Hi-tech, low-tech futures
For anyone attending a glitzy, China-hype conference in the first half of this year in Beijing's five-star hotels, the impressions are vivid. Amid the hype and gush, China seems to have regained its Tang dynasty position as the centre of the world, specifically for trade and foreign direct investment (FDI).
China rose spectacularly during the Tang era in parallel with another power: India. Caravans of cheap merchandise flowed to India, while culture and philosophy were brought back to China, in an exchange of hardware and software. Both cultures and economies rose to new heights through mutual exchange. Today, while investor enthusiasm in the mainland is warranted, there are some trends emerging that should not be ignored.
For one, America supports the development of India into a global power, but remains reserved about China. US Defence Secretary Donald Rumsfeld was all smiles when signing a joint defence pact with India, while the US pressured the EU to maintain an arms and technology embargo against China.
In another trend, Japanese aid to India reached 112 billion yen ($7.8 billion) last year, while Tokyo reduced aid to China. Concerned about the investment risks in China, many Japanese businesses are considering shifting their factories to India and Southeast Asia instead.
Commercial considerations also apply. China's FDI and actual utilised investment dropped during the first half of this year by 4.75 per cent, the biggest decline in a decade. Last year India ranked right behind China as the world's third-largest FDI recipient.
When Forbes listed the world's top 200 small enterprises in 2002, it ranked 13 Indian companies but only four Chinese - all based in Hong Kong. Studies rank Indian management standards in sixth place among 25 emerging markets while China placed 19th.
Compare any five-star hotels in Beijing and New Delhi: the service in New Delhi is always better. Management is localised, right to the top. In Beijing, management is foreign, right down to the sub-departments. At important cocktail receptions, Swiss managers carry drinks on trays while local Chinese staff loiter like zombies.
Contrast the education systems of both countries. India's system is British old-school, even at primary levels. China's educational system paralyses critical thinking through linear paths of rigid instruction. People can be trained to mop floors, but not to keep a place systematically clean - identifying and taking care of problems as they arise.
These areas are where the lines are drawn affecting long-term economic sustainability. China will excel in producing cheap goods because it has a massive population, capable of structured industrial work. That will keep China ahead on the low-end side for as long as it can control the costs of imported raw materials and labour. But forget about the high end.
India will advance in hi-tech and services, receiving outsourcing for everything from research and development to call centres, finance and accounting. Moreover, India is in a position to hold its competitive price edge for professional services. But China cannot: well-educated professionals with foreign degrees in Beijing and Shanghai are paid what their Hong Kong counterparts get.
India's capital markets are mature and transparent: China's are neither. China's banking system is technically overdrawn. The government officially estimates non-performing loans at 25 per cent, but foreign analysts estimate 60 per cent. India's non-performing loans are about 10 per cent. One nation sits on a masked financial crisis, the other does not.
Which emerging super-economy will sustain its development also depends on another question: which nation is more saturated with corruption? Nevertheless, both will depend on their mutual strategic partnership for growth.
Laurence Brahm is a political economist and lawyer based in Beijing
