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India vs China : Who has the edge ?
Yahoo Finance ^ | 01/30/2006 | Jeremy Siegel

Posted on 01/30/2006 1:53:14 PM PST by SirLinksalot

The Future for Investors

by Jeremy Siegel, Ph.D.

Finance Home > The Future for Investors > India vs. China: Who Has the Edge?

India vs. China: Who Has the Edge?

Monday, January 30, 2006

China and India are likely to be the dominant economic powers by the middle of this century but in many respects they are remarkably different.

Here and in my next column I will analyze the prospects for economic growth and investment in these two emerging giants based in part on a two-week tour of India I just completed and a visit to China eighteen months earlier.

First Impressions Can Be Deceiving

The contrast between your first impression of China and India could scarcely be more extreme. You arrive at China's financial capital, Shanghai's new Pudong International Airport, and walk through spacious, clean corridors to the world's fastest train, the Maglev. Your 30 km (18.6 miles) trip takes only eight minutes on this train that floats magnetically above the tracks and reaches speeds of 430 kph (267 miles per hour). From the Longyang Road Metro Station at the outskirts of the city, an air-conditioned taxi takes you to the Grand Hyatt Hotel. As you exit the car you marvel at the other towering skyscrapers that surround the world's highest hotel, located on the 53rd to 87th floors of the Jin Mao Tower.

Contrast that with a trip to Mumbai, the financial capital of India. You arrive at the decrepit Mumbai International Airport, fight your way through crowds of beggars and unsolicited "helpers" before finding a taxi that takes to you your hotel at the southern edge of Mumbai. Although the trip is only 20 km (12.4 miles), the ride may take 90 minutes or more. There is no direct route as the driver wends his way through side streets trying to find the least crowded route.

Abject poverty lines the road. Millions have flocked to this city seeking employment, many with only tents or cardboard walls as housing. No sanitation facilities are to be seen. When the traffic stops, young children and women holding babies approach your car, tapping on the windows, begging for a few rupees.

As you progress to the southern end of the city, more substantial buildings come into view. Yet the vast majority of the structures, especially the rental units, are poorly constructed and dirty from the daily assault of polluted air. Most of the architecture of note in Mumbai was built before the First World War, primarily by the British. You finally arrive at your hotel, The Taj Palace on the Arabian Sea, built in 1903.

From these two realities one might wonder why anyone would ever consider investing in India over China. Ranking the two countries on infrastructure - roads, airports, and new buildings, China looks like a ten and India hovers close to zero.

Winds are Changing

But India is changing, and changing rapidly. The Mumbai Stock Exchange's Index of 30 blue chip companies has more than tripled in the last 2½ years, far outpacing the China's stock returns. And although China's stupendous economic growth rate still surpasses India's, India has now reached the 6% plus rate of GDP growth that marks the emergence of a developing country.

What has caused this new look at India? Underneath the surface, India's ledger is lined with pluses that compensate for its woeful exterior.

Language, Government and Freedom of the Press

In my last column I described the ideal growth environment: free access to information and the freedom to act on this information in a climate that respects wealth creation. Although I in no way condone the British occupation and control of India for several centuries until 1947, three British legacies -- the English language, Democracy, and Freedom of the Press -- benefit many Indians today.

The fact that the educated classes all know English gives Indians a comparative advantage in the growing informational sciences and services, while the Chinese advantage still resides in manufacturing. The world's ¬lingua franca, especially in the business and scientific world, is English and that unquestionably gives a leg up to those who know it. Our guide in Jodhpur said that there are two things that he wants his son to learn in school: English and computers. That knowledge, he said, opened up the opportunities for his people.

It surprised me that the English language is not taught to many Indians below the top echelon. As you travel from the big cities to countryside, the signs change from predominantly English to almost entirely Hindi. And Hindi still remains the language most Indians speak to natives even if they know English.

The ability to speak Hindi may therefore be essential for foreigners who wish to work in India. Indians were proud when President Bush recently added Hindi as a "world language" that Americans (who woefully lack foreign language skills), should learn if they wish to succeed in global markets.

Government

Eighteen months ago, when I offered an excited view of China's commercial future, doubters frequently asked: "How is this possible under an avowedly 'communist' government." I believe China will evolve into a more democratic political system as it pulls itself out of poverty and feels the pressure of a growing middle class.

Although this political evolution is likely, it is by no means a sure thing. Yet for India a democracy already exists, and it has withstood many crises. Furthermore India enjoys an independent judiciary, a critical adjunct to a democratic system.

Democracy is the best system in which power can evolve from the private sector, not from dictates of the government. As far as the politics are concerned, there are no reservations about India.

