Author: Andy Mukherjee
Publication: Bloomberg
Date: April 8, 2004
URL: http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_mukherjee&sid=ai.q7dF174AQ
To argue that the economic competition
between China and India is like a boxing match that will ultimately produce
only one winner, is to present a scenario that's too simplistic and improbable.
Analysts who do that are ignoring
an important trend: the growing interdependence between the two countries.
Superficially, China and India appear
to be no more than natural competitors. Both are billion-people economies,
with pockets of urban prosperity coexisting with large-scale rural poverty.
Both are leveraging their bargain-basement wages and their growing consuming
classes to win investments by global companies.
For now, China is ahead in the game.
It started opening to global trade and investment in 1978, a good 13 years
before India, and now has an economy that's almost thrice India's size.
It's only recently that India's economy, which expanded 10.4 percent in
three months to December, has begun to catch up with the breathtaking pace
of growth in the Chinese economy.
From investors' point of view, the
main difference between the two economic systems is that India's democracy
can often prove to be more socialistic than communist China's -- you can
ask anyone who has tried to set up a factory in India. The other point
of departure is that China is more successful in manufacturing, while India's
edge lies in computer software and other services.
Moreover, while many of India's
world-class companies are indigenous, foreigners own most of China's first-rate
businesses.
China's Priority
Although there are differences between
the two nations, there is growing evidence that the future prosperity of
China and India may be interlinked. Sure, the two rising superpowers will
compete for investment dollars. At the same time, they'll also collaborate
and benefit from each other's good fortune.
China's priority is to develop its
western region, which shares a border with India. While eastern Chinese
port cities like Shanghai and Guangzhou have become prosperous over the
past two decades by supplying the world everything from auto parts to television
sets and toys, landlocked western China is under- industrialized because
it doesn't have access to global markets.
Per capita income of the 280 million
people living in western China is half the national average, according
to the Web site www.China.org.cn, which describes the region as ``barren,
remote, poor, large, valuable, and beautiful.''
Opportunities for Both
Beijing recognizes that economic
growth in neighboring India can create huge demand for consumer goods to
be supplied from western China. A beginning has already been made. During
Indian Prime Minister Atal Bihari Vajpayee's visit to Beijing in June 2003,
the two countries agreed to open, after 42 years, Nathu-la pass, the only
all-weather overland trade route joining China and India through the Himalayas
at 14,500 feet above sea level.
Opportunities will abound on the
Indian side as well. China National Foodstuff Industry Association estimates
that by 2005, western China's expenditure on packaged food will be 250
billion yuan ($30 billion). Some of that demand could be met by India.
None of this will happen overnight.
The pass is narrow and slippery, and vulnerable to landslides in the rainy
season. It will require major investments before trucks can ply on that
road. Those improvements may just be matter of time, as after decades of
mutual suspicion and hostility, the two sides seem to be finally getting
serious about bilateral trade. The value of the merchandise that the two
countries trade with each other rose to $7.6 billion last year, from just
$291 million in 1991.
The Past Is Past
The current enthusiasm to do business
with each other signifies a break from the past for both countries.
Nathu-la, which is the shortest
link between the two countries, was closed after China and India fought
a brief and bitter war over their border disputes in 1962. After the war,
China moved closer to India's archrival Pakistan, supplying it with military
hardware. In 1998, Indian Defense Minister George Fernandes labeled China
as India's ``potential threat number one.''
China wants to put the 1962 war
behind it, just as it wants to forget the entire messy period of Mao Zedong's
``Cultural Revolution'' that started in 1966, soon after the war with India.
By contrast, many on the Indian
side still smart under the humiliating military defeat ``just like a younger
brother who got hit on the head,'' says Girija Pande, regional director
for Asia- Pacific at Tata Consultancy Services Ltd.
It's business executives like Pande
who are helping change those attitudes. Tata Consultancy, the biggest Indian
software company, set up a code-writing center in Hangzhou in China in
2002. It has 150 engineers working there; as many as 140 of them are Chinese
nationals. Infosys Technologies Ltd., India's No. 2 software exporter,
recently opened a subsidiary in Shanghai, and said it will invest $5 million
in the unit, which will employ 200 code writers.
A Ferrari
Huawei Technologies Co., China's
largest maker of phone equipment, last year opened an 80,000 square-foot
research center in Bangalore, India. Qingdao Haier Co., China's biggest
appliances maker, has started selling its refrigerators, television sets,
washing machines and other products in India. Haier plans to eventually
manufacture in India to supply neighboring countries.
If China and India can bury the
hatchet, their claim for economic supremacy could indeed be a joint effort.
China and India aren't in a boxing
match that only one of them can win. Investors should see them as Formula
One racecars from the same team. And from the way the two economies are
revving up, the team sure looks like a Ferrari.
Andy Mukherjee is a columnist for
Bloomberg News. The opinions expressed are his own.
