Tuesday, January 31, 2006

More on China versus India with US hovering in the backgound

jan 30th

india-china hyphenation is the big story now.

as i said before, pervez "piss-process" musharraf and wen "indians are useful idiots" jiabao are not at all happy about this.

---------- Forwarded message ----------
From: Ram Narayanan <ram@usindiafriendship.us>
Date: Jan 30, 2006 11:37 PM
Subject: More on China versus India with US hovering in the backgound
To: rajeev.srinivasan@gmail.com

Dear Rajeev Srinivasan:

An expert on China who does strategic analyses of Chinese writing in Chinese language avers that China's central focus is the US. India finds only a marginal mention in passing, that too not in mainstream analyses. China's aim is to become the world's NUMBER ONE economic power. If getting the best out of the India relationship will help China, it will go for it. But on the border disputes with India, China has not diluted its stand to any significant extent.

A plethora of assessments of India versus China have been appearing in the international media in the last few days in the wake of last week's Davos World Economic Forum annual meeting in Switzerland.

First, Professor Yasheng Huang of MIT Sloan School of Management, who himself is of Chinese origin and writes on China, in an article titled, "China could learn from India's slow and quiet rise" in the FINANCIAL TIMES of January 23, 2006 ( https://registration.ft.com/registration/barrier?referer=&location=http%3A//news.ft.com/cms/s/e4462190-8c42-11da-9efb-0000779e2340.html), makes the following astute observations:

***India's GDP growth rate at 7-8 per cent is more impressive than than China's 9-10 per cent because India is achieving this result with just half of China's level of domestic investment in new factories and equipment, and only 10 per cent of China's foreign direct investment. The evidence is as clear as ever: China's growth stems from massive accumulation of resources, while India's growth comes from increasing efficiency.

***The microeconomic evidence also casts India in a better light. While India's
stock market has soared in recent years, the opposite has happened in China.
In 2001, the Shanghai Stock Market index reached 2,200 points; by 2005, half
the wealth wiped out. In April 2005, the Shanghai index stood at 1,135
points. This sharp deterioration occurred against a backdrop of GDP growth
exceeding 9 per cent a year. It is difficult to find another country that
has this strange combination of superb macroeconomic performance and dismal
microeconomic performance. It is a matter of time before the two patterns
converge.

***Why, then, is India gaining strength? Economists and analysts have
habitually derided India's inability to attract FDI. This single-minded
obsession with FDI is as strange as it is harmful. Academic studies have not
produced convincing evidence that FDI is the best path to economic
development compared with responsible economic policies, investment in
education and sound legal and financial institutions. In fact, one can
easily think of counter examples. Brazil was a darling of foreign investors
in the 1960s but ultimately let them down. Japan, Korea and Taiwan received
little FDI in the 1960s and 1970s but became among the world's most
successful economies.

***An economic litmus test is not whether a country can attract a lot of FDI
but whether it has a business environment that nurtures entrepreneurship,
supports healthy competition and is relatively free of heavy handed
political intervention. In this regard, India has done a better job than
China. From India emerged a group of world-class companies ranging from
Infosys in software, Ranbaxy in pharmaceuticals, Bajaj Auto in automobile
components and Mahindra in car assembly. This did not happen by accident.

***Although it has many flaws, India's financial system did not discriminate
against small private companies the way the Chinese financial system did.
Infosys benefited from this system. It was founded by seven entrepreneurs
with few political connections who nevertheless managed, without significant
hard assets, to obtain capital from Indian banks and the stock market in
the early 1990s. It is unimaginable that a Chinese bank would lend to a
Chinese equivalent of an Infosys.

***With few exceptions, the world-class manufacturing facilities for which
China is famous are products of FDI, not of indigenous Chinese companies.
Yes, "Made in China" labels are still more ubiquitous than "Made in India"
ones; but what is made in China is not necessarily made by China. Soon,
"Made in India" will be synonymous with "Made by India" and Indians will not
just get the wage benefits of globalisation but will also keep the profits
unlike so many cases in China.

