China: Tough for New Delhi to pull ahead any time soon
By Goh Sui Noi
BEIJING - The Indians have done some things right and they have certain advantages over the Chinese. But it is unlikely that India will overtake China, at least not in the next 10 to 20 years, Chinese academics and industry people say.
They disagree with the view that India's model of development, of relying mainly on organic growth, is superior to China's foreign direct investment (FDI) approach.
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'Where the money comes from does not matter, what is important is who is running the business, and in many instances, the Chinese are,' said Mr Jesse Lu, director of strategic investment at Legend, China's largest home-grown computer maker.
Academics defending the FDI approach pointed out that foreign investors brought with them not only money, but also much-needed technology and management experience.
'The more foreign investors come in, the more talent they can help us train,' said economist Wang Jian.
This would help build a good environment for local enterprises to develop, he said.
Professor Zhang Minqiu of the School of International Studies at Beijing University added that India was now 'very actively learning from China, building economic export zones' and 'actively trying to bring in FDI to develop its export industry'.
She challenged the thesis of India's organic growth approach, saying its lack of FDI actually reflected a 'deficiency'.
Although it could boast of cheap labour, the infrastructure was not there to attract foreign investors.
Also, apart from software and other high-tech industries, where India had world-class companies, the country's other sectors were far from competitive. Protectionist policies have not given them the incentive to be efficient, she said.
Indeed, analysts elsewhere said that India's export-oriented IT industry can flourish and compete internationally because it does not enjoy the protection that other industries do, as the country does not have a domestic IT market to protect.
Even in the software industry, the Chinese warn that Indians cannot rest on their laurels.
India's IT firms are able to win foreign contracts because of their well-trained engineers, low cost and proficiency in the English language.
But China has turned its attention to the software industry as well, said business consultant Hao Jianqing, adding that its software exports have grown by nearly 100 per cent annually in recent years, hitting US$1.5 billion (S$2.6 billion) last year.
It is all about cost, he said, and given that both China and India have low labour costs, China 'would win over many of India's orders' if it also developed its software sector.
Others pointed out that China has started its own software training institutes and software industrial parks. Chinese firms are also hiring Indian engineers.
But Chinese academics also said it is important that home-grown enterprises be encouraged if China is to continue to grow.
Indeed, said Prof Wang, China's economy is driven mainly by local enterprises - foreign-invested companies, which account for more than 50 per cent of China's exports, make up only 20 per cent of the economy.
And the private sector had developed quickly since the 1990s, when the government started reforming the state sector.
But India has drawn ahead of China in providing a conducive environment for the private sector to thrive, said Prof Zhang.
'India in the 90s abolished many anti-private enterprise regulations, and China has moved more slowly,' she said, adding that Chinese entrepreneurs lacked a level playing field, with state-owned and foreign firms enjoying better conditions.
Chinese entrepreneurs were also hamstrung by the fact that private enterprises were killed off and the entrepreneurial spirit suppressed after the communist takeover in 1949.
It was only in the late 1970s that China started reforms to create a market economy.
India, by contrast, had more than 100 years of continuous growth in private enterprise. Its private sector has a firmer foundation, with stronger entrepreneurial spirit and better management standards than China.
It also has a better university education system than China, and the rule of law is better established.
As a democratic country with a free press, there is better supervision of the government, which prevents the abuse of power.
But, like China, it has an inefficient state sector and its strategic disinvestment policy adopted in 2000 has proved difficult to implement because of its strong trade unions.
China, similarly, has been slow to implement state-firm reforms. Its determination to create world-class companies has caused it to hang on to its largest state enterprises, the wisdom of which is questioned by critics.
Still, India's problems are myriad, including a lack of strong labour-intensive industries such as toys and garments to provide jobs for the masses, unlike in China.
Its growth - driven by high-tech industries - has not closed the gap between the rich and the poor.
But even as India begins to address its shortcomings, China is also doing so. While India seeks to attract foreign investments, China is improving the environment for local private enterprise.
In such a situation, it would be hard for India to pull ahead of China in the near term, analysts said.
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