BOOK REVIEW
S.V. Char
The Elephant and the Dragon: The Rise of India and China and What it Means for All of Us
by Robyn Meredith (ISBN 978-0-393-06236-6), W.W. Norton & Company, New York.
It may not be amazing that books and reports on China, India and their influence on geopolitics and their bearing on global economy are multiplying like rabbits. But what is indeed astounding, is the virtual consensus that the two nations together and even individually are bringing about “tectonic” changes and competition from them may pose a threat to America. This not-so-cool an inference about an apparent threat encourages authors, including Robyn Meredith to call upon USA to reinvent itself and perk up its gung ho unbeatable spirit. This reasoning is based on the assumption that deep into the future, the two countries would be able to maintain their relatively rapid growth rates. New evidence (about resource constraints) that is emerging should make everyone circumspect about the sustainability of continued high growth rates.
Global Perspective
One of the several merits of this book is Robyn Meredith tells this remarkable story of the economic emergence of two developing countries accounting together for a third of the world’s population with a truly global perspective, and with a modicum of objectivity, and with a critical eye to detail. For a student or observer of societal transformation, Meredith’s book makes an attention-grabbing account. She threads the India-China story interestingly,with every next chapter alternating from China to India and back to China. After the introductory essay in which some fear is expressed about the ‘potential impact’ of China-India economies almost like a come-uppance of economic history of the two countries, comes Chapter one “Where Mao Meets the Middle Class” followed by Chapter two about India’s transformation “From the Spinning Wheel to the Fiber-Optic Wire.” This is followed up by Chapter Three “Made by America in China” and by Chapter Four on “The Internet’s Spice Route.” This threading of the China-India stories continues in Chapters 5, 6 and 7, and thereafter, the stories blend in 8 and 9, the last two chapters.
Meredith connects her story with the contemporary unraveling of the industrial revolution of our times. She chooses to describe the changes as ‘tectonic.’ It is not difficult to appreciate why she thinks so.
Demonstration Effect
The author is captivated by the speed of the transformation of two hide-bound economies that wallowed in poverty and colonialism for centuries. She narrates unwearyingly the political backgrounds of the two economies: India believing in Gandhian values and peaceful ways, and the other putting faith in Mao’s authoritarian absolutism. Such a totalitarian system perhaps makes it possible for China to notch up higher rates of growth, at times even a blistering 15% rate in GDP growth. Adhering to a democratic system, India’s reports relatively slower rates of growth, with its economy plodding along at 8 to 9 %. And also make a note of the fact that China has much less diversity than India, whether in terms of languages, cultures, races, religion or what have you. And yet, the casual observer ignores these material differences, and judges strictly by the rates of growth.
What kind of a demonstration effect would the pattern of political organization of India and China have on the rest of the developing world? Would other developing countries prefer a more regimented China-like system with a faster rate of GDP growth or a more democratic Indian system with a slower GDP growth? Of course, we now know better, that if India had more of a free market oriented and less of a permit-license raj, she could boast of equally fast, if not faster, growth rates. If India had paid more attention to roads, electricity supply and other essential infrastructure, it would have matched her growth rates with China’s. Meredith makes a contribution to this discussion. She asks if the Chinese would trade their economic progress for more freedom, and whether Indians would trade their freedom for more economic progress. For both questions her answer is negative. On page 156 she discusses the ‘Singapore excuse’ that is used by China to justify authoritarianism. Having said this, it is sad however, that Meredith misses a great opportunity to go for a more serious discussion of the edifying effect the two models would have on other developing countries.
American Competitiveness
Consumers benefit the most from trade with China. Wal-Mart has set a China price benchmark and so American business is closing down high-cost American factories and outsourcing their merchandize to China. Very appropriately, Meredith brings in factors that aggravate cost disadvantages between America and China such as health care costs. According to her, first, it is better for America to concentrate on its core strengths such as ample resources, a highly educated and trained work force, and technological superpower status and further strengthen innovative capabilities. She advocates that America would need to ‘return to the basics’ such as education. There needs to be ‘dramatically improved education, starting with elementary school.’ While US universities are still considered best in the world, ‘American fifteen-year-olds are tied for twenty-first place in average academic performance globally.” College education is becoming less affordable.
