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India’s fear of China
Jun 20th 2003
From The Economist Global Agenda
As India’s prime minister goes to China, Indians should learn that they have less to fear from their giant neighbour than they think
SOME comparisons are stark enough to generate a national inferiority complex. In 1980, India had about 687m people, 300m fewer than China. Living standards, as measured by purchasing power per head, were roughly the same. Then, as China embraced modernity with a sometimes ugly but burning passion, it left India behind. In the next 21 years, India outperformed its neighbour in almost nothing but population growth.
By 2001, India had 1,033m people against China’s 1,272m. But China’s national income per head, according to the World Bank, was $890, nearly double India’s $450. Adjusted for purchasing power, the Chinese were still 70% wealthier than Indians were. Some 5% of Chinese now live below the national poverty line, compared with 29% of Indians.
The foreign ministries of India and China give background information on relations between the two countries. The World Bank reports on India and China. See also Outlook, Economic and Political Weekly and the Confederation of Indian Industry.
Many Indians now often ask why the West is so obsessed with China’s economic success. But the obsession is India’s, too. Comparison with China has become a distorting mirror in which Indians see their country’s shortcomings grotesquely magnified. The same goes for India’s sense of geopolitical inferiority. An accident of history made China one of the five permanent, veto-wielding members of the United Nations Security Council, but that seat now seems to belong to it as of right. India, feeling it should have one too, is just one of a number of big countries with a claim, and laments its comparative geopolitical weakness.
For Indians, the “Chinese threat” comes in at least three forms: the geopolitical panic that rivalry with China may one day lead to another war between them; the economic nightmare of an India of underemployed farm labourers spending their meagre earnings on imported Chinese goods; and the ideological doubt that maybe India’s heroic experiment with democracy has exacted an even higher price than has China’s erratic dictatorship.
This was not the way Jawaharlal Nehru planned it. India’s relations with China are still scarred by the bitterness that ended its first prime minister’s dream of Hindi-Chini Bhai Bhai, Indo-Chinese brotherhood, sealed in a treaty in 1954. Sibling tension soon surfaced, and sharpened when India gave sanctuary in 1959 to the Dalai Lama and 100,000 of his followers as they fled China’s suppression of an uprising in Tibet. It ended, in humiliating betrayal for Mr Nehru and India, in the war of 1962. The conflict, which grew out of territorial disputes, ended in a comprehensive Chinese victory.
It took a quarter of a century for relations to return to something like normal. In 1988 the two prime ministers, Rajiv Gandhi and Li Peng, agreed to set the border dispute to one side. Since then there have been 14 meetings of a joint working group set up to tackle it. Last year Zhu Rongji, then Chinese prime minister, came to India, and his Indian counterpart, Atal Behari Vajpayee, will repay the visit this weekend. His six-day trip, during which he will meet Hu Jintao, Wen Jiabao and other newly appointed Chinese leaders, will be the first by an Indian prime minister since 1993. On many international issues—such as the war in Iraq—the two countries agree. Bilateral trade has grown from a paltry $338m in 1992 to nearly $5 billion in 2002.
At times, the mask of mutual respect slips. When India exploded a nuclear bomb in 1998, its defence minister, George Fernandes, let it be known that the arsenal was needed not so much because of Pakistan’s nuclear ambitions as because of the long-term threat from China. It was certainly true that India’s nuclear programme, started in the mid-1960s, was a response to its defeat in the 1962 war and to China’s acquisition of the bomb two years later.
China’s rapprochement with India has been complicated by its relations with Pakistan. Mr Vajpayee has now embarked on his “third and final” attempt to build a lasting peace with Pakistan, despite the two countries’ dispute over Kashmir. He is hoping that China will be a moderating influence on Pakistan’s generals. But with India still providing hospitality to the Dalai Lama, and China refusing to recognise India’s incorporation of Sikkim in 1975 as a state of the Indian union, there is plenty besides the border wrangle to keep the two countries wary of each other.
A widely held belief colours Indian analysis of China’s economic policies as well as its diplomacy: that Beijing has a grand and cunning plan, which survives all its political turmoil. Many Indian businessmen and policymakers react to evidence of China’s superior economic performance first with denial, and then with anger: China, it is well known, stir-fries its books, especially its GDP and investment numbers; India, suffering in comparison, is the victim of geopolitical statistical fraud.
It is true that China’s figures are highly dubious. According to the official data, China received $52.7 billion of foreign direct investment (FDI) last year; India got just 4% of that amount, $2.3 billion. But Sadhana Srivastava, in an article in India’s Economic and Political Weekly, has recalculated both India’s and China’s figures for the year 2000 to make a fairer comparison. He found that China’s FDI fell by half, while India’s more than tripled.
