GBE Term Paper Presentation

INDIA vs CHINA

Kapil

Department of Management Studies

Indian Institute of Technology Delhi
INDIA
 GBE Term Paper Presentation

Contents
Part I : Bird’s Eye view
Part II : How are the two giants
emerging?

Part III : Going backward to forward

Part IV : Who scores where?

Part V : Conclusions

Part VI : References
 GBE Term Paper Presentation

Part I: Bird’s eye view

Economic indicators
INDIA CHINA
Gross Domestic Product $1.17 trillion $ 6.9 trillion
GDP growth rate 9.1% 11.9%
Population (m) 1,123 1,319
Population growth (annual) 1,2% 0,6%

Inflation 4,3% 5,2%

Export of goods and Over 40% 21%
services (% of GDP)
Imports of goods and 24% Over 30%
services (% of GDP)

Source: World Development Indicators database, 2008

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Contd…
Growth trends
 There has been steady
GDP Growth of India and China growth in the GDP of both
China and India, however,
14
growth rate of China has
12
always been higher than
10 CHINA that of India.
8 INDIA
 The impact of the slow
6
down in 2008 has been
4
more severe on China as
2
compared to India, which
0
shows its dependence on
2001 2002 2003 2004 2005 2006 2007 2008
their manufacturing exports
Source: www.worldbank.org to the Western economies,
mainly USA.
 The Chinese economy is
much more integrated with
the world economy through
international trade and
investment, which helps to
explain its stronger rate of
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Contd…
The added value

India: Compositionof GDP

2007
18%
1990
2007
22%
1990 29%
32%

1990
46%
2007
53%

Industry Services Agriculture

Source: Internal elaboration on World Development Indicators database,

September 2008
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Contd…
Foreign Investments

160  The FDI in India was

140
slightly more that China
in 2002, but it has
120
increased at a much
100 faster rate as compared
C HIN A
80 to India since then.
INDIA
60  The main reason that
40 can be attributed to this
20 growth is the focus on
the manufacturing sector
0
in China as most of the
2002 2003 2004 2005 2006 2007 2 008
FDI is attracted towards
Source: www.worldbank.org the low cost
manufacturing in China.
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Contd…
Foreign Trade

Export of Goods and Services as % of GDP

50  China has been a more

45 exports dominant
40
economy as compared
35 CHINA to India with exports as
30 INDIA
25
high as 40% of China’s
20 GDP as compared to
15 22% for India in 2007.
10
5
0
2000 2005 2007 2008

Source: www.worldbank.org
Part II: How are GBE
the two
Term Papergiants
Presentation

emerging?
India as back office of the world

FACTORS RELATED AND SUPPORTING INDISTRIES

High profile human resources High R&D investments and capabilities

Skilled labour software R&D Centres/Labs and

software training institutes

High level infrastructure, (Reliable/satellite telecom, power and roads

telecommunication) availability of fast
Digital telecommunication links

High technological internal resources IT parks (Bangalore, Hyderabad, Chennai, Pune,

Gurgaon)
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Contd…
China as the work shop of the world

FACTORS DEMAND

Unskilled and low cost labour Internal demand

(State Owned industries)

Basic industrial infrastructure External demand

(exportation)

Cheap raw materials Demand of labor intensive production

External Dependent on foreign technology

source of technology
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Contd…
India vs China remarks

INDIA CHINA

Focus on services Focus on industry

Lower GDP per capita GDP per capita two times higher than
India’s (in USD PPP terms).

Strong corporate governance Lack of advanced institutional

standards infrastructure and corporate
governance
Advanced institutional infrastructure Indifference towards oil prices
fluctuations

Commercially-driven companies Global economic integration through

international trade and investments
Part III: Going backward
GBE Term Paper to
Presentation

forward
Development in strategic terms

SOME DISADVANTAGES OF BEING BACKWARD

INDIA COUNTRIES CHINA

Poverty Low level of education

Poor knowledge of the industry dynamics Poor living conditions

Low level of resources Low level of resources

Bad physical infrastructures Low level of institutional infrastructures

and corporate governance

Inadequate supplies of capital Skilled labour necessity

Late process of modernisation Technological capacity

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Contd…
Role of the government

