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China, India and the Future
A few facts
Since 2005, Volkswagen has been selling
more cars in China than in Germany
In the past five years, car sales in China
have risen by 300%; in India by 60%, and
in the UK by 0.2%
Britain is the world’s 5th largest economy;
it has 5% of world trade, but only 0.9% of
imports to China are from Britain
Total GDP (in constant US$s 1978-2006)

      1800000
      1600000
      1400000
      1200000                                                                  China
      1000000
$ms




                                                                               India
       800000
                                                                               Britain
       600000
       400000
       200000
            0
           78

                  81

                         84

                                87

                                       90

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         19

                19

                       19

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Composition of Chinese and Indian Economies 2006

100%
 90%
 80%
 70%
                                                        Tertiary%
 60%
 50%                                                    Secondary%
 40%                                                    Prim ary%
 30%
 20%
 10%
  0%
        India (GDP) India (Pop) China (GDP China (Pop
                                    %)         %)
Fixed Capital Formation Trends: China v India

            800000
            700000
            600000
            500000
$millions




                                                                                                                China
            400000
                                                                                                                India
            300000
            200000
            100000
                 0
                78

                       80

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%    Capital formation: China, India and Bangladesh 1970-2005

50
45
40
35
                                                China Gross fixed capital
30                                              form ation
25                                              India Gross fixed capital
                                                form ation
20
                                                Bangladesh Gross fixed
15                                              capital form ation

10
5
0
  70

  73

  76

  79

  82

  85

  88

  91

  94

  97

  00

  03
19

19

19

19

19

19

19

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19

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20

20
Why is China growing so fast?
Huge investment levels (an investment rate
of 40%); Chinese investment in fixed
assets is nearly 5 times higher than India’s
Spending on construction is nearly 8 times
higher in China
Literacy level is much higher: 42% illiterate
in India; 9% in China
… so the huge rural workforce can find jobs
What changed in China in
          1990/91?
A freeing up of market access and the
private sector; a major policy change to
welcome FDI
The policy change to hugely increased
capital spending, especially on
infrastructure
Probably influenced by the political
pressure for change after 1989
Exports of Goods and Services (in $millions)

500000
450000
400000
350000
300000
                                                                                                           China exports
250000
                                                                                                           India exports
200000
150000
100000
50000
    0
         1978
                1980
                       1982
                              1984
                                     1986
                                            1988
                                                   1990
                                                          1992
                                                                 1994
                                                                        1996
                                                                               1998
                                                                                      2000
                                                                                             2002
                                                                                                    2004
Export growth (v 12m ago)
45.00%
40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
 5.00%
 0.00%
         03

               03

                        03

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    20

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  Q

          Q

                   Q

                         Q

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                                                                                                                   Q
                                        India Exports % change             China Exports % change
Can China outstrip America?
($trillions) 2006                      2016               2026     2036

