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A special report from ToI, dated 22nd Aug 2010.
Fighter
China has become the worlds second biggest economy. Should India worry about being swallowed whole?
Saibal Dasgupta | TNN
Beijing: China is growing so fast it creates some sort of world record every week. With 1.4 billion people, China has more mobile phones than any other country. It has more high-speed rail lines and wind power. It has more Internet users. It is also the worlds biggest importer of minerals. It has already dislodged Germany from pole position as the worlds number one exporter. Just a few weeks ago, China became the world's biggest guzzler of energy, though it accepted this particular position with great reluctance.
So, when China overtook Japan as the worlds second biggest economy earlier this week and placed itself right behind the US, the news was hardly a surprise both at home and abroad. Chinas official media showed no signs of jubilation. Even in Japan, the leading English daily, The Japan Times, paid little attention and did not rush to write an editorial. It merely published a London-based writers commentary on Chinas phenomenal rise.
But it was a significant milestone. For 43 years, Japan had been second only to the US in economic might. Now, some experts say the Chinese economy will outstrip the US in a decade if both countries continue at their existing rate of GDP growth 10% for China and 3% for US. Perhaps. Whatever happens, the possibility that China will be the worlds number one economy is already creating a buzz and jitters everywhere.
But, first to the immediate question. What does Beijings move to second slot mean for the world? There are signs it is already having some impact. On August 16, Japan acknowledged it had slipped below China even as it released growth figures for the last quarter. That was just one day after Japanese Prime Minister Naoto Kan publicly apologized for World War II crimes by Japanese soldiers against the Chinese and others. And Kan made history by ensuring that his entire cabinet stayed away from the controversial Yasukuni shrine on the 65th anniversary of Japans surrender in World War II.
Did Naoto Kan have Chinas rise and rise in mind when he issued the apology at considerable cost to his popularity at home? Perhaps. It is clear that Tokyo can no longer ignore the stark truth that its weak economy has trimmed its influence on regional issues such as the denuclearization of North Korea and territorial disputes relating to the seas around China, Vietnam and Indonesia.
For the Communist Party of China (CPC), there is a clear link between the countrys rise and the Japanese prime ministers public apology. The Peoples Daily, which is the CPCs mouthpiece, editorialized after Kans apology that his cabinet's decision not to pay respect to the Yasukuni Shrine indicates the DJPs (ruling Democratic Party of Japans) upright stance of facing up to history, and this is advantageous for Japan to forge cooperative ties with Asian neighbours in the years ahead.
Any exuberance about its slotting into second place after the US was limited to those remarks in the Peoples Daily. Instead, a commerce ministry spokesman cautioned against any sense of glee, pointing out that China still had 40 million people below the poverty line. China remains a developing country. The quality of China's economic development still needs to be raised. It needs more effort to improve economic quality and people's lives, Yao Jin said.
It is a valid point and the Chinese authorities public reiteration of their domestic challenges appear to indicate their focus. Overtaking Japan in terms of gross domestic product is not going to change the basic truth:
China is 10 times the size of Japan, it is a rapidly ageing country and its one-child policy shows signs of becoming a liability, the ongoing property boom has the government caught between a rock and a hard place, ie should it keep the elite happy or extend its largesse to a wide swathe of poor and lower middle class people
In addition, President Hu Jintaos drive to develop the relatively backward western and central provinces instead of focusing on the more advanced eastern and southern provinces poses a serious political problem in itself. The Communist Party has managed to curb any stirring of rebellion in the developed provinces but remains unable to find suitable leaders in the troubled western regions of Xinjiang and Tibet.
There are other problems too. With growing prosperity, more Chinese are learning English and with it a new philosophy that it is mans right to be free and to have a democratic system of governance. The Communist Party is not ready to deal with this challenge. The Internets growing reach and expanded travel facilities have given the young a taste for free speech and a rising desire for self-expression. This could pose a challenge to the one-party system.
Unsurprising then that Chinas greater success has been in influencing people and policies abroad. There is no doubt that Chinas persuasive capability in both the political and diplomatic fields has grown in direct proportion to its export surplus. Countries like Sudan, Pakistan and Myanmar, where the regimes are linked to repression and largescale human rights violations, are major beneficiaries of Chinese aid. In international forums, Beijing backs these regimes politically. This was evident at a recent meeting of Asian political parties in Kunming. The Japanese representative candidly said there was aid fatigue in his country, which can no longer fund developmental programmes in poorer countries. But Chinas Communist leaders reassured everyone that Beijing was happy to take over as chief paymaster of the aid and development budget.
But what price the influence. The west is yet to regard the worlds second biggest economy as a responsible power. Some might say that western approbation is no longer required. But China cannot expect endlessly to grow at 10% or more. What happens then will be key in determining who has the biggest bite of them all.
