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India’s Lucky Nine. The Reasons it Trumps China on the Global Investment Stage

Op-Ed Commentary: Chris Devonshire-Ellis

Oct. 25 – As India starts to replace China as the darling of the global investment community, we look at nine reasons that India has been able to turn itself from “has been” into “is becoming.”

English language usage
It’s partially a cliché, but it happens to be true – educated India speaks English to an extent that educated China does not. Furthermore, Chinese is so radically removed from the English language in a manner that say, Spanish, Italian, French and German are not, that it will remain regionally, rather than globally, spoken. As India opens up to the global investment community, its superior global language skills will help considerably.

Right to travel
Indians have the right to a passport, and are free to travel. Chinese nationals must apply for specific permits to travel overseas, issued by the local police based in their home town which, due to China’s hukou system, may not even be where they are living.

No government censorship
Indians would be incensed if anything was prohibited from them, and government cover-ups, if discovered, are ruthlessly punished. Politicians get jailed or hounded from office in disgrace for any wrongdoings. In China, any official caught doing wrong is disciplined by the Communist party itself, not the judiciary, as a member of the party doing wrong means the one party system itself is not entirely all it’s cracked up to be. In a democracy, officials can and do get fired.

YouTube
From posting family reunion videos on group accounts, to watching old Led Zeppelin clips, to catching up on old archived movie scenes, to watching the latest zany Annoying Orange clip by Danebo, YouTube is accessible anywhere in India. In China, it’s banned.

Facebook
Ditto Facebook. China has its own version, in Chinese, which is heavily monitored and registering an account involves identifying yourself with your personal ID, so you can be tracked. Apparently the thought of allowing the global Facebook community to be accessed by China’s population is a step too far. While Chinese can talk amongst themselves, Indians can socially network globally. The Great Firewall keeps Chinese nationals inside and secure from the barbarians outside the gates. China already lost one regional empire by retreating behind its walls; it is in potential danger of losing another.

Twitter
Not permitted in China. Your truncated words and three sentences may be subversive.

Free media
It all gets intertwined in China, and all leads back to the one party state system. But without that, communications can flourish. Hence India’s media, which although varying from the sublime to the rabid, at least is free to anyone smart enough or stupid enough to take it all in. Plus, international editions of global newspapers such as the Financial Times, Wall Street Journal, International Herald Tribune and a vast array of Indian media are all available. China regularly blocks the importation of newspapers even from Hong Kong, and there are no international newspapers available in China’s international airport departure lounges.

Independent judiciary
Governments mess up all the time, so it’s important that when they do something is done about it to correct the mistake to try and make sure it doesn’t happen again, and if anything illegal has occurred to punish those responsible. In India, you can sue the government. In fact, it’s commonplace. To do so, however, requires a judiciary independent from the state, and that means taking the rule of law away from government unless they can truly rule dependent upon the wishes of the people. Which India’s system is. It’s not the case in China.

Democracy
It’s all about different systems. India is democratic; China has a one party state. To date, China’s development has been precisely because the one party has been able to dictate where and what development should be and place the collective need as the priority over individual need. The price has been each of the above issues, and can be summarized as censorship and a denial of individual rights. As China struggles to change course, and India becomes the ascendant power, the contrasts between the two systems will become more apparent. At present, the China model for reforming a vast country is winning. However, the true cost of that model may yet have to come home. Within the censorship and firewall issues, China denies its own people the social intercourse it really needs to stimulate academic thinking, intellect and drive ahead with new innovations. While China’s building blocks may well be in place, the cement has yet to be delivered. India has both the cement to hold the system together, and is now starting to put its own building blocks in place. Where this leads us in the next 20 years is going to be fascinating to observe.

Chris Devonshire-Ellis is the principal and founding partner of Dezan Shira & Associates, establishing the firm’s China practice in 1992 and the India practice in 2007. The firm now has ten offices in China and five in India. For advice over China-India strategy, trade, investment, legal and tax matters please contact the firm at [email protected]. The firm’s brochure may be downloaded here. Chris also contributes to Asia Briefing’s other titles, India Briefing, China Briefing and Vietnam Briefing.

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15 Responses to India’s Lucky Nine. The Reasons it Trumps China on the Global Investment Stage

  1. vrmangala says:

    It is a good analysis in general. But it needs in depth and systemic study to assess the strengths and weaknesses of Indian system vis a vis the Chines.