Yet another factor that needs to be attended is wasteful consumer and corporate spending, the top executives being compensated by hundreds of millions of dollars even when their corporations are sliding into the red. Third, America’s infrastructure is in need of urgent repairs to avoid disasters such as the Katrina smash up of New Orleans. Internet connectivity is better in parts of India and China than in America. The book under review highlights the suggestion of the Council on Competitiveness demanding that there needs to be more basic research and US should spend at least one percent of its GDP on basic research and not just on product development.
Is Current Progress Sustainable?
The book calls for a change in mental attitudes in American working force such that instead of whining about loss of jobs due to outsourcing, they should retrain themselves for the next higher jobs. All cannot do so and will definitely become less competitive and would need their own, as well government safety nets. Also America needs to anticipate which jobs could be off-shored or Bangalored. Meredith quotes Nandan Nilekani, Infosys CEO: “If someone is cardiac surgeon, they are not going to be replaced. But if they are a radiologist, somebody from Bangalore is liable to check X-rays over a wire.” Hence the overwhelming need to focus on education. More significantly, she emphasizes his view that investment in education for the future of jobs in America is an imperative, and that is ‘nonnegotiable.’ And “the capacity of the US to constantly reinvent itself is extraordinary.” Meredith has great faith in America’s ‘can-do’ spirit. She sweet-talks America to believe that the rise of China and India would serve as a catalyst to restore America’s competitive outlook in issues of this kind especially when developing countries themselves can be so globally minded.
There are references in the book to broader questions of pollution, resource scarcity and related questions. However, it is perhaps beyond the scope of the book to discuss the sustainability of India’s or China’s economic rapid growth in the coming years. Willy-nilly, that is the issue engaging the attention of China and India observers because such scarcity could rein in growth.
Taiwan Is Ready for the Great Change
“After eight years of international disputes, economic stagnation and political corruption, the Taiwanese voters turned their back to the Democratic Progressive Party (DPP) last January when Kuomintang (KMT) captured 72 percent of the 113 parliamentary seats,” notes Dr Steinbock in his pre-election analysis for Talouselama, Finland’s leading business weekly (March 21, 2008; in Finnish). He expected a strong and positive market reaction. “In the absence of miracles, KMT’s presidential candidate Ma Ying-jeou will win and Taiwan will prepare for a great change. The outcome of these elections has the potential to change Taiwan and, more importantly, to stabilize its relationship with mainland China.”
Stock prices soared in Taiwan on Monday March 25 as investors welcomed Saturday’s presidential election victory of Ma Ying-jeou, the Nationalist Party leader who has called for closer relations with mainland China — a development that could spur the island’s lagging economy.
The Rise of Importphobia
“In the United States, economic anxiety has inspired a backlash against free trade. Will it lead to protectionism?” asks Dr Steinbock in his new brief for Kauppapolitiikka, the prestigious trade journal of Finland’s Ministry of Foreign Affairs. U.S. share of world imports peaked at over 20 percent in August 2000. “In June 2007, America’s share of global imports had dropped to 14 percent of the total. U.S. consumer spending remains a key ingredient of global growth, but the baton of global consumption is being passed from shoppers in the U.S. to consumers in Europe, Japan and particularly the emerging markets – which accounted for 40.6 percent of world imports in the first half of 2007.”
Burton G. Malkiel and Patricia A. Taylor with Jianping and Rui Yang: From Wall Street to the Great Wall - How Investors Can Profit from China’s Booming Economy, W.W. Norton, New York, 2008, ISBN: 978-0-393-06478-0 (hardcover)
This book is intended to help investors to take advantage of one of world’s fastest growing economies that is also emerging as a potent super power with more political, social and economic control of itself than any other. Hardly has any other nation of even one half of China’s size, either in terms of population or geographical area, had such a linear whoosh of a growth, sometimes at a blistering 15 percent per annum in GDP. The book under review brings out the salient features of China and its emergence as the fourth largest economy in terms of nominal GDP and the second largest in terms of Purchasing Power Parity. It attracts the “largest amount of foreign investment of any nation making it a magnet for venture capitalists and others seeking to capitalize on the country’s booming economy.” The sudden transformation in about forty years from a most hostile to a pro-business state is explained captivatingly in the book.
The principal author, Burton G. Malkiel is the Chemical Bank Chairman’s Professor of Economics at Princeton University. He has also been a member of the Council of Economic Advisers and has served on the Boards of investment and finance companies such as the Vanguard Group and Prudential Financial Corporation. He is also well qualified to write on investment opportunities in China by virtue of being the author of the periodically updated and informative A Random Walk Down Wall Street. The other authors have either collaborated with the principal author or have had similar experiences.