Sujit John & Mini Joseph Tejaswi | TNN
This week, as China moved to number two position on the list of the worlds top economies, one of Indias biggest business delegations was concluding a visit to Shanghai. The purpose was partly to persuade the Chinese government to lift non-tariff barriers to trade and create an environment more conducive to the expansion of Indian enterprise in China.
It could hardly be better timing. After more than three decades of focus on building a powerful export-based economy, the Chinese government is beginning to look inwards. This is in order to meet its peoples needs. This focus on the domestic economy is expected to compensate for the slowing of export markets. Jagdish N Sheth, the Charles H Kellstadt professor of marketing in the Goizueta Business School at Emory University in Atlanta, US, is an expert on India and China. He says China has more than one-million millionaires today. All this wealth is now going to create huge domestic demand, he told TOI. China appears increasingly open to overseas investors willing to feed this demand. Chinese vice-commerce minister Chen Jian told the Indian delegation: I hope you can tell Indian entrepreneurs that the Chinese government wants more and more products imported from India. I hope large enterprises from India will have a larger influence than Coca-Cola in China.
Some Indian enterprises have recognized the potential of the Chinese market and moved in aggressively. Mahindra & Mahindra has made acquisitions in China and has become one of the countrys largest tractor companies. Automotive components company Sundram Fasteners Chinese unit supplies both export and domestic markets.
Chennai-based Orchid Chemicals and Pharmaceuticals has a 50:50 joint venture with North China Pharmaceutical Corporation and is focussing on bulk manufacturing and marketing of drugs for the Chinese market. In four years, we have clocked $50 million in revenues and more importantly, the operations were profitable from day one, says K Raghavendra Rao, CEO of Orchid Chemicals.
Rao says China can be great for Indian business. The (borrowing) cost of funds is low. We have accessed funds at 6% per annum, which is impossible in India. Labour cost is less than half of that in India. We pay a third for power and fuel in China, when compared with that in India. And physical infrastructure is an intangible benefit for all investors.
But some Indian entrepreneurs are yet to venture into China. Sheth thinks theyre making a mistake. It is time that India shed its negative image of China. Indian industry should aggressively invest in Chinese markets for its own benefit. While India considers China as a major competition, China looks at India as a partner. China will be extremely receptive to Indian investments and business participation, he says.
Sheth believes that China will soon play the role the US did. Chinas rise, he says, will create an economic boom in Africa, the Caribbean, Latin America, Central Asia and Russia. So it is impossible for India to bypass China and become a global player as eventually the growth of many other emerging geographies are going to be closely linked to China, he said. There are many opportunities across sectors for India. Chinas automotive and aviation sectors are on the upswing. Its service, hospitality, fast food industries and infrastructure sectors are booming.
Some see particular scope for Indias service industry. China is beginning to recognize the limits of its zealous focus on manufacturing. It has polluted rivers, denuded forests and caused severe air pollution. By 2020, China is expected to have 400 million tonnes of rubbish, which is equal to the entire waste generated on the planet in 1997.
So they are encouraging services, points out Som Mittal, president of IT industry body Nasscom. Every province is setting up an IT park. The government has just announced that it will not
levy the 5% operating tax on offshore service outsourcing business in 21 key cities till 2013. Mittal says China wants Indian IT companies to set up operations there and believes a Chinese base can be used effectively to target Japanese and Korean markets. We have a service culture, we are customer-centric and our service maturity level is much higher than that of the Chinese, he says. The Confederation of Indian Industry (CII) believes there is great scope for services sector cooperation in areas such as R&D, biotechnology, health, education and skill development, tourism and the financial sector.
But there are challenges to overcome. Language is perhaps the biggest. Whats more, in some sectors, China is not as open as India would like. Indian IT has won some deals in state-owned enterprises, but the sector is still not seen to be properly open to foreign participation.
China has been proactive in developing supply chains to feed into its excellent manufacturing capabilities from the neighbouring countries. But for India to plug into these supply chains, it will be necessary for both countries to lower nontariff barriers. We need a comprehensive study on such barriers and work to eliminate them, says Chandrajit Banerjee, director general of CII.
Chinas boom has also made parts of its economy overly expensive. This has led some global players to look to India as an alternative location for manufacturing. Nokia, which has been exporting from its plant near Chennai, now says it intends to make India an export hub. Dell is said to have begun exports from India.
As China rises and focuses on services, expect more manufacturing to shift to India. That will be good for mass employment, which services like IT has not yet been able to deliver. But can India handle manufacturing growth without bringing upon itself the environmental problems China suffered because it became the workshop of the world? For India, Chinas rise offers no easy solutions.