  2. The_Observer says:

    Chris,
    I’m surprised you want to continue doing business in a place that you have so many negative impressions of. For years people have been saying that India will soon be overtaking China and authors like Gordon Chang predicted in his 2001 book, “The coming collapse of China” that China should have fallen apart around about this time. Instead in the period 2008 – 2009 at the height of the GFC, China was the best performing economy. Even now China is cautiously trying to control her overheated economy while at the same time trying to rebalance economy more towards domestic consumption.
    Up to 1947 India was much better off than China. Prior to WWII the British had been building up India for 200 years pulling different etnic groups, remnants of the Mughal Empire and the princely states together, and aided by the construction of railways, the training of her military, the teaching of English to the Indians and setting up of both a civil service and a judicial system based on common law. India had not suffered the destruction of industry & property and the killing of her people like China suffered under the Japanese before and during WWII. The Chinese had a civil war to complete after WWII and the Korean War to repulse the American push into the Korean peninsula, the Great Leap Forwrd and Cultural Revolution disasters when Mao-Tse-Tung stayed in power too long, etc. Only after Mao died could the economic reform start with Deng Xiao Peng. China at that time had a lower GDP per capita than India. It’s not that India is catching up to China, China caught up to India and surpassed the latter well beyond what India could have envisaged. Where was that Indian genius between the years 1947 – 1991 that should have allowed for more growth. Why did it take a rapidly growing China to show India the way to growth? And why did it take the Indians about 20 years to see how the Chinese were doing with their economy? I can only presume that the Indian policticans and administration must lead terribly blinkered lives. Today China’s GDP is 3.5 times that of India. India will take a long time to retake the lead even if she runs a GDP growth 2% more than China per annum going forward. China’s growth occured when no other large country was attempting it at the same time and the former is still trying to develop her hinterland areas. India is trying to grow while China is halfway through her growth and additional countries like Brazil, Indonesia, etc want to join the party. China’s early growth was when commodity prices were low. India’s and everyone else’s growth is now occuring when commodity prices are high. That is good for countries like Australia, Brazil, Indonesia, etc who have a lot of commodities. Not so good for the importing countries and that includes the China, India and the USA all of whom import a lot of oil. The one big advantage that India has is that her labour force is 3 times cheaper than China’s.

  3. Deek says:

    Chris:

    Note: I am an Indian national.

    I did not get anything new from this article. Anyone can google “India vs China” and he/she can get all these points that you mentioned. Ofcourse, none of this is supported by data. Also, there is no data about how these things impact the growth. All I know is that even with these restrictions, China is faster and economically more powerful. Why? Please analyze (and give data).

    I would be more interested in your opinion about some of these India related topics:

    1. Physical Infrastructure: Issues, Growth, Current Status, and ideas for development

    2. Geopolitical Strategy: ASEAN (Where did India miss, and how it can cover up?), Look-East policy, US-India relations, Af-pak, China-Japan etc

    3. Education Reforms: Why are they needed? How can roadblocks be removed?

    4. Tax Reforms: Implications on GDP,

    5. Labor Reforms: Issues? Timelines?

    Your current article is well suited for Times of India (no pun intended here). You are an analytical journalist. Please do not downgrade the quality.

  4. Chris Devonshire-Ellis says:

    @Observer – Why would you be surprised? I’ve been over 20 years in China. I’m well aware of the demographics, and I’ve been down this road before – I’ve seen impoverished, nervous dilapidated China become a global powerhouse. India will do the same. But while you can’t argue with the figures, you can argue that aspects of China’s society have regressed rather than progressed. Comparing the two provides clues as to what may happen to China if she continues to isolate herself to this extent. Yes, it concerns me. China is in the process of building a wall to “protect” its citizens from external knowledge, and I think that is a very bad idea. India, on the other hand, has almost too much of it (you wouldn’t believe some of the media hype that goes on).
    Not having YouTube, Facebook, Twitter, regular access to global information in China is normal? I don’t think so, in the digital information age, and China stands to lose out if it goes too much further down this path.
    Just because you’re not used to having something doesn’t mean the rest of the world that do won’t come and overtake you. Because the reverse is true – they will. China’s censorship policy is very bad for the nations development, yet curiously, they just seem to think it normal. It isn’t. Its regressive.