Anyone familiar with the contents of Pearl S. Buck’s Nobel-prize winning book “Good Earth” knows what an awful opium den complete with all social evils China was till the 1950s, with several European nations having colonies on mainland China. Willy-nilly, to the credit of the Chinese government it must now be said, that hundreds of millions of poor Chinese have been lifted out of poverty. China ranks amongst top super powers of the world today commanding notice and consideration from everyone. Malkiel et al list the “stunning accomplishments” such as the $1.5 T surplus or reserves that they can wield to buy any asset anywhere, unquestionable control over its populace and resources ( unlike the Soviet Union, on account of which it crashed), plans to send lunar explorers and staging the Olympics this August in Beijing and the World Expo in Shanghai in May-October 2010, the very first such in a developing country, largest consumer of wireless phone services, coal, steel, cement, metals and scores of other items. Thanks to the embrace of an open economy and a high savings rate such as almost 50%, China has become one of the largest markets, if not the largest, for most luxuries from Bentley limos to Armani suits, cosmetics, Bordeaux wine and golf.
To the discerning observer, while the positive features of economic growth are too conspicuous, the negative aspects are no less striking. The sacrifices that the Chinese people have made for this prosperity, particularly under “Mao’s extreme economic policies”, are too large to be enumerated, including in terms of loss of democratic freedoms and of course loss of life itself. To this must be added the costs in terms of quality of life, environmentally dreadful conditions, high toxicity in food and water, and even in toys and other items. It is sad commentary on the state of public health in China that the US Olympic team is planning to carry 25,000 pounds of lean protein food to Beijing to avoid local contaminated or tainted food.
Malkiel and his coauthors deny that China would trip over any road blocks and obstacles such as its demographics of aging population, bad bank loans, tensions with Taiwan, Japan, India and others, environmental degradation, continuing poverty in particular in the Western provinces, inflation, unbalanced and unsustainable growth, and so forth. In their preface Malkiel et al even surmise without evidence, that “…there is no question that China will shortly surpass the United States and once again become the world’s mightiest economic power.” They state more categorically in their summing up (p. 294) that “…even if growth rate slows, it will be the largest economy in the world by the 2020s, as measured in terms of purchasing power.” In an earlier ICA Institute blog (Chindia Biz) we have extrapolated available data to prove that this cannot happen short of discontinuities in America’s growth.
What the book is strong in, is the analysis of the Chinese stock market and opportunities for investment. While the stock market is not efficient, it is becoming less so more recently. They describe A-Share markets that are exclusively for Chinese citizens and are inefficient, and H and N Share markets that are open globally and are somewhat efficient. The Price/Earnings ratios for Chinese companies were more favorable than for American companies, as were (P/E)/Growth Rates (PEG), in the latter case hiding the potential for making a rewarding buy if such a PEG were below 2. They also identify the broad categories of investment such as stocks, bonds, real estate securities but also mutual funds and their earning records. The Book has information on different indexes such as the Hang Seng, MSCI Hong Kong Index and the FTSE/Xinhua China 25 Index. In the last Chapter the Book offers “The Optimal Investment Strategy” for relatively small and large investors, including all Exchange Traded Fund Portfolio aimed at making the best of rapid Chinese growth.
The Book is somewhat exuberant about China and not all of that is justified. But they are quite right to advise that “no well-diversified investment portfolio can afford to ignore the investment opportunities that China offers.”
Psst!…..Here are some investment tips the Book does not give, but the book reviewer collected on his own! Almost $500 billion is being spent to clean up the air in Beijing, the venue for the 2008 Olympics, and any air, water and environmental cleaning company can bag business and go for them. Also go for metal, oil, electric, electronic, security surveillance, travel and related businesses: Chalco, Security and Surveillance Technology, Petro China, Baidu (China’s Google), Terra Industries, and China Eastern Airlines, and others are reporting gains of over 100 per cent.
S.V. Char
Editor of Academic Resources
India, China and USA: 2007-2017
S.V. Char
Trend Analysis
Over the next ten years India’s nominal GDP will grow from the present $1.00 T to $2.4 to 2.6 T at the current compound rate of nine to ten percent annual growth. A less optimistic statistical secular linear trend projection based on actual GDP for the 1997-2006 ten-year interregnum (Table 1) would place India’s GDP at 1.5 T in 2017. (Totally three estimates are presented here for each of the three countries.) India’s 11th FY Plan is predicated on a 9-10 % growth rate as doable.
