India & China – Comparison of two Asian Giants

In the Indian cricket team, both Sehwag and Gambhir are prolific opening batsmen. But, when Sehwag is on the song, Gambhir’s performance is almost over-shadowed by his partner’s fast-paced innings.

But, both the players gel-up very well while running between the wickets and mutual understanding. They set the tone of the Indian innings by showing controlled aggression between themselves and a building a firm base for the Team India.

However, Gambhir immediately joins the party once he settles down and gets the measure of the wicket. Furthermore, this provides opportunity to Sehwag to calm down post power-play session and pace his innings for a longer haul.

This is how Indo-China relationship is currently stacked up. China led the way (like Sehwag) with its decade of scorching growth rate; over-shadowing India’s slow and steady growth prospects (like Gambhir).

However, just when the Chinese economy was getting over-heated, the People’s Bank of China slammed the brakes on its scoring rate; thus, passing on the baton of illuminating the world economy to India by taking over the driver’s seat.

In a nutshell, both China and India have to gel-up to emerge as two giants that will firmly buttress the world’s economy in the coming century by preparing themselves for a second wave of growth in aftermath of the global financial crisis, says a report on China-India Comparison – An examination of 2011 Direction and Developments.

Key Findings of the Comparison Report between India and China

India catching up with Chinese economy

India is currently in the phase of growth as explained by Gambhir’s position above. The country has just started to come in lime-light and its growth patterns have mirrored that of China’s at an average of about 8% annually until the financial crisis hit. India’s economy currently is in 12^th position, and is likely to break into global top 10 in terms of size. By 2030, India will have overtaken China both in terms of population and GDP growth rates.

The Indo-China bilateral trade has grown significantly since 2005, except for the crisis-hit year 2009. Chinese imports of Indian goods fell 26.6% more than Indian imports of Chinese goods. The inequality of trade has led to tension as Indian manufacturers have to surpass the rout of low-cost Chinese goods.

Tax Structures

Both India and China have done fairly well when it comes to tax structures and other central and regional levies within the country. Moreover, India is on the cusp of landmark tax reform, especially in indirect taxes through introduction of GST.

While China did away with preferential tax incentives largely available to foreign investors in free trade zones, with unification of tax base in 2008; India has shored-up tax incentives in special economic zones to gives its infrastructure sector a much-needed boost.

The Manufacturing Hub

Morgan Stanley had reported that China’s rapidly aging population, followed by its one-child policy, is set to dramatically shrink its workforce and effectively pass the baton to India as the world’s manufacturing hub. Moreover, China is becoming a consumer market to sell to, rather than a global manufacturing hub.

Also, the World Bank’s prediction that China’s GDP growth will fall to 7.7% in 2015 and by 6.7% by 2020, highlights the cause of concerns that could slowdown the dragon’s growth. Morgan Stanley expects India’s growth to surpass China’s growth two years from now.

The Government Intervention

While a vast majority of China’s growth comes from state-owned companies, India’s economic miracle can be largely attributed to its private sector story. Having said this, even India’s state-owned companies are gradually logging change from its conventional business model hit by red-tapism.

China’s state-owned and subsidized model has led to unfair competition and frequent government interventions paving way for difference in decision making and executive talent within the two countries.

The City to reckon with

The stage is set where India-China comparisons are inevitable in any form of demographic analysis. The report finds that though Shanghai is referred as China’s financial center, it seriously lags Mumbai in terms of financial maturity, profitability, and ability to deliver dividends to shareholders.

The Business Environment

In China, the business hubs are already established and running with efficient administration in place. However, India isn’t up to China standards yet when it comes to development and execution of large-scale projects including infrastructure solutions.

But, on the other hand, even China is facing certain headwinds such as increase in labor unrest and strikes due to protectionist policies. The same also applies to social media and internet interventions administered by the Chinese government. Even the levels of corruption is different in both the places – with that at China being more of disguised as favors and connections; rather than in the form of ‘baksheesh’ that is prevalent in India.

So, where are India and China headed from here?