    @Deek – ah yes, the old trump card of “prove it”. Prove that denying people access to Facebook, Twitter, YouTube and Media / Internet censorship is damaging to an economy. Well Deek, I can’t, because no-one has ever done what China is doing. I did type into google “China Censorship Economic Impact” though, and you can read “China’s Internet restrictions and censorship restrict economic growth” http://thehill.com/blogs/congress-blog/technology/78729-chinas-internet-restrictions-and-censorship-hinder-economic-growth-rep-mary-bono-mack and “China Internet Censorship In The Age of Globalization”
    http://ezinearticles.com/?China-Internet-Censorship-in-the-Age-of-Globalization&id=5125836. It’s a bad idea in my opinion, and just one way where its actually far easier to be in India than in China. Indians are freer than their Chinese counterparts, and I think that will create an intellectual gap that will be to India’s advantage. That’s not anti-China – I love being in the country and doing business here – but censorship, and disallowing internet access is a growing concern I simply do not face in India, and I do not consider it “normal” or “healthy”. Oh and Deek, thanks for calling me an analytical journalist, I’m very flattered. However, I’m actually a business investor in both countries, running substantial practices in both, so my concerns are commercial rather than media-based. http://www.dezshira.com/chris-devonshire-ellis.html
    Thanks – Chris

  5. Chris Devonshire-Ellis says:

    People unfamilar with India may be surprised by this, but which is more socially friendly to live in – China, or India? In my opinion the latter. I also wrote about it here: http://www.china-briefing.com/news/2010/09/29/relocating-from-china-to-india-what-to-expect.html
    Not having access to media and external intellect is extremely frustrating and becoming more so in China.

    For example, who in China knows the DL has just suggested a female DL may be the next reincarnation? No-one – because thats against China’s position on the right to choose and they cannot tolerate his comments, which were made today however remain solidly blocked from view within China. Although actually, I find the notion rather amusing than seditious. China needs to lighten up a bit. – Chris

  6. ajay says:

    touche….

    @The_Observer: How convenient for you to forget all the wars India fought with suicidal Pakistan, and the fact that Pakistan had US on its side. Mind you, the one back to back fights with China and Pakistan were particularly bad. Also, sanctions from US were stifling, so, while China was awarded most favored nation by Nixonites, India had its hands full from all the directions.

    @Deek: It takes one to know one, and i am not convinced.

  7. Deek says:

    About Freedom of expression/speech…ya I agree that India has it. Maybe a bit more than that is required. Look at Arundhati Roy. I had to start a “Can we dump Arundhati Roy in Bay of Bengal?” page on Facebook.

    Even though I do not agree with her position (99% + Indians do not), I think that she is still doing something positive. Separatists in the country might feel a bit “at home” because of her outspoken attitude. Maybe its a silver line in the black cloud. O well..whatever…that lady is Nuts!

  8. Outlander says:

    @ chris

    IMHO, RTI and central vigilance commission should have been included to your Lucky nine list.

    http://www.rtiindia.org
    http://www.cvc.nic.in

  9. Chris Devonshire-Ellis says:

    @Outlander, yes thanks for those – the two sites you linked to “Right To Information” and “Central Viligence Comsission” would in China, land their owners in prison. Worthwhile looking at as to how Indian citizens have far more checks and balances in place over Government excess and accountability than Chinese nationals do. Well said and thanks – Chris

  10. Ananda says:

    The point about free information access is spot on. India produces elite professionals who land up in global corporations. With the free access to Internet, foreign media and hollywood, the number of world class professionals is exploding. Unfortunately, it has been a brain drain for the past few decades, but the trend is changing for the better now. From “brain drain” to “brain trust” as one professor remarked. The emigrated Indians do have strong networks back home, which eventually translates into political, business benefits for India. Point in case, 123 agreement spearheaded by the Indian American community. And the many American IT startups by the Indian Americans who also open an office in India.

    In short, 20 years from now, India will have a substantial %age of world class professionals who will run the show globally – may be even surpassing the US. China may forever be stuck into the low priced “China price” manufacturing sector without the necessary reforms. Without the free information access, China is simply not ready for the global competition.