Table 1:
|
Country |
GDP in 2006 Trillions of Current US Dollars |
Expected Growth Rate % |
Multiplier from Future Value Table |
GDP in 2017 Less Optimistic Scenario in Trillions of |
GDP in 2017 Trillions of Current US Dollars |
|
|
1.000 |
9 to 10 |
2.367 and 2.594 |
2.367 |
2.600 |
|
|
2.668 |
9 to 10 |
2.367 and 2.594 |
6.315 |
6.921 |
|
|
13.202 |
2 to 3 |
1.219 and 1.344 |
16.091 |
17.740 |
|
World Economy |
66.000 |
3 to 4 |
1.344 and 1.480 |
88.704 |
97.680 |
Note: GDP Data for 2006 compiled from IMF and
World Bank sources and Estimates computed by SV Char
China’s nominal GDP, burgeoning at an average compound rate of ten percent will grow from the present $2.668 to between $6.3 to 6.9 T during the same period. A less optimistic trend projection based on actual GDP for the 1997-2006 ten-year period would place China’s 2017 GDP at $4.55 T in 2017.
USA’s nominal GDP increasing at a relatively lower two to three percent compound rate will grow from the present $13.20 T to $16.1 to 17.7 T. However, more optimistically, as it turns out, a trend projection on the basis of actual data for the 1997-2006 period would take US GDP to 18.2875 T by 2017.
The inevitable deduction is that barring discontinuities America would continue to be the number one economy in the world in 2017 and even much beyond that year, unlike rough predictions that China would overtake it. Even ten years hence this would not materially change America’s dominant position. The economic distance between India-China and the USA, in terms how much bigger the US economy would be, is reduced. For instance, currently, US GDP is about 13x larger than India’s and in 2017 it is likely to be about 6 to 7x larger. US GDP is currently almost five times the China GDP and this is likely to come down in 2017 to about 3x larger.
In an interview with Money Control magazine (http://news.moneycontrol.com/india)
Jeffrey Sachs offers the view that by mid-century India’s per capita could be about a quarter that of the USA, say roughly $10,000. India’s population by 2050 is likely to be 2.3 billion persons, the current population of 1.1 billion, approximately more than doubling by that time. The product of ‘Per capita income x the 2050 population’ would be about $23 T when America is likely to have a GDP of $34.95 T, 1.5x more, assuming no discontinuities. In this light, Jeffrey Sachs need not be sanguine that “…..By the mid century I think India could overtake US by absolute size (of GDP).” Identical remarks by Sachs about China’s GDP overtaking America’s do not seem to hold water even if one is speaking in terms of PPP-based GDP estimates.
Limits to Growth
This inference is further reinforced when economic growth in China and India bumps into limits to growth factors such as natural resource constraints including drinking water, discontinuities in technology, equalization or leveling of price advantages as a consequence of world trade, inflation in developing countries, ennui with western pattern of growth that seems to generate much waste and pollution.
There is also the cost of economic growth serving to subtract from the GDP in China’s case, as much as 5 to 6 percent. World Bank’s ‘Cost of Pollution in China’ Report (2007) deals with the physical and economic cost of air and water pollution in China in terms of “pollution-related diseases, pollution-exacerbated water scarcity, wastewater irrigation, loss of fisheries, loss of crops, material damage” and so forth. Health costs of such pollution is estimated at 4.3 percent of GDP and non-health impacts of pollution at 1.5 percent or a total of 5.8 percent of China’s GDP. The poor are affected more than others. Not surprisingly, there were 50,000 pollution-related disputes in 2005.
Some authors such as Philip Lane and Sergio Schmukler (2007) are relatively more conservative in projecting future growth rates of China and India. Between 2005-2020 they cite the Winters and Yusuf (2007) projected growth rate of 6.6 and 5.5 percent for China and India respectively. The projected shares of the two countries in the world GDP are expected to be 8.2 percent for China and 2.4 percent in 2020. My Table 1 projection for 2017 gives China 7.1% share and for India, 2.7%, compared to US share of 18.1%.