***Pessimism about India has often been proved wrong. Take, for example, the
view that India lacks Chinese-level infrastructure and therefore cannot
compete with China. This is another "China myth" that the country grew
thanks largely to its heavy investment in infrastructure. This is a
fundamentally flawed reading of its growth story. In the 1980s, China had
poor infrastructure but turned in a superb economic performance. China built
its infrastructure after rather than before many years of economic
growth and accumulation of financial resources. The "China miracle" happened
not because it had glittering skyscrapers and modern highways but because
bold economic liberalisation and institutional reforms especially
agricultural reforms in the early 1980s created competition and nurtured
private entrepreneurship.

***For both China and India, there is a hidden downside in the obsession with
building world-class infrastructure. As developing countries, if they invest
more in infrastructure, they invest less in other things. Typically, basic
education, especially in rural areas, falls victim to massive investment
projects, which produce tangible and immediate results. China made a costly
mistake in the 1990s: it created many world-class facilities, but badly
under-invested in education. Chinese researchers reveal that a staggering
percentage of rural children could not finish secondary education. India,
meanwhile, has quietly but persistently improved its educational
provisions, especially in the rural areas. For sustainable economic
development, the quality and quantity of human capital will matter far more
than those of physical capital. India seems to have the right policy
priorities and if China does not invest in rural education soon, it may lose
its true competitive edge over India a well-educated and skilled
work-force that drives manufacturing success.

***Unless China embarks on bold institutional reforms, India may very well
outperform it in the next 20 years. But, hopefully, the biggest beneficiary
of the rise of India will be China itself. It will be forced to examine the
imperfections of its own economic model and to abandon its sense of
complacency acquired in the 1990s. China was light years ahead of India in
economic liberalisation in the 1980s. Today it lags behind in critical
aspects, such as reform that would permit more foreign investment and
domestic private entry in the financial sector. The time to act is now.

Second, in an article titled, "In India-China Race My Money Is on India" in BLOOMBERG.COM dated January 30, 2006, columnist William Pesek Jr. says:

***If you want to shock an audience of businesspeople, make this argument: Twenty years from now, India's rise will be more impressive than China's. Stephen Roach at Morgan Stanley says, "India is on the cusp of something big." As a share of gross domestic product, its burgeoning consumer sector is outpacing China, Europe and Japan. Economists are also noticing that India's economy is looking less like those in East Asia and more like those in the West.

William Pesek goes on to adduce reasons why China may not have the stuff to remain ahead of India by the year 2026. Click: http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_pesek&sid=acdQ2p_Fe8yc

Third, an article by Salil Tripathi in THE GUARDIAN dated January 27, 2006 titled "Merging Markets." Excerpts:

>>
If you are still sceptical about India's emergence as a major global economic power, you should have seen the long queue at the Central Sports hotel off Davos's main promenade last night. It was India's Republic Day, and some of the most senior executives in the world were waiting patiently for overworked attendants to take their coats, hats and bags so they could enter the crowded hall. Inside, you'd have thought you were at Churchgate station in Mumbai during peak hours, except that you were surrounded by people who'd never be seen using public transport.
<<

>>
The links between India and China are old. In his latest book, The Argumentative Indian, Nobel laureate Amartya Sen writes: "The intellectual links between China and India, stretching over two thousand years, have had far-reaching effects on the history of both countries, yet they are hardly remembered today.... Some two thousand years ago the consumption habits of Indians, particularly of rich Indians, were radically influenced by innovations from China. [And] while China was enriching the material world of India two thousand years ago, India was exporting Buddhism to China." Maybe history is repeating itself. Indians are consuming more products made in China, but are they exporting Indian ideas to China now? Here's a hint: there is a big poster at the Zurich airport, inviting investors to India. It describes India as "the world's fastest-growing free market democracy". Maybe that's an idea worth exporting.
<<

For more see  http://business.guardian.co.uk/story/0,,1696579,00.html

A fourth -- an article by Anand Giridharadas in THE INTERNATIONAL HERALD TRIBUNE -- dated January 26, 2006, is titled, "China vs. India: A battle of ideas." An excerpt:

>>
The effectiveness of the Chinese model is evident in its annual growth rate, which is near 10 percent, but its sustainability is questionable. "For the next two decades, Indian society is predictable and the democratic framework predictable," said Yasukuni Enoki, the Japanese ambassador to India, in an interview. "How about China? Two decades? Really we cannot draw a predictable picture."
<<

For more, click: http://www.iht.com/articles/2006/01/26/news/rindemo.php

Cheers,

Ram Narayanan
US-India Friendship



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