Why are the Chinese ahead
The Chinese are more homogeneous: 90% Han; one language and culture; one written script, with varying pronunciations. Having shared a common destiny over several millennia, they are more united as a people. And they can swiftly mobilise resources across the continent for their tasks.
China’s Deng Xiaoping started his open door policy in 1978. In the 28 years since China has more than tripled its per capita GDP, and the momentum of its reforms has transformed the lives of its people thus making its market reform policies irreversible.
India’s one billion people are of different ethnic groups with different languages, cultures and traditions. It recognises 18 main languages and 844 dialects and six main religions. India has to make continuous and great efforts to hold together different peoples who were brought together in the last two centuries into one polity by the British Raj that joined parts of the Mogul empire with the princely states in the Hindi-speaking north and the Tamil, Telegu and other linguistic/racial groups in the south.
India began liberalising in 1990, and then in fits and starts. However India’s system of democracy and rule of law gives it a long-term advantage over China, although in the early phases China has the advantage of faster implementation of its reforms. As China develops and becomes a largely urban society, its political system must evolve to accommodate a large, better educated middleclass that will be highly educated, better informed and connected with the outside world, one that expects higher quality of life in a clean environment, and wants to have its views heard by a government that is transparent and free from corruption.
China and India are to launch FTA negotiations that may be completed in a few years. I understand Premier Wen Jiabao will be visiting India soon, followed by President Hu Jintao shortly afterwards. Their closer economic will have a huge impact on the world. ASEAN and Singapore can only benefit from their closer economic links. Many Indians are in influential positions in Wall Street, in US MNCs, World Bank, IMF and research institutes and universities. This network will give India an extra edge. More Chinese are joining this American based international network but they do not yet have the same facility in the English language and culture. And because of Sino-US rivalry, there will be greater reserve when Americans interact with them.
For a modern economy to succeed, a whole population must be educated. The Chinese have developed their human capital more effectively through a nationalised education system. In 1999, 98% of Chinese children have completed 5 years of primary education as against 53% of Indian children. India did not have universal education and educational standards diverge much more sharply than in China. In some states like Kerala participation in primary schools is 90%. In some states it is less than 30%. Overall in 2001, India’s illiteracy rate was 42%, against China’s 14%.
India had many first-rate universities at independence. Except for a few top universities such as the Indian Institutes of Technology and Indian Institutes of Management that still rank with the best, it could not maintain the high standards of its many other universities. Political pressures made for quotas for admission based on caste or connections with MPs. China has repaired the damage the Cultural Revolution inflicted on their universities. Admission to Chinese universities is based on the entrance examination.
China has built much better physical infrastructure. China has 30,000 km of expressway, ten times as much as India, and six times as many mobile and fixed-line telephones per 1,000 persons. To catch up, India would have to invest massively in its roads, airports, seaports, telecommunications and power networks. The current Indian government has recognised this in its budget. It must implement the projects expeditiously.
The Chinese bureaucracy has been methodical in adopting best practices in their system of governance and public policies. They have studied and are replicating what Japan, Korea, Taiwan, Singapore and Hong Kong have done. China’s coastal cities are catching up fast. But China’s vast rural interior is lagging behind, exposing serious disparities in wealth and job opportunities. The central government is acutely aware of these dangers and have despatched some of the most energetic and successful mayors and provincial governors to these disadvantaged provinces to narrow the gap.
Caveat
The Financial Times, 29 March 2005, wrote: “The lack of a robust capital market is likely to have a strong influence on the future shape and development of Chinese capitalism. Cheap manufacturing might be China's current competitive advantage but, in the long run, Beijing planners want the country to move more into lucrative high-technology sectors that provide better-paying jobs. China will need a dynamic private sector, run by entrepreneurs who have the drive to build innovative companies. Yet it is exactly these sorts of companies that are being squeezed out by an equity market that caters mostly to state-controlled groups. Private-sector companies can get bank financing, especially if they have good political connections. Yet the lack of an equity funding route is likely to curtail China's ability to develop a strong private sector. In this area, many argue that India is already ahead, as most of its biggest companies come from the private sector and have grown through raising capital on the equity and bond markets. China needs a robust stock market to stave off a looming pensions crisis. One of the by-products of the one-child policy introduced 25 years ago is that in a decade or so many more people will be retiring than entering the workforce.” This is China’s big negative, its rapidly aging population as a result of its severe one-child family policy. There is no precedent for a country to grow old before it has grown rich. India – average age, 26, compared to China’s 33 and still with much faster population growth – will enjoy a bigger demographic dividend, but it would have to educate its people better, or else the opportunity will turn into a burden.