A dramatic increase in the cost of key inputs such as oil can have a devastating effect on all costs across the board. More than any other country, China’s drawings of resources such as oil, coal, iron ore, copper, tin, bauxite, nickel have multiplied in very short periods and world commodity prices have shot up, the most dramatic being crude oil, hitting a prohibitive $100 earlier this week. In a linear setting, China is expected to emerge as the largest car producer by 2015. However, planetary resources are finite. Prices would have to give in if demand-pull pressure increases. If input costs and fuel prices become so unaffordable, will China continue to make gas-based cars? Do they have the technology for electric cars? If not, China may not emerge as the largest car producer by 2015. Repeat this scenario for almost every other product: wood-based articles and the disappearance of forests in China with 90% of wood products of China being exported to the USA. China alone accounted for 90% of the sharp increase in world coal consumption during the 3-year period between 2003 and 2006 when the boost in consumption was as much as during the entire 23-year period, 1980-2003
China’s development has won admiration. However, Quality is a large as life issue: pet foods making dogs sick, Thomas trains and Mattel dolls with a toxic paint coating, ginger with pesticide residue etc. The fact remains China has been somewhat apathetic to factors such as environment, quality and safety. It is high time to treat environment as a key limited resource in economic growth. There is only one planet and it cannot support American style consumption for all people, not even a fraction of it.
America’s own growth is tottering into a Japanese type recession or worse and this could confine America’s 2017 GDP to between $14.0 to 14.5 T. Current economic issues hobbling the US economy are: the twin deficits, de facto dollar devaluation, the bursting of the housing bubble, the sub-prime mortgage lending crisis, the recessionary trends in the economy, loss of incomes due to consolidation of businesses, the Iraq and Afghanistan commitments, global warming constraints, and the movement to apply brakes on consumerism or growth for growth-sake.
PPP based GDP
PPP based GDP calculations cannot be projected into the future on account of unpredictability of prices that form the basis of calculating the PPP. In terms of PPP-based GDP, India’s economy is as large as $4.04 T which would make India the third largest GDP in the world, next only to that of the USA and China, and followed by Japan, Germany, UK, France, Italy, Russia and Brazil. (IMF WEO Database) These PPP estimates for India and China are now under revision because the GDP estimates somewhat ignored the more recent inflation in those economies. For instance, China’s PPP GDP was based on a 1980s survey of Chinese prices. (Eduardo Porter, NY Times 12/09/2007.) Such an omission of inflation in China and India would overestimate the PPP based GDP. Based on the work of Albert Keidel (Carnegie Endowment for International Peace) that in turn used the ADB exchange rates, the new GDP numbers are likely to be some 40% lower.
Tertium Quid
Secular trend analysis establishes in unmistakable terms that American hegemony as a world economic and geopolitical power would stretch far into the future, beyond any horizon date. Current discussion of this fact is clouded by erroneous combining of PPP data with nominal data, likes being not compared with likes. Current discussion also ignores the real limits to growth in terms of both depletion of both renewable and non-renewable resources including oil, coal, iron ore, bauxite, etc., and of even as critical an item as water. Yet another major lacuna relates not loading the environment as a resource key factor in the economic development equation. The results are therefore confounding.
The World Bank reestimates the GDP of some 146 countries on the basis of a new set of data of Purchasing Power Parity collected by the World Bank, Eurostat and the Organization for Economic Cooperation and Development. According to this study, China and India and many other countries are not as large as they are reckoned to be. Inflation in India and China has reduced the purchasing power of the Yuan and the Rupee. Economists have used the “Big Mac Index” as a convenient method to figure out the purchasing power of the respective currencies. If inflation eats into the Yuan or the Rupee, their buying power goes down.
On this purchasing power parity (PPP) basis, China’s share in world trade has gone down from 14 to 9.7 percent and India’s down from 6 to 4.3 percent. Instead of a GDP of $10 T it is only $6 T, a 40 percent downsize. Similarly, India’s GDP goes down from $4.5 T to $3.2 T. Needless to emphasize that it is sensible to use these estimates as mere indicators of the broad dimensions of the GDP, and not put too much faith in them.
When the GDP of the two countries is measured in terms of market exchange rates rather than PPP, China’s share in World GDP comes down from 9 to 5 percent and India’s from 4 to 2 percent.
In view of the new light on GDP sizes, we too will soon revisit the ICA Table of Comparison of Fundamentals.
