Written by Chris Devonshire-Ellis, the founding partner of Dezan Shira & Associates and publisher of the Asia Briefing group of regional business titles, this report details the procedural, operational and tax differences between Chinese and Indian representative, liaison, branch and project offices, as well as permanent establishments such as wholly foreign-owned enterprises, trading companies and private limited companies.

The report, which is available for free download on the Asia Briefing Bookstore, also details essays on the future direction of the Chinese and Indian markets, local demographics and bilateral trade figures.

Chris Devonshire-Ellis established Dezan Shira & Associates in Shenzhen, China in 1992, and Asia Briefing in 1999. Since then, the firm has grown to eight offices in China, one in Hong Kong, five in India and two in Vietnam, and specializes in providing foreign direct investment-based business advisory and tax advice in the region. The publishing house provides a series of popular regional business magazines, books and web site commentary.

A free subscription to the weekly Asia Business Update, which includes regulatory, operational, tax and business news from China, India and the rest of Asia is available here. Chris commutes regularly between China and India. He can be contacted directly at chinaindia@dezshira.com.

The China-India Business Comparison can be downloaded on a complimentary basis in pdf format from the Asia Briefing Bookstore.

Chris will be speaking at the Asia-Pacific Council of American Chambers of Commerce in Beijing on April 16. Please see the APCAC web site for information to register for the event.

Chris’s recent photo essay of Mumbai, entitled “An Evening in Bombay – A Walk around Apollo Bunder” can be found here.

Mar. 19 – There are unconfirmed reports that Google will exit the China market by April. If it is true, then this may have positive implications for a variety of regional industries and academic institutions. It may also prove in time to be a monumental error by the Chinese government in terms of promoting and developing its academia, intellectual, research and development facilities.

State-controlled internet in China that bars access to sites it deems harmful will almost certainly hinder online research and communication with academics in a number of fields, especially within new technologies in pharmaceuticals, biotechnology and physics. Unless the Chinese government can be very precise with regards to the maintenance of its firewall, it is likely to result in disillusionment among Chinese specialists who find their ability to access overseas data impaired. With a huge population, China’s intelligentsia are a vital component of projecting the country forward in new disciplines and sciences. The best are not going to be content to sit behind a closed security screen.

India, which has a huge infrastructure for academic excellence, is well poised to gain from this. Already extremely well-positioned in the IT sector and with renowned expertise in a number of new technologies, the country can offer a massive platform for academic research into specific Asian and technological issues. These may vary from genetic research for medicines and the study of specific regional diseases, to new frontiers in biotechnology, pharmaceuticals and the sciences. In the wake of Google’s exit, China has lost a fairly vibrant communications tool to the outside world. If India is able to woo some of the best academics and R&D centers from China, it may yet profit from what could transpire to be a turning point in China’s social experiment with global integration.

“China is in the midst of the greatest bubble in history,” Rickards said, further commenting that the Chinese central bank’s balance sheet resembles that of a hedge fund buying dollars and short-selling the yuan, China’s national currency. “As I see it, it is the greatest bubble in history with the most massive misallocation of wealth. It is a bubble waiting to burst.”

In contrast, HSBC Holdings CEO Michael Geoghegan disagreed, stating “People making comments about bubbles possibly don’t have all the facts. Regulators are in control of the banking industry, and have the ability to curb lending as needed.”

In discussing investment prospects among the BRIC group, Rickards stated Russia and China didn’t deserve any investment except for short-term speculation citing concerns with balance sheets, resource allocation, stock market performance, and human rights records within the two countries. He went on to dispute arguments that China could hold the United States hostage through its holding of Treasury assets, arguing that China would suffer massive losses if they dumped their holdings.

China has been slowly cutting back their accrued holdings of U.S. debt over the last three months, but remains the largest foreign owner of Treasury holdings with US$889 billion.

HSBC’s Geoghegan countered, saying that China’s banking industry has “very low impairment charges compared to what you’d expect this time in the cycle. I wouldn’t be surprised if there’s a gradual increase in impairments, but long term, I’m confident that the structure of the banking industry is very, very sound.”

