CHINA-INDIA: PARTNERING TO GROW
Vatsala Kamat（the columnist is a financial/business writer. At present, also is Consulting Writer for Mint, India）
Expectations were running high that, the three-day visit of the Chinese President Xi Jinping to India, will flag off a new era in economic and business relations between the two countries. And it did! For, Narendra Modi, India’s newly elected Prime Minister, it is the pledged to drive infrastructure growth in the country and expand manufacturing. The timing could not have been better. Xi, who also took office last year, is faced with the challenge of a slowdown in China’s growth rate and, is committed to reform and taking Chinese expertise across borders.
For India, it is the first visit of the Chinese president in eight years and the third since independence. Coincidentally, while Xi is China’s first leader born after the 1949 revolution, Modi is India’s first Prime Minister born after independence in 1947. Both have strong political good will in their regions and world too. Both countries are faced with new economic challenges. Both need changes in the economic ethos.
MEETING OF MINDS:
The meeting culminated in both leaders voicing the need to have strong economic and cultural ties, besides secure border relations for peaceful progress. A commitment of US$ 20 billion may be less than the much-hyped expectation of US$100 billion. While this may be less than Japan’s intent to bring in US$ 33 billion, it is surely a long haul from US$ 400 million that came into India over the last 14 years.
A new paradigm is set to emerge in the Asian region. As two sizeable economies that morphed from ancient civilisations that co-existed for many centuries cooperate, it will have a bearing on economic and geopolitical issues of the region.
India and China house a third of the world’s population. More importantly, both economies play a significant role in global economics. China accounts for 16.8% of the world’s export trade (from about 1% three decades back), far greater than India is at 1.6%. Bilateral trade between China and India has risen to US$65 billion, with a significant trade deficit. The investment of US$20 billion by China into India could help trim this.
INDIA TO HARNESS CHINA’S EDGE
Indeed, China is the second largest economy after the United States of America, with scorching pace of growth for over three decades. It took a big leap ahead of India, given that it started the process of economic reform soon after Deng Xiaoping took control of his country in 1978 and, opened the gates for investment. Indian liberalization began about a decade later.
Yes, in world markets, be it leather, textiles, automobiles and auto-components, China and India compete. But, Modi’s invitation to the Chinese President apart from initiating good will and strengthening relationship with the mighty neighbor with whom there have been border skirmishes since the 1962 war, stems from the need to beef up manufacturing and infrastructure sectors.
A key reason for China’s power in world markets is that in the ‘80s, China was quick to attract foreign direct investment into capital-intensive areas like infrastructure and, harness its large workforce into mass manufacturing excellence. India, on the other hand, was a victim of its own bureaucracy in the garb of a democracy. It failed to push the cause of better infrastructure, which continues to languish at levels, barely ahead of where the British left it.
Infrastructure is the need of the hour for India. Supply constraints have driven up prices of goods and services. Manufacturing needs to be stepped up. Institutions that drive these are not nimble-footed. Decision- making at the government level and bureaucratic layers is slow. Liquidity is not easy to access and banks are wary to lend.
Modi has promised “smart citites”, “bullet trains” and “special economic zones” and “industrial parks”. China will now help to build two industrial parks- one in Gujarat for power equipment and, another in Maharashtra for auto parts.
Memorandum of understanding and cooperation pacts were signed for improving railways, allowing greater access for pharmaceutical companies into China, space exploration and even in audio-visual production. Chinese line of credit could also be accessible for Indian firms. This would be a win-win for both nations, private companies.
The key point for India is, Will Modi succeed in fuelling urban growth and export-led economy in India? Or, is it too late in the day to play catch up with, if not outpace China?
A section of analysts say that India’s base is lower and the better creation of physical assets and the younger demographics make a strong case for India’s growth bouncing back on track to growth. At present, the gap between the two countries on most social indicators, be it per capita gross domestic product (GDP), passenger cars, internet users, urban population and even child mortality, is wide as China had until few months back clocked unprecedented growth year after year.
According to the World Economic Forum's latest Global Competitiveness Rankings -- an indicator of how business friendly a country is -- China places 28th in the world for overall competitiveness; India ranks 71st. On infrastructure and macroeconomic environment, China ranks 46th and 10th respectively; India ranks 87th and 101st.
Another milestone of progress shows that China added nearly four times the railway tracks in kilometres over five years to 2011 that India added in 67 years since independence. And, on the critical gross domestic product (GDP) measure, China is chugging at around 7%, whereas India buckled to below 5%.
