China and India, accounting for 37.5 percent of the world’s population, have today become major determinants of the direction of world affairs. With consistent economic growth rates and an increasing pool of talent, some economists project that these two countries will eventually come to monopolise the international economy. Another view, however, holds that there are too many internal problems lurking under the surface within both of these massive economies, which will make it impossible for them to topple the West in terms of its business leadership, at least in the medium term. Correctly predicting the evolution ahead will, clearly, become of increasing importance for governments and corporations around the world.
In Chindia, Peter Engardio, an editor for Business Week, offers a collection of perceptive comparisons and contrasts between these two economies. The compendium (most published previously by Engardio’s employer) provides an important historical backdrop to these jointly rising economies; as well as an analysis of their industrial strengths, such as their massive working population, and their infrastructural weaknesses, including the political chaos in certain parts of both countries. From these assessments, the generalisation emerges that India’s democratic political system appears to make it a better commercial hub, while China is seen to have built superior, more-efficient production facilities.
Engardio’s selection helps to unfold the economic and technological progress being made collectively by ‘Chindia’, illustrating the striking differences between the initial experiences of setting up businesses in these two countries versus the current situation. For instance, when companies such as General Electric and IBM first entered India and China, they both had absolute advantages in terms of production and sales. Today, however, all international corporations (Volkswagen, Samsung, etc) are forced to compete for business with local companies such as Haier and Lenovo in China, and Infosys Technologies and Tata Group in India. Likewise, Beijing and New Delhi once would mould their trade policies to plead for investments from European and American companies. Today, however, officials in both governments are negotiating investment deals with the rest of the world.
Chindia also looks to the future, projecting opportunities of which these two countries could avail. These appear to revolve around the potential production of high-end electronics and luxury items at prices that could revolutionise consumer habits around the world. Some of the challenges that could follow this revolution are also explored, most notably climate change and the ramifications of the massively growing Indian and Chinese middle classes. When Engardio finally wades into the debate mentioned in the first paragraph of this review, he predicts Chindia’s inevitable takeover as the “chief drivers of global growth” – and backs this through the convincing stories of international business executives such as Ratan Tata and Scott Bayman, General Electric’s country head in India.
Engardio is certainly a believer. His introduction builds frenzied excitement around the vision of these two giants leaping forward to overtake each other and to replace the United States as the superpower of the 21st century. “When it comes to economic growth,” he suggests, “China is outpacing India by a mile.” But he also presents an analysis of financial data that shows how Indian corporations are getting “more bang for their rupee”. While China offers an efficient mass-production environment, a question remains regarding the country’s creativity levels and the effectiveness of Chinese managers. Further, while India might be trailing behind its neighbour in mass production, it has fast outrun China in terms of innovation.
Rather than tediously taking the reader through the trade history of China and India, Engardio engagingly presents the factors that have caused the unprecedented economic boom in the two countries. The case studies he provides are of two strikingly different but successful business models, both of which have capitalised on ambitious and educated youths in these countries to develop their homeland’s investment infrastructure. Three main factors are contrasted in turn: government system, business culture and lifestyle. For instance, while Indian companies are more business-focused, Engardio writes, it is far easier to get financing in China, as the country has received far more foreign direct investment. In terms of evolving consumer trends, China today beats India in terms of savings per household. The students of the former are also more focused on engineering, due to China’s colossal manufacturing base, while Indians are highly focused on information-technology services. Finally, while the consumer trends of Chinese youths vary by region, Indian youths seem to be influenced more by mainstream American media throughout.
Chindia also manages to drum up a sense of fear for other developing economies. It proposes a scenario in which China and India become each other’s largest trading partners, thus prompting the two to form a regional cooperation association. The formation of such an entity would have a dramatic effect on the international market, as these countries would be able to manipulate the demand-supply curve for much of the world. Indeed, in terms of geography and technology, China and India would tend to be natural business partners. China’s rapid development caused a stir in India, and the back-up of foreign direct investment subsequently trickled downwards to from the former to the latter. China has the hardware technology, goes the popular rhetoric, while India has the cutting-edge software products. Diplomatically, however, such an alliance is unlikely in the immediate future, due to massive language and lifestyle differences. India is also seen as a strong ally of the US, which is bound to be perceived with suspicion by Beijing. But such factors do little to assuage the fears of smaller countries, and the possibility looms large of some type of partnership eventually being formed to facilitate trade.
