth of India's private sector over the past two decades, the fact that the country now is home to genuine, world-beating, multinational companies, are extraordinary. In making the case for China, I'm not going to run down what's happened in India.
(See photos of China's high-speed rail.)
What I
will say is that the emphasis everyone places on the strong hand of the state over the past decade in China obscures a central fact: the private sector is vibrant too. For 17 months now, private-sector investment growth has been running significantly faster than that of the public sector. That's doubly significant because private companies in China, and in particular SMEs, barely have access to capital from state banks. For the most part, "they are investing their own money," says Rothman. The only rational conclusion to be drawn, he says, is that "the state of the private sector here is very strong."
It's going to get stronger. China is in the process, slowly but surely, of liberalizing its capital markets. The renminbi will eventually be fully convertible. Sectors like e-commerce and biotechnology, already red hot, will get more access to domestic capital. Less glamorous but no less important industries are also expanding rapidly, and taking advantage of China's well-educated workforce. In 2008, General Electric moved its research center for producing clean, affordable energy out of coal to the nation that consumes the most coal in the world. Guess where?
The ultimate trump card of the India-whips-China lobby is demographics. In 20 years China becomes an aging society, with more retirees becoming a drain on the nation's finances. India in the same time frame will have a huge contingent of young, able-bodied workers. In GDP terms, a growing, working-age population means a bigger economy. And that, as far as the demographics-is-destiny crowd goes, is that: India wins.
Please. First, India needs to educate those workers of the future (the way China already does). And second, How much do you want to bet that a significant chunk of those new Indian workers wind up in relatively unskilled factory jobs — of the sort that propelled China's growth for the past two decades but won't 20 years hence? By then, China will have solidified itself as the world's biggest and most technologically robust manufacturing power. It will also, at the same time, be the biggest market for just about any product, industrial or other, you can name. India may, over the medium term, outgrow China in a strict GDP sense, thanks to that demographic bulge. But it will be growing to get to where China is now — a relatively low-wage economy with a first-world infrastructure. By the time India gets there — if it does — China will have moved on. It will be the most powerful economy on the planet.
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