India’s woes are not just in that the reform process started late. What led to supply constraints is, policy logjam. Money may come in as seen from the myriad of private equity, joint ventures and foreign direct investment that has fuelled growth in both the countries in the last few decades.
What India requires now, to get all the ambitious plans off the drawing board is quick and single-window clearances on land, environment and legal. Else, history may repeat in that investors and domestic corporates may lose confidence in the country’s tall promises.
WHAT CAN CHINA LOOK FOR IN INDIA?
Turn in to China. In spite of being ahead of its western neighbor, growth rate in China is threatening to slowdown. Riding on cheap labour, low cost and easy finance and quick policy decision, the name of the game in China has been numbers. But, this year, the flying dragon has lost tailwind and is struggling to reach the targeted 7.5% annual growth rate. Growth rates in industrial production, exports, oil imports, real estate prices and electricity output are showing contraction, as costs are spiraling too. This has already sent jitters through world markets, given that China’s trade is critical to world economics.
To cite a few examples, Chinese auto exports are at its worst since the 2008 global crisis, according to research analysts. A fall in tyre production in China and rubber usage along with higher supply in the Asian belt has brought down prices of rubber in world markets too. Meanwhile, China’s policy is changing towards some sectors. The change in China’s cotton policy to support cotton growers directly instead of supporting cotton prices and piling up inventory to supply to mills, has set cotton prices yo-yoing in world market.
In its first reaction to slowdown, China’s central bank is boosting liquidity by injecting large funds into five big banks. Regulators are also cracking down on banking transactions. Further, costs are reportedly rising in China.
In such times, it makes sense for Chinese companies to look for greener investing pastures. Indo-China cooperation could aim at even combining China’s strength in computer hard ware and telecommunications, with India’s software. After all, in the 90s when Indian state-run machinery lagged behind China, in building infrastructure and physical assets, private enterprises used computer software skills and the expertise of educated English-speaking population to bring millions of jobs and dollars in, by way of software and outsourcing opportunities.
Likewise, scientific research, niche electronics and semi-conductor industries, precision instrumentation and design, health care and pharmaceuticals are areas where India has a feather in its cap over its southeast Asian brethren, including China.
India’s transparent banking system, tough capital market regulation that encourages foreign institutional investors to invest, could be learning points for China. India’s corporate governance and respect for intellectual property rights can be examples for Chinese counterparts to emulate.
It is more imperative now than ever before that as even as the geopolitical issues gradually get ironed out, the two nations join hands to co-operate even as they compete. The leaders seem to have taken cognizance too. Xi said, "The combination of 'the world's factory' and 'the world's back office' will produce the most competitive production base and the most attractive consumer market." Modi too, carrying a similar sentiment said "whenever India and China have worked and grown together, this has also led to the development and economic prosperity of the world."
Both nation heads subtly spoke of trying to maintain peace at the border, critical to economic progress. Cooperation pacts seem to have been signed even in areas like art and culture, cinema and exchanges between cultural institutions. Not to forget, that both countries have their respective specialization in native therapy – China in acupressure, acupuncture and taichi and India in Ayurveda and yoga.
The tie-up between banks of the two nations during Xi’s visit is an important milestone in financial relationship besides offering line of credit to grow business between the two nations.
However, there’s no doubt that on core income and economic parameters, India has a long way to go given that it’s GDP per capita of US$1,250 is way below that of China at US$6,700 and rest of the developing world, which is even higher at US$ 10,000. On one of the key manufacturing benchmarks, available data from the automobile associations across the globe suggests that India’s auto penetration is low with sales at 2.6 vehicles per 1,000 compared to China’s 16.2, Brazil’s 19.0 and South Korea’s 30.7.
That said, the Dragon (China) is losing aggression, while the Tiger is set to leap after crouching for a couple of years. But as Amartya Sen, Lamont Professor of Economics at Harvard University, USA and Nobel Economic Prize Winner pointed out years ago, “it was wrong to view China and India as competitors. They should think of what they can learn from each other. From energy resources and commodities to business, art and culture, there’s scope for the two nations to work together. Progress in these areas may be stepping stones to align geopolitical differences too.
After all, over at least twenty centuries there were cultural, political, religious and economic interactions between the two nations. The Chindia combine could work to create a new Asian juggernaut.
- 原标题：龙与象：在竞争中成长的伙伴 本文仅代表作者个人观点。
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