(Additional reporting by Rajesh Chandramouli in Chennai)
Fighter
THE BIG BITE
China has become the worlds second biggest economy. Should India worry about being swallowed whole?
Saibal Dasgupta | TNN
Beijing: China is growing so fast it creates some sort of world record every week. With 1.4 billion people, China has more mobile phones than any other country. It has more high-speed rail lines and wind power. It has more Internet users. It is also the worlds biggest importer of minerals. It has already dislodged Germany from pole position as the worlds number one exporter. Just a few weeks ago, China became the world's biggest guzzler of energy, though it accepted this particular position with great reluctance.
So, when China overtook Japan as the worlds second biggest economy earlier this week and placed itself right behind the US, the news was hardly a surprise both at home and abroad. Chinas official media showed no signs of jubilation. Even in Japan, the leading English daily, The Japan Times, paid little attention and did not rush to write an editorial. It merely published a London-based writers commentary on Chinas phenomenal rise.
But it was a significant milestone. For 43 years, Japan had been second only to the US in economic might. Now, some experts say the Chinese economy will outstrip the US in a decade if both countries continue at their existing rate of GDP growth 10% for China and 3% for US. Perhaps. Whatever happens, the possibility that China will be the worlds number one economy is already creating a buzz and jitters everywhere.
But, first to the immediate question. What does Beijings move to second slot mean for the world? There are signs it is already having some impact. On August 16, Japan acknowledged it had slipped below China even as it released growth figures for the last quarter. That was just one day after Japanese Prime Minister Naoto Kan publicly apologized for World War II crimes by Japanese soldiers against the Chinese and others. And Kan made history by ensuring that his entire cabinet stayed away from the controversial Yasukuni shrine on the 65th anniversary of Japans surrender in World War II.
Did Naoto Kan have Chinas rise and rise in mind when he issued the apology at considerable cost to his popularity at home? Perhaps. It is clear that Tokyo can no longer ignore the stark truth that its weak economy has trimmed its influence on regional issues such as the denuclearization of North Korea and territorial disputes relating to the seas around China, Vietnam and Indonesia.
For the Communist Party of China (CPC), there is a clear link between the countrys rise and the Japanese prime ministers public apology. The Peoples Daily, which is the CPCs mouthpiece, editorialized after Kans apology that his cabinet's decision not to pay respect to the Yasukuni Shrine indicates the DJPs (ruling Democratic Party of Japans) upright stance of facing up to history, and this is advantageous for Japan to forge cooperative ties with Asian neighbours in the years ahead.
Any exuberance about its slotting into second place after the US was limited to those remarks in the Peoples Daily. Instead, a commerce ministry spokesman cautioned against any sense of glee, pointing out that China still had 40 million people below the poverty line. China remains a developing country. The quality of China's economic development still needs to be raised. It needs more effort to improve economic quality and people's lives, Yao Jin said.
It is a valid point and the Chinese authorities public reiteration of their domestic challenges appear to indicate their focus. Overtaking Japan in terms of gross domestic product is not going to change the basic truth:
China is 10 times the size of Japan, it is a rapidly ageing country and its one-child policy shows signs of becoming a liability, the ongoing property boom has the government caught between a rock and a hard place, ie should it keep the elite happy or extend its largesse to a wide swathe of poor and lower middle class people
In addition, President Hu Jintaos drive to develop the relatively backward western and central provinces instead of focusing on the more advanced eastern and southern provinces poses a serious political problem in itself. The Communist Party has managed to curb any stirring of rebellion in the developed provinces but remains unable to find suitable leaders in the troubled western regions of Xinjiang and Tibet.
There are other problems too. With growing prosperity, more Chinese are learning English and with it a new philosophy that it is mans right to be free and to have a democratic system of governance. The Communist Party is not ready to deal with this challenge. The Internets growing reach and expanded travel facilities have given the young a taste for free speech and a rising desire for self-expression. This could pose a challenge to the one-party system.
Unsurprising then that Chinas greater success has been in influencing people and policies abroad. There is no doubt that Chinas persuasive capability in both the political and diplomatic fields has grown in direct proportion to its export surplus. Countries like Sudan, Pakistan and Myanmar, where the regimes are linked to repression and largescale human rights violations, are major beneficiaries of Chinese aid. In international forums, Beijing backs these regimes politically. This was evident at a recent meeting of Asian political parties in Kunming. The Japanese representative candidly said there was aid fatigue in his country, which can no longer fund developmental programmes in poorer countries. But Chinas Communist leaders reassured everyone that Beijing was happy to take over as chief paymaster of the aid and development budget.
But what price the influence. The west is yet to regard the worlds second biggest economy as a responsible power. Some might say that western approbation is no longer required. But China cannot expect endlessly to grow at 10% or more. What happens then will be key in determining who has the biggest bite of them all.