Dr. S.V. Char
Editor of Academic Resources
Right from 1950s India has believed in planned economic development, even while trusting the market forces to determine prices, allocation of resources and otherwise decide about the pattern of economic development. There have been both market and government failures, but by and large the market economy has come to prevail. The 1991 dramatic shift of emphasis from disproportionate governmental control and intervention in the economy to easing up on them has to a very large degree enabled the trebling of the rate of growth in GDP from 2-3 per cent in the first few decades of development to 9-10 per cent currently, a rate that the 11th Plan envisages for the 2007-12 period during which the envisaged investment is Rs. 36,000 billion or about $900 billion. The Prime Minster complimented the people for historically high savings rate of 34% which would enable investments up to 35% or even more of GDP, depending upon the quantum of inflow of foreign direct investment (FDI.)
There is considerable slack built into the Plan model to allow states to promote more or less economic development. As it is, for a couple of decades they have been competing with each other for financial resources and for FDI. There is also a compelling demonstration effect brought on by the Internet Technology (IT) industry whose annual 30-40 rate of growth over the past fifteen years has been attributed in large part to the ‘virtually’ or almost entirely free setting it operates in as compared to other businesses that seem to run a three-legged race with the Government acting at times, as a difficult teammate.
As is common at the launching of the five year plans, egalitarian noise is heard such as reduction of poverty by ten percent. Equal opportunity is also emphasized and it is proposed to create 70 million new jobs over the 2007-12 plan period.
The 11th Five year Plan like its recent predecessors, is largely indicative of the areas that offer opportunities for rapid to moderate expansion. It has often served in the past as a map of the economy as it advances into the future.
Dr. S.V. Char
Editor of Academic Resources
China’s Efforts to Ensure Product Quality and Food Safety:
During 2007 some of the items imported from China caused serious concern. Pet food from China made many American dogs and cats sick. Then toys such as Thomas trains and Mattel dolls had toxic paint coatings or some other toxic content. Still later food products like ginger imported from China had pesticide residue. Not surprisingly at the Third China-US Strategic Economic Dialogue that began on December 12, product quality and food safety figured prominently as the most critical issues on the agenda. Promptly enough an article on the subject by Ms. Wu Yi, Vice Premier of China appeared in the Wall Street journal the previous day elaborating the different measures that are already in place to ensure the quality of things made in China as well as the full safety of consumable items either for humans or animals. The article is a frank effort aimed at convincing the user of China-made goods that inspections and testing are stringent like any where else. The Vice Premier has also pleaded that individual cases of breach of safety or quality norms should not be exaggerated to give the erroneous impression that it is the rule rather than the exception. Such hype about poor product quality and hazard would ruin China’s image.
It is easily conceded that even under the most stringent regimen of scheduled inspection and testing, faux pas could occur. However, it is also possible that in some locations, in a hurry to get on with development, and meet export obligations there is a short shrift of environment safety. Recently CNN’s Sanjay Gupta showed graphic accounts of sickness and even cancer in China caused by consuming rice grown with river waters that are dangerously polluted. Such river pollution does not appear to be isolated cases, and instead are not uncommon. Like it or not, bad news travels faster than good news and this applies universally to business everywhere. Consumers do not spare domestic (American) suppliers either and slap product liability suits on the producers and suppliers.
At the conclusion of the Dialogue, Treasury Secretary Henry Paulson, the Co-Chair of the Dialogue stated that the talks were instructive and constructive. U.S. Commerce Secretary Carlos Gutierrez, as well as U.S. Secretary of Health and Human Services, Mike Leavitt participated in the Dialogue. Leavitt stated that Product safety “engages at a deeper, more visceral level than other issues.” One of the helpful outcomes of these consultations is that there will be more bar coding and tracking of food grown in China. Discussions under third Strategic Economic Dialogue was also expected to bring China and America closer on issues such as the undervalued Chinese currency of Yuan with a view to give a leg up to Chinese exporters.
Dr. S.V. Char
Editor of Academic Resources, ICA Institute
Suresh Sharma, author of the recently published book, Global Outsourcing, Executing an Onshore, Nearshore and Offshore Strategy, spoke on the subject of Strategic Sourcing in India, China and America, Tuesday November 27, 2007 as part of the ICA Institute’s on-going Webinar Series Tap into Chindia.
Many of you who attended the Webinar may have comments to add to Suresh’s presentation concerning your own experience and knowledge of the outsourcing industry and its many manifestations. Please consider writing them down and contributing to our comments here.
The ICA Institute is focused on expanding knowledge concerning the growth of two of the world’s largest markets, China and India, to further commerce between the region, America and the rest of the world. Anything you can add that furthers this aim is greatly appreciated.
Thank you.