  11. HK says:

    Chris,

    I agree with some of your points. Some, but not all. China’s short coming has been analyzed to death by many observers, including you. I would like you to point out some of India’s short coming as you see it.

    Thanks.

  12. CanucKapoor says:

    Facebook, Twitter, YouTube, No Government Censorship, and Free Media are one point, not five. Adding Right To Information and Central Vigilance Commission to your list (via Comments) brings it up to seven. Still two short.

    Allow me to add Promotion of Regional Culture. In spite of fiercely fighting for their independence, Nagas and Kashmiris have not been ethnically cleansed from India. So India’s basically a Yugoslavia that endures.

    One last point and we’ll bring the list up to nine…

  13. Outlander says:

    It would be the religious freedom which is not included in the list.

  14. Oh boy says:

    Chris,

    When I speak to “foreigners” who do business in India and China they pretty much all say that manufacturing in India is VERY slow, everything takes a long time and they are not that motivated to work. In China on the other hand, everything is much faster and they are much more motivated to work. This is one of the main reason why they prefer China at this moment.

    At the end of the day price is not that much of an advantage if your production does not happen or it is late by half a year.

    What is your take on this?

    Oh

  15. Alok Nigam says:

    Dear Chris,
    You make it sound as if China is ‘DEAD’ vis a vis India.On the contrary China continues to attract more FDI than India-I suggest we do not look at total figures but separate them into different Heads like Capital Account and Current Account and further specifically into Stock Market.While Stock Market is a barometer of future and Smart Money follows it closely, it can also be termed as ‘fastest to fly in and fly out’ as well as it follows a ‘herd mentality’ whereas Capital Account Investment remains for much longer period of time.Specifically for China if a Foreign Investor today is prepared to invest more in China in spite of so much negativity as you write and you will certainly have more in depth knowledge than most then there must be some fundamental strengths attracting that Investment.China can be said to being the last bastion of Communist’s(include Cuba if you want)and as they say all the Negativity is priced in so things can only improve there and not get worse.Whereas in case of India it is reverse- a lot of Positivity is priced in here so a little setback on Political front could put India back by few decades.Corruption and Nepotism in Political and Bureaucratic set up is another factor which is making people frustrated and uneasy.While we may talk of many factors like independent Judiciary, freedom of speech,strong Media etc etc Justice still eludes common man at least if not in terms of Judgement at least in terms of Time and Cost.Justice is not only to be done but has to be seen by all.We have yet to see a politician or a senior Bureaucrat jailed for Corruption. Case against them go on endlessly.Yes we do read about a Clerk,Peon or Bus Conductor punished for taking a 10 rupee bribe 10/20 yrs back.

    Having said that a lot of fundamentals about Indian economy are strong but I think that the growth in recent years (say past 10-15 yrs) is due to disposable income generated by the IT industry.This was a direct outcome of Outsourcing.The growth in other Sector’s was an outcome of this.As long as this continues we need not fear.How much impact will Hue and Cry in West will have on Outsourcing will be a function of Votes. Politics in US/UK/Germany/Australia is slowly getting around to Indian style;so it remains to be seen how it affects India ultimately.If there is a direct impact on disposable income it will eventually effect the ‘self sustaining’ prophecy which we talk about so strongly. India may have come out of Recession smiling because the cycle was a short one.We can pat ourselves for anything and everything but the fact of the matter is that the Stimulus Packages of US/Europe helped in World recovery much faster not to speak of Indian Stimulus Packages to keep the economy from sinking.Had this gone for long we would might have seen serious issues.But this is a forecast and cannot be proved.
    India today is battling with more serious issues of Corruption and Criminalization of Politics.If you look at figures- every Party has over 55% Candidates with Criminal cases registered against them in Bihar where Elections are going on.And any one has to see the increase in Declared Assets of Candidates over past few years even if they do not have a proper known source of Income.Best explanation-“Donations from Public”.I suppose that explains the love and respect of Public for them.
    So Chris while you highlight the 9 advantages of India let us not ignore the 2 disadvantages which India has and these can tilt the balance in favor of China or for that matter any other country which shows inclination to fight these malaise’s. As it is not easy to fight Corruption in Politics even in China till such time we can consider ourselves safe.
    Will really love to see comments from you and other’s on this.

Comments are closed.



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