However, even on this basis, India was still attracting just 40% of the amount of foreign investment that went to China. Much of the gap is attributable to the activities of overseas Chinese—in Taiwan, Hong Kong, South-East Asia and America. They have ploughed far more of their money back into the motherland than have non-resident Indians, despite Indians’ economic success in many countries.
Making things better
Nor, statistical quibbling aside, can there be much argument about the relative pace of growth fuelled by such investment. China’s growth may be patchy, localised and exaggerated. But all the evidence of the senses suggests that it is far faster than India’s. That is especially true of industrial growth, and above all of manufacturing, which in 2002 made up just 15% of India’s GDP, compared with 35% of China’s. Indian manufacturers scratch their heads in bafflement at China’s ability to undercut them, usually blaming it on hidden support in the form of subsidised raw materials and soft credit. A recent report explained lower Chinese prices largely in terms of a tedious accumulation of minor cost disadvantages borne by Indian industry. The biggest, accounting for as much as half the difference, are sales and excise taxes, followed by the cost of capital. India’s much higher import duties—a trade-weighted average of around 24% compared with China’s 13%—also push up the cost of inputs.
Policy changes could do much to help India catch up: cutting import duties; simplifying and cutting indirect taxes; reducing the list of industries “reserved” for small companies; easing labour laws to make hiring and firing and the use of contract workers easier. Indeed some of these reforms are already, slowly, under way, or at least under consideration.
But almost all of them are politically difficult. The government has been loth to antagonise the many interest groups that have opposed reforms of one kind or another. Many Indians believe that a large part of the blame for their country’s inferior economic performance must be borne by the political system. China, the argument goes, is a dictatorship where the government and the businesses it favours can do what they want—change laws, build infrastructure, secure licences, fiddle their books—all without brooking any opposition. In India, however, not only does every step require dealing with an inept, corrupt and intrusive bureaucracy, but the democratic system itself also imposes extra costs and delays. For every important and helpful reform, there is a powerful lobby that will oppose it.
Such a political comparison, however, contains many misperceptions. First, as those who have done business in China know, decision-making there is far more erratic and far more prone to profiteering by rent-seeking officials than it appears to some envious Indians. Second, much that holds India’s economy and businesses back has little to do with democracy as such: corruption, fiscal mismanagement, a lack of international ambition and a history of over-protection at home. Where India overcomes these obstacles, and has a clear competitive advantage—as in software and other information-technology services—it can be a huge success.
End Article
So is this about dictatorship vs. democracy? Aren't the suggested reforms easier with a dictatorial govt?
Jun 20th 2003
From The Economist Global Agenda
As India’s prime minister goes to China, Indians should learn that they have less to fear from their giant neighbour than they think
SOME comparisons are stark enough to generate a national inferiority complex. In 1980, India had about 687m people, 300m fewer than China. Living standards, as measured by purchasing power per head, were roughly the same. Then, as China embraced modernity with a sometimes ugly but burning passion, it left India behind. In the next 21 years, India outperformed its neighbour in almost nothing but population growth.
By 2001, India had 1,033m people against China’s 1,272m. But China’s national income per head, according to the World Bank, was $890, nearly double India’s $450. Adjusted for purchasing power, the Chinese were still 70% wealthier than Indians were. Some 5% of Chinese now live below the national poverty line, compared with 29% of Indians.
The foreign ministries of India and China give background information on relations between the two countries. The World Bank reports on India and China. See also Outlook, Economic and Political Weekly and the Confederation of Indian Industry.
Many Indians now often ask why the West is so obsessed with China’s economic success. But the obsession is India’s, too. Comparison with China has become a distorting mirror in which Indians see their country’s shortcomings grotesquely magnified. The same goes for India’s sense of geopolitical inferiority. An accident of history made China one of the five permanent, veto-wielding members of the United Nations Security Council, but that seat now seems to belong to it as of right. India, feeling it should have one too, is just one of a number of big countries with a claim, and laments its comparative geopolitical weakness.
For Indians, the “Chinese threat” comes in at least three forms: the geopolitical panic that rivalry with China may one day lead to another war between them; the economic nightmare of an India of underemployed farm labourers spending their meagre earnings on imported Chinese goods; and the ideological doubt that maybe India’s heroic experiment with democracy has exacted an even higher price than has China’s erratic dictatorship.
This was not the way Jawaharlal Nehru planned it. India’s relations with China are still scarred by the bitterness that ended its first prime minister’s dream of Hindi-Chini Bhai Bhai, Indo-Chinese brotherhood, sealed in a treaty in 1954. Sibling tension soon surfaced, and sharpened when India gave sanctuary in 1959 to the Dalai Lama and 100,000 of his followers as they fled China’s suppression of an uprising in Tibet. It ended, in humiliating betrayal for Mr Nehru and India, in the war of 1962. The conflict, which grew out of territorial disputes, ended in a comprehensive Chinese victory.