Bob Cady, Director of development, ICA Institute, rpcady@ICAInstitute.org
Is there an Incentive for Political Democracy in China?
The author of this note Dr. S.V. Char attended the Round Table on the 17th Party Congress and the Future of China at the Carter Center in Atlanta, GA on November 09, 2007. What follows is Dr. Char’s own response to the rhetorical question in the title to the note.
Personally this author swears by Athenian political democracy, the vibrant type that is found in the largest democracy in the world, India or the type you have in the oldest democracy, America, or an amalgam of the two, taking the best features of freedom of speech, freedom of action and freedom to choose, property rights and so forth. But of what value is that to the artless peasant in western China still eking out a living from the unyielding soil? Yes, he or she would enjoy the freedom for a while, but like good words butter no parsnips, political democracy by itself may not ensure even a modicum of basic physiological needs of food, clothing and shelter. When the going is so good for China where is the incentive or even the pressure to change horses midstream?
Leaving aside the fact of repression under communist totalitarianism when it was established in 1948 and in subsequent years, the same regime is now credited with lifting over 400 million people out of poverty. More Chinese than ever before have the benefits of not just an elementary education, but even of a higher education. China has emerged as the second largest nation in the world in terms of GDP size and is reckoned as a great power. China attracts ten to twelve times more foreign investment than India. Then there is China’s moon shot, and its massive trade surplus that scares the US, but keeps strengthening its Yuan for ever.
China has left India far behind in economic accomplishments, in particular in helping people at the bottom of the economic ladder, come up. However, this is not to ignore the burgeoning Gini Coefficient of inequality of incomes in China, in which again it has overtaken India, a kind of negative compliment for an egalitarian society. But there are other accomplishments of China such as its emergence as the factory of the world, as the nation that ranks second only to America in GDP size, as the host to the 2008 Summer Olympics, as the US ally that could dissuade North Korea from developing the nuclear bomb and also as one that could deter Iran doing the same. Compare that eminence to that of China before the Mao’s Great March as that of an “opium den” with every major power having its own colony on mainland China. China has risen from that sewage not unlike the Phoenix rising from the ashes.
This means that without a question, China is on the road to prosperity and power more than any one else. Which patriotic Chinese would want to give up all that and open the Pandora’s Box of dreadful political feuds and Tammany Hall politics under a western-style democracy? China has followed western style industrialization, complete with high-energy consumption, and also complete with industrial pollution. Nevertheless, all things considered, and in hindsight, it can be speculated that most thinking Chinese perhaps accept the loss of freedom as under a political democracy as a price to pay in order to keep China in one piece, in order to continue to prosper, to command world attention as a dominant power, and even feared as macho power that can have its way in Tibet or the western provinces, although not in Taiwan.
In this setting, one can only wonder whether, among the Chinese masses, there is indeed an incentive to go for political democracy like we know it here. There are real fears that such a democracy would not be expedient even for economic democracy considering that without an authoritarian government, people would choose to do whatever they think is best for them, in their personal self-interest. The well-informed Chinese could be perhaps be excused for belittling the repressions in China and for entertaining the fear that introducing a political construct engendered by Greco-Roman and Christian traditions and so alien to Chinese milieu, could only result in a reversion to the skid row ways of pre-revolution times.
Are there no genuine democracy lovers in China that could do with more freedom? In a nation of 1.3 billion it would not be hard to find several millions that would embrace American–style democracy and perhaps even ways of living and values. But it is possible, that they are a minority. As such, even if political democracy is introduced, it is very likely that the same regime and persons may be voted back to power not unlike in Putin’s Russia. There may also be millions of Chinese that would not welcome any version of “cocacolinzation” and any dilution of the heady drink of prosperity that they are enjoying. This would of course include the hundreds of millionaires that do not want to behave like millionaires lest they are targeted for additional confiscatory taxes!
and its potential merger with Shenzhen in The National Interest (Oct 26,
2007) :
by
Dan Steinbock
Is
Hong Kong’s importance as a financial center fading, or is the city just moving
toward a new role? Merging with Shenzhen could make it a part of a financial
mega-exchange that would dominate the Asian market.
past month:
and moderated the Innovation Session in the prestigious Baltic Development Forum
in Tallinn, Estonia. The members of the panel included Esko Aho, former PM of
Finland and President of SITRA, the Finnish Innovation Fund; Lena Gustafsson,
Deputy Director General of VINNOVA, Swedish Governmental Agency for Innovation
Systems; Peter Coachman, General Director, Technopolis St Petersburg; and Rainer
Kattel, Chair of Innovation Policy and Technology Governance, Tallinn Technical
University.