Mr. Rickards described India and Brazil as examples of “real economies” in the developing world.

“China has some concerns surrounding the monetary policy tightening that’s going on there right now and also concerns about balance sheets and the potential risks in the banking system from the rapid credit. Until that’s resolved, China is probably going to struggle a little bit,” Redward said.

Recognizing that India’s economy is expected to surpass US$1.5 trillion in 2010, the country “looks pretty good to us,” he said. “We think the ongoing rise in the savings rate in India…is leading to a very sharp pickup in investment as a share of GDP. This is the same kind of dynamics that we saw in China 10 years ago. We think that balance sheets in India are generally much more transparent than in China.”

India’s Commerce and Industry Minister Anand Sharma recently came back from a three-day trip to Washington where he participated in talks with leading U.S. trade officials, including U.S. Trade Representative Ron Kirk.

Discussions between Mr. Sharma and Mr. Kirk focused on trade and investment between the two countries, highlighted by the signing of the “Framework for Cooperation on Trade and Investment” by both officials on Wednesday.

The document focuses on private sector partnerships in the industries of “infrastructure, green technologies, geo-technologies, innovation, creating awareness on IPR; also for bilateral cooperation in energy, in information technology, environmental services industries and working to empower women and disadvantaged groups, and small and medium enterprise development,” Mr. Sharma said at a press conference in Washington.

Mr. Sharma also discussed India’s current plans to create national investment and manufacturing zones which the country hopes will generate more foreign interest in the country. The first of these zones will be in Rajasthan by the Delhi-Mumbai Industrial Corridor.

“I would like American businesses and Indian industry to come together to make India a manufacturing hub and one of the workshops of the world,” he added.

Indian Prime Minister Manmohan Singh has already visited his counterpart in Washington, being honored as the first foreign guest of U.S. President Barack Obama at the White House last year. President Obama has announced that he plans to travel to India either over the summer or early this fall.

“I believe through these meetings we have been able to build the groundwork of an excellent trade and commercial outcome for the forthcoming visit of President Obama to India,” Mr. Sharma said.

Trade between the two countries stood at almost US$40 billion in 2009. Both parties hope to increase that substantially over the coming years.

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MUMBAI, Mar. 19 – The Bandra-Worli Sea Link in Mumbai is now open and is showing a new face of development in a city oft derided for its archaic infrastructure.

The Sea Link reduces travel time between Bandra and Worli from 45 to 60 minutes to only 7 minutes and effectively links the traditional business and commercial districts of Colaba and Fort to the Bandra new business area. The Sea Link project is a part of the Western Freeway Sea Project, which in turn is a part of a larger proposal to upgrade the road transportation network of greater Mumbai. The Sea Link comprises eight lanes of traffic,  two cable stayed suspension bridges, and is over 2 kilometers long in total.

This massive bridge is indicative of the infrastructural changes that are transforming the face of India. The Sea Link was semi-officially opened by the Formula 1 Red Bull team racing their car along the entire length at speeds over 265 kilometers per hour.

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A total of 26 animals among 15 species died at the Shenyang Forest Wildlife Zoo in January, including four Siberian tigers. The four are among 11 Siberian tigers that have died at the zoo over the last three months due to starvation. Xinhua reports that the tigers were fed primarily on cheap chicken bones in order to stave off increasing costs.

Tiger parts have long been a valuable commodity in Asia due to their use in virility wines and tonics. Chinese traditional medicine, in particular, uses tiger penises and bones to increase sexual potency and treat illnesses.

The Beijing News reports that large vats of tiger-bone liquor have been produced at the zoo in Shenyang since 2005 and were given to high-level provincial officials. The source also claims that between 40 to 50 tigers have died at the zoo since 2000 and that the tonics made from the bones were an “open secret.”

The case underscores the deplorable conditions of zoos across China, where animals are kept in depressing, unsupervised environments and are often malnourished. Animals at these zoos are locked out of their indoor enclosures during the day so as to be made visible to patrons who at times throw objects into their cages and poke the animals with sticks. Some zoos, like the Xiongsen Bear & Tiger Mountain Village near Guilin feature demeaning performances where tigers and bears ride horses and walk on their hind legs. The zoo also features apples attached to fishing poles which visitors can use to tease the animals.

