The effect of financial meltdown is already felt globally.With America expecting 10% unemployment rate and many world class banks receiving bail-outs,the repercussions are felt globally.But how did India and China sustained in this situation where even the developed countries can't protect themselves?This question let me to delve into the details of the economic strategies of India and China.
China's GDP grew by 10.3% last quarter whereas India's GDP was just shy of 8% in the same period.There is no doubt that they are having a dominant place in the globalized economy.We know the factors like domestic market consumption and huge population which proved to be a blessing in disguise for India and China.There are other insights which are related to both these countries mentioned in "Billions Of Entrepreneurs by Tarun Khanna".
China has a system of hierarchical governance which helps it to make quick and exigent economic reforms whereas India follows a pluralism approach for economic reforms which is basically slow.But China faces a real problem.Since most of the domestic assets of Chinese companies are not publicly listed and financial analysts are not independent but state controlled the annual reports of the companies could not be trusted.Although, Caijing and few other media outlets have made little progress market information about business is still mostly partial.On the contrary, it is easier to get reliable information about a company in India due to the common law tradition of Indian legal system.
The property rights also discerns a different story for both the nations.Since most of the infrastructure is developed by Chinese public sector, individual rights are not taken into much consideration.Which is opposite to that in India as it is possessing institutional inefficiency due to free press,judicial processes and civil society which often lead to an impasse.And there is a link between property rights and economic growth as some scholars agree that more clearly defined are the former,the greater the possibility of the latter.Although the property rights in both the countries are ambiguous but it has not prevented China from building cities like Shanghai.On the other hand,in India a lot of time is wasted in overburdened court systems on the property issues which ultimately delays the process of development.
One lesson that China should learn from India is better equity market management.In India despite the periodic repression under British rule entrepreneurial class was always active.So, India could more easily rely on portfolio flows and flows of venture capital than on FDI.China, on the other hand doesn’t allow its equity markets to allocate domestic savings to domestic uses.Unlike India,where capital markets,however imperfectly,strive to serve the efficient firms,the Chinese government chose to list only firms whose objectives aligned with the government’s political goals.
The ascent of Infosys is largely credited to Narayan Murthy,whose career was involved working in France for a software company for three years,donating his assets to charity,and traveling through Europe back to India.An eventful sojourn in Bulgaria convinced him that pure socialism was not the answer to mankind’s problems and that redistribution of wealth, without first creating it,was a dead-end road.His success proves that Indian capitalism did not abandon all the ideals of a socialist.Whereas in China TCL rise is an example of considerable entrepreneurial hustle on the mainland.There have also been many acquisitions by both the nations private companies but these numbers were more for India.When the Indians have attempted big purchases-for example,The Indian petroleum company wanted to bid for a deal in Kazakhstan- the deal collapsed in intergovernment acrimony and a spat between the CEO of the state-run company and the petroleum minister.Such a public airing of differences,which is sometimes dysfunctional but can also result in meaningful discussion about feasibility and strategy,is unimaginable in China.But then there are too many companies like Microsoft which have lost millions,and wasted years of management time dealing with Chinese bureaucracy and the Chinese partners that had been imposed on them.
The percentage of the massive FDI pouring into China is as much as 80 percent,coming from Chinese living overseas.The world’s 57 million overseas Chinese, rule the world’s third most powerful economy.Indian economy is also succored by the remittances.Infact during the 1973 and 1979 oil crisis these remittances had cushioned India from external economic shock.
The fundamental difference between Chinese and Indian reforms is that the former focused on rural areas and the latter did not.Even though India’s former president,K.R. Narayanan,is a Dalit,caste remains not just symbolically important in village India but a defining factor in economic existence.But unlike India’s caste-based special interests,the Chinese government is not beholden to any special interests other than its own.For example the recently completed railway line to Lhasa,capital of Tibet, will likely bring economic development to the province,presumably an attempt to buy the allegiance of young Tibetians.
India is too short of oil but the Chinese trio of CNPC(China National Petroleum Corperation),CNOOC(China National Offshore Oil Corporation) and SinoPec outmaneuvers India.For example,Angola’s state-owned oil company Sonangoal blocked India’s state-owned Oil and Natural Gas Commision(ONGC)from buying Shell’s 50 percent stake in Sonangoal.This deal would have yielded about 5 million tones of crude oil daily for India from 2008.Angolan authorities did not appreciate the Shell’s direct deals with the Indain company.India, after all, offered only $200 million for developing railways,whereas Chinese were willing to ante up ten times as much for several projects in Angola.Hence,China got the deal.
Since both the countries are among the top countries in the economic growth rate.It is incumbent on the leaders of both the nations to cooperate in a way to maintain their own vested interests.It has been evident from the Cold war that how destructive the fight between the two powerful nations be.The ways in which this could be done is by maintaining healthier trade relationships,cultural exchanges,increasing MoUs between the Indian and Chinese universities,increasing subsidies for certain sectors in each others country.A good example of this could be the tie ups between hardware manufacturing companies in China and software manufacturing companies in India to compete in the world with better and economical PCs.