INDIA before CHINA before

Semi-socialist autarkic economy Socialist economic system
High protection State monopoly of the foreign trade
system
Difficulty to set up a new business State-owned domestic enterprises

Foreign investment not welcomed Strict control

INDIA now CHINA now

State planning through 5Year Plan 3Step Development Strategy
Mixed economy Reduced control on economy
Reduced control on foreign trade and Government supervision through indirect
investment guidance of a more dynamic economy

Privatization trend Many institutions to control and supervise

(People's Bank of China, National Development and
Reform Commission, Ministry of Finance…)
 GBE Term Paper Presentation

Part IV: Who scores where?

India China
Referred as The back office of the world The workshop of the world
The technology lab of the world The factory of the world

Development Homegrown entrepreneurship. Foreign Direct Investment (FDI)

Strategy
Development From the ground up. Top-down approach
approach
FDI status Medium Extensive
Domestic firms Nurturing environment for Restricted environment with many
environment domestic firms supported by obstacles for private domestic firms,
stronger infrastructure that preventing them from challenging
allows enterprises to flourish. state-owned enterprises.

Legal System Advanced and decent legal Unfair & inconsistent legal system
system, that provides ownership with low political status. Domestic
protection for private domestic private enterprises are discriminated
enterprises. against several policies and
regulations.
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Contd…
India
Political system Democracy
Capital market Allows firms to obtain
capital they need to grow.
Capital market operates
with greater efficiency and
transparency.
China
No democracy
Tightly controlled capital
allocation restricting the
ability of private companies
to obtain stock market
listings and access the
money they need to grow.

Macro-economic Low performance High performance

figures
[Growth rate & GDP]

Micro economic level Fuller use of resources Misallocation and Inefficient

owned necessary for long- use of resources depending
term growth. on FDI.
 GBE Term Paper Presentation

Published studies
Last year, the Forbes 200, an annual ranking of the world’s
best small companies, included 13 Indian firms but just 4
from mainland China.
A report issued in 2000 by the Chinese Academy of Social
Sciences concluded that, “private and individual
enterprises have a lower political status and are
discriminated against several policies and regulations.
In a recent survey of leading Asian companies by the Far
Eastern Economic Review (FEER), India registered a higher
average score than any other country in the region,
including China.
In a World Bank study published last year, only 52 percent
of the Indian firms surveyed reported problems obtaining
capital, versus 80 percent of the Chinese companies polled.
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Contd…
Who scores where?

If India has so clearly surpassed China at

the grassroots level, why isn’t India’s
superiority reflected in the numbers? Why
is the gap in GDP and other benchmarks
still so wide?

Why
?
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Contd…
Why?
 It’s the history; India’s economic reforms only began in 1991,
more than a decade after China.
 India has had to deal with a national savings rate half that of
China’s and 90 percent less FDI.
 Moreover, India is an extensive, messy democracy driven by
ethnic and religious tensions.
 India has also had a longstanding, volatile dispute with
Pakistan over Kashmir. China, on the other hand, has enjoyed
two decades of relative tranquility, it has been able to focus
almost exclusively on economic development.
 GBE Term Paper Presentation

Conclusions
Comparing India and China, India
is doing a superior job in utilizing
their resources and exploiting the
institutional advantages
China and India have pursued different
development strategies.
China used the fastest route to reach
economic development which is foreign direct
investment (FDI).
Indeed, India’s homegrown entrepreneurs
may give it a long-term advantage over the
Chinese inefficient financial system and
capital market.
 GBE Term Paper Presentation

References
Books:
 Dancing with giants: China, India, and the global economy, by
Alan Winters and Shahid Yousuf.
 Chindia: How China and India are revolutionizing the Global
Business by Pete Engardio.

 Papers:
 China’s Socialist Market Economy: Lessons for democratic
developing countries, by Arvind Virmani, published by Planning
Commission (Working Paper No. 5/2006 – PC).
 China and India: A visual Essay, Report by Deutshe Bank.
 Transferring the Rebound into Recovery: Published by World
Bank, November 2009.

 Websites:
 www.worldbank.org
 www.planningcommission.gov.in
 www.imf.org
 GBE Term Paper Presentation

Kapil