The lessons China and India can learn from each other

It is widely acknowledged that India is the largest democracy and China is the largest communist country of the world. When compared to India, China has already emerged as the dominant global player. It is accounting for more than 50% of world’s import and export growth. It can be aptly named the workshop of the world. China’s success and status as an export powerhouse is built on its strengths of low costs and constant flow of capital, something India can learn from.

China’s membership in the World Trade Organisaton has opened its state dominated economy to imports and also increased exports; lower tariffs have made foreign goods more affordable for the Chinese, opening up huge, untapped markets. (India to learn!)

Contradictions abound in the world of modern political economies. We find China's communists busy extolling the advantages of foreign strategic partners investing in their state-owned enterprises with some stakes in management (India to learn!) According to the Financial Times of November 3, 2005, the Chinese Railways have an aggressive plan of modernization and are reportedly offering significant railway assets for sale to foreign investors. (India to learn!) To woo foreign investors, the Chinese are prepared to go to any extent. A case in point – when there was a problem with providing the required power connection to the unit set up by Sundaram group of India, the Chinese authorities profusely apologized and provided a power generator at their cost to facilitate the unit. (India to learn!)

China was the first to recognize the need to marry market capitalism with the framework of a socialist society. ‘It is glorious to be rich’ proclaimed Chinese leader Deng even as India was still struggling with pseudo-radical control measures, which constrained entrepreneurship with a permit licence raj. (India to learn!) It is perhaps pertinent to refer to the historical fact that China's communists have always been more pragmatic than their dogmatic Indian democratic peers. (India to learn!) Chinese acknowledgement, commitment, drive, and execution of infrastructure projects for overall development are well known. They decide today and virtually get it executed yesterday! (India to learn!)

Chinese prefer to think before speaking. They do not brag and are modest. They are aware that life is not easy. Younger generation Chinese managers perceive their role to be to hire competent workers, set objectives, and expect them to perform. They emphasize that strategy is important in business since they believe that there are lots of opportunities for achievement and growth. (India to learn!) The negotiation process used by the Chinese is dramatically different and they put greater emphasis on respect and friendship, saving face, and group goals. Long-term goals are more important to the Chinese than specific current objectives. (India to learn!)

The Chinese are very meticulous and they come prepared for the negotiation. Since Chinese prefer emotional restraint and saving face, aggressive or emotional attempts at persuasion in negotiations are likely to fail. Instead, the Chinese tendency to avoid open conflict will more likely result in negative strategies, such as discontinuing or withdrawing from negotiations. (India to learn!) The Chinese emphasis on social obligations underlies their strong orientation toward collective goals. Therefore, appeals to individual members of the Chinese negotiating team, rather than to benefit the group as a whole, will probably backfire. (India to learn!) The Chinese are among the toughest negotiators in the world. Patience, respect, and experience are necessary pre-requisites for anyone negotiating in China. For the best outcomes, older, well-qualified, and more experienced people are more acceptable to the Chinese in negotiations. (India to learn!)

Large trade surpluses, rapid export growth, significant FDI inflows, and huge reserve increases are not always signs of economic health. Foreign investments tend to be geared towards producing for the external markets and naturally cluster on the coast. Coastal cities have good transportation links to the world and poor linkages with the mainland. Thus these investments and the rapid export growth tend to widen the economic divide between the coastal cities and the mainland.

China’s economic expansion is increasingly unbalanced, with too much investment in already prosperous coastal regions and too little in the central regions. Therefore, tensions prevail internally with the policy that over-emphasizes foreign direct investment and exports. Comparatively, the Indian experience has been exhilarating. In addition to their major and metro cities, many second rank state capitals and other cities are catching up on the development ladder. (China to learn!)

In China, the export sector is booming; so is the real estate/housing sector. Many other and service sectors lag behind. The health of its banking system is far from satisfactory. The legacies of bad loans to the loss making state owned firms are enormous. The Indian performance in the banking sector has been exemplary. They cleaned up their books way back in the early 1990s. The Indian banking sector is presently robust and comparatively very strong. (Chinese to learn!)

The monetary policy followed in China is skewed. Internal distortions created by controlled prices for credit, fuel, and the State’s de facto monopoly on land use do simmer. The next stage of China’s development will need to focus on developing domestic consumption and not just exports and foreign direct investment. Indian domestic consumption for that matter is very strong and is still growing. (China to learn!)

Though a formidable economic power in its own right, China has pegged its currency to U.S. Dollar. India follows a market determined exchange rate management policy. Going by the crises so far, the Indian approach is better than the Chinese. (Chinese to learn!)

A very clear message is emerging – indiscriminate support of exports and foreign capital influx will also create economic problems. It could be conceivable that in the long run the Chinese will be less welcoming to foreign direct investment. They will learn to change the present policies. (Chinese to learn!)

Well, we have devoted more space to China and the Chinese. And, yes, they are the leaders of the world as of now. As far as India is concerned, they will have to learn first and foremost to lessen the following frictions, such as the cost and availability of power and other utilities in time and in adequate measure, cost of borrowing, red tape, corruption, heavy taxes, expensive and slow transport, and inflexible labor markets. It is indeed pathetic to observe that in the prevailing business climate India is just above Afghanistan in the entire Asia (World Bank study).

China is presently the workshop of the world (muscle power!). India is leading investments into insourcing (brain power!). Both may have to learn and implement the facilitating factors that provide the competitive advantage to each other in these respective domains. Indians are far ahead of the Chinese in their language proficiency and conduct of business in English. The Indian education system – primary, secondary, and tertiary – may be facilitating this. (Chinese to learn!) The Indian judiciary system provides a level playing field for all, and almost all international laws, convention, and practices are respected and scrupulously followed. Chinese notoriety in the infringement of intellectual property right is well known. In their interest, Chinese will have to set this right at the earliest. (Chinese to learn!)

Politically, Indian politicians will have to take sabbaticals in China to learn the art of modern business acumen to gain superior competitive advantage, and through this, overall economic development, as there is undoubtedly a great deal of ideological difference and distance between the traditional communists in power in China and their Indian comrades wielding power through coalition government. (India to learn!)

It may be easier to list out the lessons for India and China but it may be difficult to learn as they are basically derived from their respective cultural traits. Chinese cannot practice and learn better than Indians, their lessons. And Indians too the Chinese lessons. I am not trying to be pessimistic. But that may well turn out to be a reality.