Rule of Law and Meritocracy

It is well known that the Chinese are master copiers, and openly sell merchandise sporting pirated designer labels or hawk intellectual property that is easily downloaded in our digital world. Although this also exists in India, it does so to a far lesser extent.

Private enterprise, private property and the rule of law has been the norm in India since the British occupation. In contrast, until recently, the Chinese government owned and controlled everything. It surprises many that Lakshmi Mittal, an Indian-born steel magnate, is the 3rd richest man in the world after Bill Gates and Warren Buffett. In fact, in Forbes' latest list of the world's wealthiest people, 12 Indians made the list and only two Chinese. And there is a growing consensus in India that this wealth creation can help everybody rise, not just those at the top.

Education

India is built on a meritocracy where performance on exams dictates jobs and admission to the top-ranked schools. At the top, India's education system is as good as any, and the Indian Institute of Technology (IIT) rivals MIT as the world's producer of top scientists.

Furthermore the Indian Institute of Management recently had 200,000 applications for only 250 seats at its top Ahmedabad campus, a ratio that puts the Ivy League' selectivity to shame. Although India does have an "affirmative action" program for those in the lowest castes, the private sector is not subject to these quotas and therefore is free to hire "the best and the brightest."

There's no doubt that China is also developing top schools, both in science and in business. The latter is particularly important to China since the Communist system is filled with managers of state-owned enterprises that are woefully inadequate in a private-sector economy. India is ahead of China in this area.

Indian education at the lower levels is not nearly as good as at the top. In fact, several experts I talked to put "education" above "infrastructure" and India's number one priority. Nevertheless, the excellence of education at the top has given Indians a great deal of pride in their ability to achieve world-class excellence, and it has been a strong democratizing influence in a society that has been mired in a rigidly hierarchical caste system.

Where's the Money?

India lags in the hard infrastructure of roads, airports, and buildings, but leads in the "soft" infrastructure of democratic institutions, free press, and an independent judiciary. In the next column I will examine other aspects of business China and India: the networking relationships in Chinese business, the banking sector, demography, and business confidence. Then I will answer the question: "Where are the best opportunities today: India or China?"



TOPICS: Business/Economy; Culture/Society; Editorial; News/Current Events
KEYWORDS: china; edge; india
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1 posted on 01/30/2006 1:53:16 PM PST by SirLinksalot
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To: SirLinksalot
India. China is still an inverted pyramid. Most of the power and wealth is still concentrated in about 5% of the population. China is going to have to politically evolve before it can be a serious player. That evolution is likely to be....messy.
2 posted on 01/30/2006 1:57:04 PM PST by MNJohnnie (Is there a satire god who created Al Gore for the sole purpose of making us laugh?)
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To: SirLinksalot
IMO,the only things that India has in its favor are the fact that English is widely spoken and that it's possible to get a good education.

China has the numbers and they have the military might...which they'll always make sure that the world understands that they'll use it.

3 posted on 01/30/2006 1:57:36 PM PST by Gay State Conservative
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To: SirLinksalot

Neither will be the "dominant" economic power by the middle of the century.


4 posted on 01/30/2006 2:03:15 PM PST by Sandreckoner
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To: Gay State Conservative

China's political/legal climate is way too fouled up for it to be an economic power. Yes, it has "numbers" and "military might" . . . sort of like the Soviet Union did 25 years ago.


5 posted on 01/30/2006 2:06:37 PM PST by Alberta's Child (Leave a message with the rain . . . you can find me where the wind blows.)
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To: Sandreckoner
Neither will be the "dominant" economic power by the middle of the century.

OK, I Assume that it will still be the USA. But what about the SECOND MOST DOMINANT POWER ?
6 posted on 01/30/2006 2:14:05 PM PST by SirLinksalot
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To: Alberta's Child
Yes, it has "numbers" and "military might" . . . sort of like the Soviet Union did 25 years ago.

Were 50% of the things you found in stores....electronics,clothing,light bulbs,cooking utensils,etc,etc,etc labeled "made in the USSR" 25 years ago?

Was a roll of Kodak film sold 25 years ago labeled "made in the USSR"?

7 posted on 01/30/2006 2:14:08 PM PST by Gay State Conservative
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To: MNJohnnie

We're talking food, right? I say Chinese. But I'm growing fonder of Indian as the years go by.


8 posted on 01/30/2006 2:17:43 PM PST by gotribe (Hillary: Accessory to Rape)
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To: MNJohnnie
India. China is still an inverted pyramid. Most of the power and wealth is still concentrated in about 5% of the population. China is going to have to politically evolve before it can be a serious player.