There are currently no laws in place in China to protect animals held in zoos from abuse. The Animals Asia Foundation has more reports on the issues facing animals in the region and can show you how to get involved.

China is estimated to have around 20 Siberian tigers left in the wild.

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Mar. 18 – While the common perception is of China as the source of many low cost items found in U.S. retail stores such as Wal-Mart, B&Q, and Home Depot, a silent trend has begun to emerge that signals the beginning of the end of Chinese dominance in this field. Welcome then, to a new source of low cost goods – India’s Punjab region.

Under the auspices of India’s Ministry of Commerce, the Engineering Export Promotion Council has been doing a sterling job in actively seeking new markets for Indian products overseas. The EEPC is so focused that it even has a specific desk and representative devoted to selling hand crafted tools.

With India’s Punjab region accounting for some 75 percent of all India’s hand tool exports, the presence of over thirty Indian manufacturers at the worlds largest hardware fair in Cologne has raised some eyebrows. The vendors are easy to spot – Punjab is the home of much of India’s Sikh population, resplendent in turbans and beards, and appear exotic in Western business surroundings.

Inquiries by all accounts have been flooding in, with the crucial aspect – quality – coming up time and again. As Chinese hand tooling standards dip, with incorrectly tempered hammer heads and shovel blades causing fractures and breakages, the Punjab region is set to step in.

Considered India’s breadbasket, the region’s crafting of agricultural tools isn’t just a manufacturing business set up for export. In Punjab, the tooling industry comes from years of practical experience toiling in India’s own agricultural industry, with baking sun, hard earth, and heavy usage. The manufacturing of substandard tools just isn’t going to fly here, and the equipment is made with rather more professional know-how and pride than a Chinese accountant’s bottom line can muster. These tools are now on sale across the U.S. in the aforementioned stores and are rapidly gaining in popularity as  both reliable and inexpensive.

Hand tools from the Punjab have been steadily increasing in exports, achieving US$163 million last year and US$198 million in 2008. Exports for 2010 are expected to increase by 15 percent. With the retail cost of a shovel at B&Q around US$20, that’s a lot of Punjabi hardware that is finding its way into the big retail stores. Furthermore, from shovels and hammers grows more expertise, and the Punjabis have begun manufacturing electrical tools and specialist tooling in the region. The applications are diverse.

As mentioned, there is a history here born from years of agricultural expertise in the making of hand tools in Punjab, and a deeper connection with the products. That may be something China is losing, as manufacturing there gets ever more cost conscious. China also can’t compete as labor costs for such workers are now three times higher than in India. The result, to keep prices competitive, is a reduction in quality.

The Punjabi hand tool manufacturers may be just a small part of a tiny trend. However, I suspect that the discovery of Indian manufacturing skills, if chosen correctly and based on local experience, may start to shift the onus of cheap product manufacturing and supply from Chinese factories to Indian ones. After all, you can’t build a castle without shovels, and the Punjabi’s have those in abundance.

The port is subject to a planned US$8 billion refit and both Bangladesh and China are keen to link the port to Kunming via road and rail links across Burma and into Yunnan. Chittagong was an important port in the days of the British Raj in India, but has suffered since partition from India and a civil war with Pakistan. Chittagong empties out into the Bay of Bengal and has deep water facilities. The Bangladeshi Government is in high level talks in Beijing until Friday.

Hyderabad is fast becoming India’s IT hub, with companies such as Google, Microsoft, Oracle, Dell, and IBM already established in the city. The move to India comes amidst interesting times in China, where social networking is heavily censored and many sites are banned. Google, for example, despite being the world’s largest search engine, seems poised to pull out of the China market following conflicts with Beijing over censorship and allegations of hacking.

India meanwhile, with cities such as Hyderabad and Bangalore, looks set to pick up the global IT services industry baton that China seems to refuse to want to deal with on political grounds.

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Dezan Shira & Associates can advice foreign investors about setting up operations in Hyderabad and other Indian cities. Please email India@dezshira.com.