Chance to be bigger than Coke in China
Sujit John & Mini Joseph Tejaswi | TNN
This week, as China moved to number two position on the list of the worlds top economies, one of Indias biggest business delegations was concluding a visit to Shanghai. The purpose was partly to persuade the Chinese government to lift non-tariff barriers to trade and create an environment more conducive to the expansion of Indian enterprise in China.
It could hardly be better timing. After more than three decades of focus on building a powerful export-based economy, the Chinese government is beginning to look inwards. This is in order to meet its peoples needs. This focus on the domestic economy is expected to compensate for the slowing of export markets. Jagdish N Sheth, the Charles H Kellstadt professor of marketing in the Goizueta Business School at Emory University in Atlanta, US, is an expert on India and China. He says China has more than one-million millionaires today. All this wealth is now going to create huge domestic demand, he told TOI. China appears increasingly open to overseas investors willing to feed this demand. Chinese vice-commerce minister Chen Jian told the Indian delegation: I hope you can tell Indian entrepreneurs that the Chinese government wants more and more products imported from India. I hope large enterprises from India will have a larger influence than Coca-Cola in China.
Some Indian enterprises have recognized the potential of the Chinese market and moved in aggressively. Mahindra & Mahindra has made acquisitions in China and has become one of the countrys largest tractor companies. Automotive components company Sundram Fasteners Chinese unit supplies both export and domestic markets.
Chennai-based Orchid Chemicals and Pharmaceuticals has a 50:50 joint venture with North China Pharmaceutical Corporation and is focussing on bulk manufacturing and marketing of drugs for the Chinese market. In four years, we have clocked $50 million in revenues and more importantly, the operations were profitable from day one, says K Raghavendra Rao, CEO of Orchid Chemicals.
Rao says China can be great for Indian business. The (borrowing) cost of funds is low. We have accessed funds at 6% per annum, which is impossible in India. Labour cost is less than half of that in India. We pay a third for power and fuel in China, when compared with that in India. And physical infrastructure is an intangible benefit for all investors.
But some Indian entrepreneurs are yet to venture into China. Sheth thinks theyre making a mistake. It is time that India shed its negative image of China. Indian industry should aggressively invest in Chinese markets for its own benefit. While India considers China as a major competition, China looks at India as a partner. China will be extremely receptive to Indian investments and business participation, he says.
Sheth believes that China will soon play the role the US did. Chinas rise, he says, will create an economic boom in Africa, the Caribbean, Latin America, Central Asia and Russia. So it is impossible for India to bypass China and become a global player as eventually the growth of many other emerging geographies are going to be closely linked to China, he said. There are many opportunities across sectors for India. Chinas automotive and aviation sectors are on the upswing. Its service, hospitality, fast food industries and infrastructure sectors are booming.
Some see particular scope for Indias service industry. China is beginning to recognize the limits of its zealous focus on manufacturing. It has polluted rivers, denuded forests and caused severe air pollution. By 2020, China is expected to have 400 million tonnes of rubbish, which is equal to the entire waste generated on the planet in 1997.
So they are encouraging services, points out Som Mittal, president of IT industry body Nasscom. Every province is setting up an IT park. The government has just announced that it will not
levy the 5% operating tax on offshore service outsourcing business in 21 key cities till 2013. Mittal says China wants Indian IT companies to set up operations there and believes a Chinese base can be used effectively to target Japanese and Korean markets. We have a service culture, we are customer-centric and our service maturity level is much higher than that of the Chinese, he says. The Confederation of Indian Industry (CII) believes there is great scope for services sector cooperation in areas such as R&D, biotechnology, health, education and skill development, tourism and the financial sector.
But there are challenges to overcome. Language is perhaps the biggest. Whats more, in some sectors, China is not as open as India would like. Indian IT has won some deals in state-owned enterprises, but the sector is still not seen to be properly open to foreign participation.
China has been proactive in developing supply chains to feed into its excellent manufacturing capabilities from the neighbouring countries. But for India to plug into these supply chains, it will be necessary for both countries to lower nontariff barriers. We need a comprehensive study on such barriers and work to eliminate them, says Chandrajit Banerjee, director general of CII.
Chinas boom has also made parts of its economy overly expensive. This has led some global players to look to India as an alternative location for manufacturing. Nokia, which has been exporting from its plant near Chennai, now says it intends to make India an export hub. Dell is said to have begun exports from India.
As China rises and focuses on services, expect more manufacturing to shift to India. That will be good for mass employment, which services like IT has not yet been able to deliver. But can India handle manufacturing growth without bringing upon itself the environmental problems China suffered because it became the workshop of the world? For India, Chinas rise offers no easy solutions.
(Additional reporting by Rajesh Chandramouli in Chennai)