I'm not so sure about this - democratic rule doesn't always lead to the most efficient economic policy. For example, Indian government officials have to pay careful attention to rural farmers demanding energy subsidies, regardless of the economic impact. Chinese government officials don't need to care - they answer to the officials above them, not to voters.
9 posted on 01/30/2006 2:19:05 PM PST by AnotherUnixGeek
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To: Gay State Conservative

By way of comparison, I believe that India currently has more aircraft carriers than France.

Source: My recollection of research done @ Globalsecurity.org .


10 posted on 01/30/2006 2:23:59 PM PST by SENTINEL (USMC GWI (MY GOD IS GOD, ROCKCHUCKER !!))
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To: SirLinksalot

I'm pulling for India. China is our enemy is trying to screw us via encirclement and securing oil supplies in 3rd world nations such as Iran and Venezuela

Never underestimate these Middle Kingdom egoists. For them all non Chinese are crap and they deserve to inherit the earth. They will partner up with Islam to do it


11 posted on 01/30/2006 2:25:09 PM PST by dennisw ("What one man can do another can do" - The Edge)
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To: AnotherUnixGeek

He doesn't take the caste system into account. As long as there is a huge population that is segragated from their society and any upward mobility there is a huge pool of talent that is not being taken advantage of. The thing is, it's not so much political as socio-religuous and therefore no political solution will be possible.


12 posted on 01/30/2006 2:26:05 PM PST by JMS
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To: Gay State Conservative
China has the numbers and they have the military might

India now has the worlds largest population.

13 posted on 01/30/2006 2:27:20 PM PST by MNJohnnie (Is there a satire god who created Al Gore for the sole purpose of making us laugh?)
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To: gotribe
We're talking food, right? I say Chinese. But I'm growing fonder of Indian as the years go

Haaaaa! I will have to go try some for dinner tonight!

14 posted on 01/30/2006 2:28:40 PM PST by MNJohnnie (Is there a satire god who created Al Gore for the sole purpose of making us laugh?)
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To: AnotherUnixGeek
Chinese government officials don't need to care - they answer to the officials above them, not to voters

For now. Ask the French Aristocracy circa 1795 what ignoring and exploiting the peasants got them.....

15 posted on 01/30/2006 2:31:04 PM PST by MNJohnnie (Is there a satire god who created Al Gore for the sole purpose of making us laugh?)
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To: JMS

LOL....do you really think there is still segregation in Indian society?


16 posted on 01/30/2006 2:42:10 PM PST by indcons
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To: SirLinksalot

The massive corruption and entrenched socialist bureaucracies in both countries are real problems.


17 posted on 01/30/2006 2:43:23 PM PST by indcons
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To: SirLinksalot

"OK, I Assume that it will still be the USA. But what about the SECOND MOST DOMINANT POWER"

I don't think America will be the dominant economic power, either. We're really not the dominant economic power now. We're the largest single national economy by a huge margin, but the EU acts in many ways as a single entity (when it comes to trade, which is what we're talking about when we discuss economic dominance, which is also why it's folly to use PPP valuations for these discussions as they are not applicable to trade value) and is variously as large or slightly larger than we are in terms of GDP at the moment. I would not describe us as economically "dominant" even over Japan, which is the second largest GDP today and is less than half the size of our own GDP.

If China is larger by 2050, it will be only marginally so. India, I've never seen a projection that puts India's GDP larger than America's at 2050. Regardless, at best in 2050 if current circumstances hold we'll likely see three national economies measuring in the 30-40 trillion range, with no other national economy _remotely_ close. (Maybe 1/6th that value as the drop-off between the third of these three and the fourth economy coming after.) That's not a scenario of dominance for any one or two of those three versus any of the other three. Not even close. Doesn't matter if China slows and we perform better than critics expect and we retain our lead indefinitely, or if China keeps chugging along and we perform as poorly as Goldman Sachs as others predict and allow China to take the top spot.


18 posted on 01/30/2006 3:02:11 PM PST by Sandreckoner
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To: SirLinksalot

Wow, it's great to see what someone relevant like Jeremy Siegel has to say.


19 posted on 01/30/2006 3:03:03 PM PST by nickcarraway (I'm Only Alive, Because a Judge Hasn't Ruled I Should Die...)
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To: SirLinksalot
At this time China.....they are the "sleeping dragon" the USA was (industrial wise) on entrance to WWII. They can build everything and their engineering capacity is expanding by leaps and bounds. If we disregard them it will be at our own peril....
20 posted on 01/30/2006 3:41:35 PM PST by ScreamingFist ( The RKBA doesn't apply if I have a bigger gun than your bodyguard. NRA)
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