UK                 $2.34               $3.00              $3.83   $4.91

India              $0.80               $1.57              $3.09   $6.08

America $13.22                         $18.11 $24.81              $34.00

China              $2.51               $5.94            $14.09    $33.36
Assumed average GDP growth: UK 2.5% US 3.2% China 9% India 7%
How fast is India growing?
In 2007 India was growing at nearly
10%
And although its longer-term growth has
been rooted in services, firms such as
Tata (with its £1,250 car) are pushing
ahead in manufacturing
The big question is whether it can be
sustained
Hitting the buffers? (2006 figs)
                   India      China
Inflation          6.5%       2.3%
Interest rates     7.25%      4.5%
Unemployment       7.8%       4.2%
Current account ($) -26.4bn   179.1bn
Struggle in India?
                                  Man. Growth       Inflation
May/June 2004                               6.6%     3.6%
February 2005                               8.7%     4.4%
February 2006                               9.1%     4.8%
February 2007                               11.3%    6.7%
Source: Indian Government data April 2007
What does it mean for business
Top firms should move into China: following
VW, BMW, L’Oreal, Honda and McDonalds
From the UK, the main movers into China
are Kingfisher (B&Q), Tesco and BP, but we
are far behind Germany, the US and Japan
Britain has 5% of world trade, but less than
1% of all imports to China …. and
.. success in China takes time and influence
Implications and Issues
Can our firms think in a sufficiently long-
term way? (When Sony started up in
Britain in 1978, it said it would take 15
years to break even)
Can our firms cope with major risk-
taking? (Tesco dips toe in China; misses
out on India – so far)
What has held our Boardrooms back?
Constraints on British Boards
The grip of the stock market may be a
factor; much more significant than in
Germany or Japan
Low levels of manufacturing in Britain
(only 15% of GDP) may mean the British
opportunity is to come (when China
develops services)
May have lacked government support
Longer-term issues
China will be the golden business
opportunity of the next 20+ years
… so clever students will learn Mandarin…
… and clever firms will devise a China
strategy (produce there? Buy there? Move
there? Sell there?)
And India?
Less exciting in general, though with far
better opportunities for Britain
… many English speakers, and a common
link from the days of Empire
Firms such as Unilever are major
employers in India
UK has a 5.5% share of Indian imports
(but this figure is falling)
A classic strategic decision…
Address a weakness by playing catch-up
in fast-growing China (shareholders will
probably applaud)
Or build on a UK strength by getting in
early in India …
… perhaps India will experience the take-
off enjoyed by China after 1990 – and
growth will accelerate
What about the casualties?
    2006 Data from the ILO
                   China                                       India

Fatalities                                  73,615             48,176
Workforce                                   699.7m             418.6m
Fatal per 10,000                               1.06            1.15
Source: Chinese and Indian Government data and other sources
And the environment?
                      Tonnes of CO2                               Total CO2
                       per cap. p.a.                              M tonnes
India                      1.1                                      1,100
China                      3.5                                      4,700
UK                         9.6                                       540
US                        20.2                                      5,800
Russia                    10.5                                      1,500
World                      4.2                                     26,000
Source: Energy Information International (The Guardian March 26 2007)
Conclusions
China is set fair for many more years of
sustained growth at 8-11%p.a.
India will continue to grow rapidly, but in
a more cyclical way – it needs vast
investment in education and transport –
it isn’t clear that it can be afforded
China is the right horse – but it has
already left Britain behind