Engardio does recommend ways in which the US and Europe could compete with China and, to a lesser extent, with India. Increasing savings per household would be one important step, he says, as well as pushing for a re-evaluation of the yuan, more aggressive enforcement of trade laws, and seeking sanctions for infringement of copyright. A deeper understanding of the Chinese economy is key to understanding why this is so, as provided for by a second recent work.
Old wine, old bottles
Old China’s New Economy is a chronological review and a comprehensive analysis of China’s economic reforms and its rise from an impoverished economy in 1978 to the most efficient economy of the 21st century. T K Bhaumik is an economic advisor at J K Organization in New Delhi, one of India’s oldest private-sector groups, after having served as chief economist at Reliance Industries. His book works best in providing a quick summary of the timeline of the Chinese government’s ambition towards, education on and commitment to the development of China since the formerly disgraced Deng Xiaoping became the premier in 1978. The somewhat denigrating subtitle of the book, The Conquest by a Billion Paupers, seems confused, however, as Bhaumik only briefly covers the Chinese population’s mass struggles. Rather, he focuses primarily on the economic reforms made by the Chinese government to bring China to its current state. Though, it should be mentioned, he does also highlight how China’s government capitalised on its massive population’s drive to work, and succeeded in making the country a goldmine for investors looking for cheap and reliable labour.
Bhaumik clearly admires the efficiency and ‘commitment’ of the Chinese government. In particular, he points to its creation of state-owned enterprises that could sell for profit only after fulfilling the government’s quota, as well as to the special economic zones and concurrent trade policies designed to attract foreign investment. He adds that China’s ‘open door’ policy, introduced in 1978, for international trade brought both a fresh economic spurt and political reform to the country. In turn, this attracted foreign direct investment that stands in stark contrast to the foreign direct aid that was (and is) experienced in most developing countries. “These measures not only facilitate the inflow of foreign capital (in the forms of investments from abroad),” Bhaumik writes, “but also the internationalisation of rising exports and imports.”
Yet China’s ever-growing efficiency also threatens to become problematic. The global competition has become increasingly aggressive, and consumers constantly demand higher quality for lower costs. In attempting to produce everything at the lowest possible cost, Bhaumik worries that China might outpace the economic development of other poor countries, thus causing its own domestic market to collapse. Smaller and weaker economies do not have the power to produce at the rate of China. If corporations continue to buy only from China, industries in other developing economies will eventually run out of business, which would cause a major breakdown. Likewise, China remains a major source of problems in terms of intellectual-property piracy, pollution issues and its ever-growing demand for energy.
These obstacles notwithstanding, Bhaumik predicts that China will become the world’s foremost economic powerhouse for two reasons. First, the fact that its economy is just three decades old means that it still has “tremendous untapped potential”. And second, Beijing remains ideologically driven to solidify the socialist economy as a new model for economic advancement throughout the world. Bhaumik concludes that China will continue its growth and, alongside, the rest of the world will increasingly challenge the country on its human-right record, climate-change policies and the state of its governance.
Although friendly relations existed between India and China during ancient times, the two drifted apart since Indian Independence. However, as Bhaumik’s book shows, the commitment of China to upgrade to an internationally accepted market economy, coupled with, as Engardio points out, the vital resources India has to offer, it now seems clear that these two will in time deliver a strategic alliance. When they do, a new order will have been formed within the world economy. Both of these books conclude that the global economic takeover by China and India is inevitable, but also worry that such a formation could have colossal damaging effects in the developing world. While the growth conditions of smaller countries might well be adversely impacted up on by this ‘takeover’, such a formation will in fact balance the global economy, as Chindia counters US and EU.