India - China : Overview Government controls mainstream media, infact one of the wikileak cables indicated that Chinese GDP figure itself could be man made Excessive Information rights with minimal gov intervention Impartial Information * State controlled. 8 out of 10 largest listed companies are state owned Commercially driven companies with strong corporate governance standards Private sector & Corporate Governance Misallocation and inefficient use of resources depending on FDI Fuller use of resources owned necessary for long term growth Micro-economic level High performance, though there is an conscious effort to slow down Low, though anticipated to outshine China in GDP growth in 2012 if not 2011 Macro-economic figures Tightly controlled capital allocation restricting the ability of private companies to obtain stock market listings. Allows firms to obtain capital. Greater efficiency and transparency. Advanced institutional infrastructure. Capital Market Inconsistent legal system with low political status. Domestic private enterprises are discriminated against several polices etc. Advanced and decent legal system that provides ownership protection for private domestic enterprises Legal System Extensive, though today China + Hong Kong + Macau share 6% of world’s FDI ( compared to Britain’s 45% in 1914 and 50% for US in 1967) Low FDI status Top-down approach Ground up Development approach Foreign direct Investment & Centralized ‘control’ & overseas growth Major Chinese Government controlled Bank loans abroad in 2009 was in excess of $450Bn, to fuel Chinese overseas conquests. Government many a times steps in to help close deals Services and Home grown entrepreneurship – ‘Jugaad’ attitude Development Driver The manufacturing hub of the world Services : Back office / Technology lab of the world Focus on China India
Economy & Business environment Economic Drivers World Bank expects Indian GDP growth to be approx 8.7% ( FY2011-2012) compared to China’s 8.5% ( Jan – Dec 2011). <ul><li>Note: If reports are to be believed, in order to bridge the gap between cities and poorer inlands, the conscious focus is now more on domestic consumption rather than export markets. Which means there is a conscious acknowledgement of slowing down. </li></ul>GDP per capita two times higher than India’s ( in USD PPP terms) Lower GDP per capita $3100 GDP per capita Over 30% Mid 20s % Import ( % of GDP) Over 40% Mid 20s % Export of goods & services ( % of GDP) $9.05 Trillion (PPP 2 nd , 2009) $3.861 Trillion ( PPP, 4 th 2009) GDP Nominal China India Labour intensive low tech industries High Tech, Capital intensive industries Investment Consumption Manufacturing Services Exports – Though Chinese brands yet to make a mark – mostly subcontractors to the western world Domestic. Consume 55% of GDP China India
2009 Legatum Prosperity Index : Points / 100 * Contrary to other reports but could be the ones supported by the Govt. ** Contrary to other reports but could be limited to Urban areas *** Nobel Peace award & Recent clamp down by Chinese Govt: 200 odd individuals & Liu Xiabao’s wife, were put under travel restrictions and house arrest. Also instituted a new award and announced its own Confucius Peace Prize a few days before the Nobel Peace award, was given to former Taiwanese vice president, Lien Chan. 60 30 Health 30 90 Social Capital 60 40 Education 20 70 Personal Freedom 30 60 Governance 50 30 Safety & Security** 10*** 80 Democratic Institutions 60 40 Entrepreneurship & Innovation* 70 60 Economic Fundamentals China India The 2009 Legatum Prosperity Index
Why they are that way: History India’s Global Ambition & distrust of China : Colonization by the British for 200 possibly gives India both the global ambition and also the affinity for English as a language, which has proved to be a big pro. India-Sino relationship has been deeply soured by the defeat in 1962 by China, and also China;s attempt to surround India, but maintaining good and trade relations with India’s neighbors like Sir Lanka, Pakistan, Myanmar & Bangladesh. Chinese paranoia of all things non-Chinese : China has faced its own share of humiliation by colonist powers during the Opium wars 1842 & 1856-60 at the hands of the British and French, which marked the end of the Qing dynasty. The 1937 invasion by the Japanese where 300,000 civilians are killed, in Japan’s attempt to gain access to natural resources, still has the Fuji-Sino relations soured.
Future : Natural resources feature in heavily <ul><li>China with about 5 th of the world’s population now consumes half of its cement, 3 rd of its steel and ¼ its aluminum. </li></ul><ul><ul><li>State sponsored/ supported engagements in African nations, Canada, Indonesia and Kazakhstan </li></ul></ul><ul><ul><ul><li>2007 Chinese-state-owned firms would refurbish railways, roads and mines, work worth $12 Billion in Congo, in return of right to mine copper ore of the same value. </li></ul></ul></ul><ul><li>Chinese acquisitions, whilst relatively at a premium and less fussy at acquisition stage ( retain most of the staff), over time though business plans change. Natural-resource firms can become captive suppliers to China, instead of selling to the open market. </li></ul><ul><li>China besides the consumer is also one of the biggest exporters of rare earth materials ( key for electronic goods) which gives it leverage on countries like Japan and other consumers </li></ul>
Chindia : Working together … <ul><li>Bilateral trade between India and China has grown from $270Mn in 1990 to $13Bn in 2004 and $60 Bn in 2010. </li></ul><ul><li>Trying to work together be it on climate change issues against the US or coordinating bids for African oil supplies that both rely on. </li></ul><ul><li>70% of India’s exports to China by value are raw materials, mainly iron ore ( India lagging in manufacturing, its still cheaper to export plastic granules and import back buckets). </li></ul>
Future : Demographic dividend – India Advantage <ul><li>Thanks to 1 child policy (1978), the number of Chinese (15-29) will fall quite sharply after 2011, depriving the country’s factories of workers. </li></ul><ul><ul><li>Case of Yang Zhizhu, fired as a law lecturer in Beijing for having more than 1 child has drawn a lot of attention </li></ul></ul><ul><ul><li>China has stated that it will continue with policy atleast till Feb 2015. </li></ul></ul><ul><li>Indian govt has introduced Mandarin in the CBSE curriculum from 2011-12 from class VI, in 11000 affiliated schools. </li></ul><ul><li>Indian younsters would have outnumbered Chinese peers in a few years, though overall population might not match that of China till 2025, by which time 28% of Chinese population would be above 55 compared to India’s 16%. </li></ul><ul><li>170,000 new engineers a year, but fact is India still lacks the right sort of skilled labors – one that likes & contributes to megastructures as it does to megabytes. </li></ul>Future is Entrepreneurial: Advantage india
Future - Infrastructure : India Disadvantage <ul><li>Commonwealth games, late in 2010, compared to flawless Beijing Olympics – indication of infra and culture </li></ul><ul><li>Big indian seaports are jammed, it takes an average of over 90hours to get through them, compared to a 9 hour in Hong Kong. </li></ul><ul><li>The road congestion costs the economy $6Bn a year </li></ul><ul><li>Only half the national road network is paved </li></ul><ul><li>Government promises to build 20Kms new roads each day. </li></ul><ul><li>Economist Intelligence Unit, based on broadband use, road density and electricity production, puts India 75 th / 82 for infrastructure. </li></ul><ul><li>2005 to 2050, India will need to add 700Mn to 900Mn sq mtr of floor space and also add at least 350 to 400Km of metro railway and subways annually. </li></ul>Important to change quickly as 2011 should see a free-trade deal signed with the EU <ul><li>India lags behind in Manufacturing compared to China because of : </li></ul><ul><li>variety of open and hidden subsidiaries, undervalued exchange rate, cheap credit with few penalties on default, underpriced land, unpaid suppliers, and export subsidies. </li></ul>