INDIA vs. CHINA ... NO CONTEST!

In the early 1980’s, the great cliché was that we were entering a Pacific Age with the centre of economic gravity shifting from the Atlantic. Within a few years the same cliché was buried with grave headlines suggesting the Pacific Age was over and over-rated. Japan had stalled, its miracle spent. Now with China’s economy pumping and India’s not far behind, the headlines are reappearing again suggesting an Asian/Pacific Age. Europeans and Americans are dusting off the old speeches they made about Japan in the late 1970’s. To be consistent, they would have to argue that it would have been better for the world if Germany was not rebuilt and Japan still in ruins. The challenge the world faces with India and China is real. Together they represent 40% of the world’s population, China is growing at 8-10%, India at 6-7%.

Who will do better, China or India, in 30 years? Tough question. Does it matter - not really, both have pulled millions out of extreme poverty over the past two decades.

The present visit by Chinese Premier, Wen Jiabao, is important not only for India and China but for the rest of us. India has the software, China the hardware, the synergy is obvious and stunning in its potential. At the time of writing, China is hinting it may support India’s legitimate bid for a seat on the UN Security Council, while at the same time opposing Japan’s bid.

But back to the question - India vs. China. India had a better start. Upon independence in 1947, she had strong Sterling reserves, top world-class universities and institutions, then suffered a bitter and costly partition. Poor India - 300 years of British imperialism and 50 years of the London School of Economics. I’m not sure which did the most damage.

China has suffered beyond belief. Her war started in 1937 with the Japanese invasion and did not finish until 1949 when the civil war was finally over. The cultural revolution killed tens of millions. Then in the late 1970’s it began its dramatic economic return. Before this, the average Indian was twice as rich as the average Chinese, now it’s the other way around. India’s private sector is superior to China’s, she has world brands like Tata, Infosys, Wipro, and has better corporate governance aligned with the best world practices. She also has a functioning capital market, unlike China. In the bureaucratic stakes, China beats off India in many areas. It can take 4-6 days to secure the permits necessary to establish a business, and 2-6 years to go through insolvency procedures. That compares favourably with 88 days to secure all permits to establish a business in India, and an 11-year marathon to go through insolvency procedures.

However, India is more than one country, some states have become world leaders in corporate governance. The Andhua Pradesh experiment shows it can be done at provincial level. Registration of land has been computerised and now it can take an hour from initiation to completion. Contrast that with the old system that could take up to 2 weeks. The new system cuts out the old need to pay speed-up money or to employ people to stand in queues to pay licence fees.

China has 10 times as many kilometres of expressways, 30,000 kilometres more than India, and 6 times as many mobile and fixed-line telephones per person as India. China can act with tremendous speed, cutting through bureaucracy, no worries about popular or local opinions. That ruthlessness has meant China has been able to build new airports, roads and ports without lengthy delays. However, India’s commitment to the rule of law democracy will give it a long term advantage over China. As China develops an articulate mobile, interconnected middle class, they will demand better outcomes in the environment, they will seek to have their opinions heard , and will tolerate less corruption and seek more transparency. This has been the experience of other countries in the region like South Korea, the province of Taiwan, Indonesia, and Malaysia. Why should China be any different? China, at the moment, is winning in the literacy stakes. 98% of Chinese children have spent 5 years in school compared with 53% of Indian children. China’s literacy rate of 14% compares favourably with India’s literacy rate of 42%.

India has the edge because of demographics. China’s old one-child policy, introduced a quarter of a century ago will mean within 15 years more people will be retiring then entering the workforce. China’s average age is 33, India’s average age is 26.

Bollywood is now a global cultural force, and recent changes to intellectual property laws will see India’s pharmaceutical industry reap even more global investment. It would be telling to study how many patents for new discoveries and patents are registered in India as opposed to China in 5 year’s time. Who will win? Both, and every other country as both become greater customers, consumers, tourists, and inventors. What will happen?

As the great Chinese Foreign Minister, Chou En Lai, once said when he was asked about the implications of the French Revolution, “It’s too early to say!”

Note: Many of these facts come from a paper presented by Lee Kwan Yew at his Public Policy School at the National University of Singapore.