It took a quarter of a century for relations to return to something like normal. In 1988 the two prime ministers, Rajiv Gandhi and Li Peng, agreed to set the border dispute to one side. Since then there have been 14 meetings of a joint working group set up to tackle it. Last year Zhu Rongji, then Chinese prime minister, came to India, and his Indian counterpart, Atal Behari Vajpayee, will repay the visit this weekend. His six-day trip, during which he will meet Hu Jintao, Wen Jiabao and other newly appointed Chinese leaders, will be the first by an Indian prime minister since 1993. On many international issues—such as the war in Iraq—the two countries agree. Bilateral trade has grown from a paltry $338m in 1992 to nearly $5 billion in 2002.
At times, the mask of mutual respect slips. When India exploded a nuclear bomb in 1998, its defence minister, George Fernandes, let it be known that the arsenal was needed not so much because of Pakistan’s nuclear ambitions as because of the long-term threat from China. It was certainly true that India’s nuclear programme, started in the mid-1960s, was a response to its defeat in the 1962 war and to China’s acquisition of the bomb two years later.
China’s rapprochement with India has been complicated by its relations with Pakistan. Mr Vajpayee has now embarked on his “third and final” attempt to build a lasting peace with Pakistan, despite the two countries’ dispute over Kashmir. He is hoping that China will be a moderating influence on Pakistan’s generals. But with India still providing hospitality to the Dalai Lama, and China refusing to recognise India’s incorporation of Sikkim in 1975 as a state of the Indian union, there is plenty besides the border wrangle to keep the two countries wary of each other.
A widely held belief colours Indian analysis of China’s economic policies as well as its diplomacy: that Beijing has a grand and cunning plan, which survives all its political turmoil. Many Indian businessmen and policymakers react to evidence of China’s superior economic performance first with denial, and then with anger: China, it is well known, stir-fries its books, especially its GDP and investment numbers; India, suffering in comparison, is the victim of geopolitical statistical fraud.
It is true that China’s figures are highly dubious. According to the official data, China received $52.7 billion of foreign direct investment (FDI) last year; India got just 4% of that amount, $2.3 billion. But Sadhana Srivastava, in an article in India’s Economic and Political Weekly, has recalculated both India’s and China’s figures for the year 2000 to make a fairer comparison. He found that China’s FDI fell by half, while India’s more than tripled.
However, even on this basis, India was still attracting just 40% of the amount of foreign investment that went to China. Much of the gap is attributable to the activities of overseas Chinese—in Taiwan, Hong Kong, South-East Asia and America. They have ploughed far more of their money back into the motherland than have non-resident Indians, despite Indians’ economic success in many countries.
Making things better
Nor, statistical quibbling aside, can there be much argument about the relative pace of growth fuelled by such investment. China’s growth may be patchy, localised and exaggerated. But all the evidence of the senses suggests that it is far faster than India’s. That is especially true of industrial growth, and above all of manufacturing, which in 2002 made up just 15% of India’s GDP, compared with 35% of China’s. Indian manufacturers scratch their heads in bafflement at China’s ability to undercut them, usually blaming it on hidden support in the form of subsidised raw materials and soft credit. A recent report explained lower Chinese prices largely in terms of a tedious accumulation of minor cost disadvantages borne by Indian industry. The biggest, accounting for as much as half the difference, are sales and excise taxes, followed by the cost of capital. India’s much higher import duties—a trade-weighted average of around 24% compared with China’s 13%—also push up the cost of inputs.
Policy changes could do much to help India catch up: cutting import duties; simplifying and cutting indirect taxes; reducing the list of industries “reserved” for small companies; easing labour laws to make hiring and firing and the use of contract workers easier. Indeed some of these reforms are already, slowly, under way, or at least under consideration.
But almost all of them are politically difficult. The government has been loth to antagonise the many interest groups that have opposed reforms of one kind or another. Many Indians believe that a large part of the blame for their country’s inferior economic performance must be borne by the political system. China, the argument goes, is a dictatorship where the government and the businesses it favours can do what they want—change laws, build infrastructure, secure licences, fiddle their books—all without brooking any opposition. In India, however, not only does every step require dealing with an inept, corrupt and intrusive bureaucracy, but the democratic system itself also imposes extra costs and delays. For every important and helpful reform, there is a powerful lobby that will oppose it.
Such a political comparison, however, contains many misperceptions. First, as those who have done business in China know, decision-making there is far more erratic and far more prone to profiteering by rent-seeking officials than it appears to some envious Indians. Second, much that holds India’s economy and businesses back has little to do with democracy as such: corruption, fiscal mismanagement, a lack of international ambition and a history of over-protection at home. Where India overcomes these obstacles, and has a clear competitive advantage—as in software and other information-technology services—it can be a huge success.
End Article
So is this about dictatorship vs. democracy? Aren't the suggested reforms easier with a dictatorial govt?
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