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China and India

  • 1. China, India and the Future
  • 2. A few facts Since 2005, Volkswagen has been selling more cars in China than in Germany In the past five years, car sales in China have risen by 300%; in India by 60%, and in the UK by 0.2% Britain is the world’s 5th largest economy; it has 5% of world trade, but only 0.9% of imports to China are from Britain
  • 3. Total GDP (in constant US$s 1978-2006) 1800000 1600000 1400000 1200000 China 1000000 $ms India 800000 Britain 600000 400000 200000 0 78 81 84 87 90 93 96 99 02 05 19 19 19 19 19 19 19 19 20 20
  • 4. Composition of Chinese and Indian Economies 2006 100% 90% 80% 70% Tertiary% 60% 50% Secondary% 40% Prim ary% 30% 20% 10% 0% India (GDP) India (Pop) China (GDP China (Pop %) %)
  • 5. Fixed Capital Formation Trends: China v India 800000 700000 600000 500000 $millions China 400000 India 300000 200000 100000 0 78 80 82 84 86 88 90 92 94 96 98 00 02 04 19 19 19 19 19 19 19 19 19 19 19 20 20 20
  • 6. % Capital formation: China, India and Bangladesh 1970-2005 50 45 40 35 China Gross fixed capital 30 form ation 25 India Gross fixed capital form ation 20 Bangladesh Gross fixed 15 capital form ation 10 5 0 70 73 76 79 82 85 88 91 94 97 00 03 19 19 19 19 19 19 19 19 19 19 20 20
  • 7. Why is China growing so fast? Huge investment levels (an investment rate of 40%); Chinese investment in fixed assets is nearly 5 times higher than India’s Spending on construction is nearly 8 times higher in China Literacy level is much higher: 42% illiterate in India; 9% in China … so the huge rural workforce can find jobs
  • 8. What changed in China in 1990/91? A freeing up of market access and the private sector; a major policy change to welcome FDI The policy change to hugely increased capital spending, especially on infrastructure Probably influenced by the political pressure for change after 1989
  • 9. Exports of Goods and Services (in $millions) 500000 450000 400000 350000 300000 China exports 250000 India exports 200000 150000 100000 50000 0 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
  • 10. Export growth (v 12m ago) 45.00% 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q India Exports % change China Exports % change
  • 11. Can China outstrip America? ($trillions) 2006 2016 2026 2036 UK $2.34 $3.00 $3.83 $4.91 India $0.80 $1.57 $3.09 $6.08 America $13.22 $18.11 $24.81 $34.00 China $2.51 $5.94 $14.09 $33.36 Assumed average GDP growth: UK 2.5% US 3.2% China 9% India 7%
  • 12. How fast is India growing? In 2007 India was growing at nearly 10% And although its longer-term growth has been rooted in services, firms such as Tata (with its £1,250 car) are pushing ahead in manufacturing The big question is whether it can be sustained
  • 13. Hitting the buffers? (2006 figs) India China Inflation 6.5% 2.3% Interest rates 7.25% 4.5% Unemployment 7.8% 4.2% Current account ($) -26.4bn 179.1bn
  • 14. Struggle in India? Man. Growth Inflation May/June 2004 6.6% 3.6% February 2005 8.7% 4.4% February 2006 9.1% 4.8% February 2007 11.3% 6.7% Source: Indian Government data April 2007
  • 15. What does it mean for business Top firms should move into China: following VW, BMW, L’Oreal, Honda and McDonalds From the UK, the main movers into China are Kingfisher (B&Q), Tesco and BP, but we are far behind Germany, the US and Japan Britain has 5% of world trade, but less than 1% of all imports to China …. and .. success in China takes time and influence
  • 16. Implications and Issues Can our firms think in a sufficiently long- term way? (When Sony started up in Britain in 1978, it said it would take 15 years to break even) Can our firms cope with major risk- taking? (Tesco dips toe in China; misses out on India – so far) What has held our Boardrooms back?
  • 17. Constraints on British Boards The grip of the stock market may be a factor; much more significant than in Germany or Japan Low levels of manufacturing in Britain (only 15% of GDP) may mean the British opportunity is to come (when China develops services) May have lacked government support
  • 18. Longer-term issues China will be the golden business opportunity of the next 20+ years … so clever students will learn Mandarin… … and clever firms will devise a China strategy (produce there? Buy there? Move there? Sell there?)
  • 19. And India? Less exciting in general, though with far better opportunities for Britain … many English speakers, and a common link from the days of Empire Firms such as Unilever are major employers in India UK has a 5.5% share of Indian imports (but this figure is falling)
  • 20. A classic strategic decision… Address a weakness by playing catch-up in fast-growing China (shareholders will probably applaud) Or build on a UK strength by getting in early in India … … perhaps India will experience the take- off enjoyed by China after 1990 – and growth will accelerate
  • 21. What about the casualties? 2006 Data from the ILO China India Fatalities 73,615 48,176 Workforce 699.7m 418.6m Fatal per 10,000 1.06 1.15 Source: Chinese and Indian Government data and other sources
  • 22. And the environment? Tonnes of CO2 Total CO2 per cap. p.a. M tonnes India 1.1 1,100 China 3.5 4,700 UK 9.6 540 US 20.2 5,800 Russia 10.5 1,500 World 4.2 26,000 Source: Energy Information International (The Guardian March 26 2007)
  • 23. Conclusions China is set fair for many more years of sustained growth at 8-11%p.a. India will continue to grow rapidly, but in a more cyclical way – it needs vast investment in education and transport – it isn’t clear that it can be afforded China is the right horse – but it has already left Britain behind