University of Post and Telecommunications on “The Globalization of the Mobile
Communications Industry.”
China’s Journal of Communications, the prestigious leader of its
field.
in China and large emerging economies, at the executive meeting of KONE, one of
Finland’s leading multinationals and a global leader in escalators and
elevators.
Shanghai Institute of Strategic Studies on the “US Elections ‘2008 and
Sino-US Trade.”
The latest from ICA Institute’s Research Director, Dr. Dan Steinbock:
Toward US-China Trade
Wars?
The National Interest October 11, 2007
Enacting new legislation that levies punitive duties on imported Chinese goods will have a negative effect on the U.S. economy. Congress should consider the consequences before approving this measure.
A useful resource and note from the ICA Institute’s Newsletter Editor of Academic Resources and Industry Reports, Dr. SV Char:
THE ICA STAT TABLE: CHOCKFUL OF INSIGHTS AND NEW MEANING
Download .pdf of ICA Fundamentals Table
Ang Lee’s latest spy movie set in Shanghai is entitled Lust, Caution. Likewise, the title for the attached statistical table about the fundamentals for India, China and the US could also be Stats Fundas, Caution. They have a variability of their own and are ever-changing, including for as predetermined and unchanging an item as Land Area!
And population data varies moment to moment. Yet, these figures bring out the comparative magnitudes and help approximate our inferences and alter them down the road in the light of more info. Also governments and statistical agencies keep refining their data.
Hence the need for caution and thanks Ang Lee!
The comparison of economic and demographic fundamentals of the three countries of India, China and the USA, together with aggregates for the world can be vividly revealing. Such a comparative Table provides a 360 degree perspective and brings out the comparable scale of each nation’s economy and its sub-sectors.
For instance, in much of the discussions, there is little reference to the fact that though China’s population is 1.3 billion, larger than India’s 1.1 billion, by virtue of possessing a land mass of 9.33 million sq. kilometers, 2.8 times larger than India’s 3.29 million, the density of population is just 363 for China as against 852 for India. This implies less breathing space and legroom in India for people, for business and for local, state and the federal governments. Does it pressure India to use all spaces more productively? Does it mean less national highways like in the USA and smaller buildings, warehouses, play grounds, and so forth?
Two more questions pop up here.
First, China has land quarrels with almost every one of its sixteen contiguous neighbors. Some kind of an unwritten moratorium is in place and so there is not much noise and gun battle.
Second, even if China’s land area is more, is it suitable for cultivation? Have you seen the Great Wall of China, 4000 miles long? In almost all photographs of the Wall you will see mountainous terrain and that should clear out qualms about cultivation. And India is better placed than China. And yet, if food grain output is more in China than India, what gives? Farm productivity?
The Table does generate much disbelief and questions for discussion.
Take another example of how comparative Tables like this one can be more edifying than mere words. Income distribution in India, we learnt in school, is highly skewed, the rich and the upper middle classes drawing off large chunks of India’s aggregate income. And so we would expect the Gini coefficient to be pretty large. Sorry to disappoint the pundits, it is much smaller for India at 0.33 (meaning less inequality in income distribution) than in communist China with a Gini of 0.44 or the USA at 0.45. South Africa’s and Brazil are closer to 0.6. Well, the answer lies in China’s increasing prosperity and the two-tier new classes that are now emerging.
Also the confiscatory taxes in the initial decades of India’s development must have had a hand in this.
Question: Are such increases in Gini inevitable as affluence spreads and the governments of such countries opt for more free play for market forces, an incentive to achieve more prosperity? A profound topic for a doctoral dissertation!
The Table of ICA Fundamentals hints intuitive answers to several of contemporary developments. Take a look at electricity generation in India and in the other two countries.
India’s is far behind. However, in terms of non-fossil fuel source of power generation, India’s statistics are better than China’s. India has had more nuclear reactors than China.
And so the latter is playing catch up. The recent discussion about nuclear cooperation between India and the USA elicited reaction in China. This assumes new meaningful in this setting.
See what a comparative Table can do! Each row is worth studying! This is our work-in-progress and there will be more of it in the Blog to follow.
Read the latest from Dr. Dan Steinbock, Research Director with the ICA Institute:
It is often said that America celebrates its independence with barbeques and fireworks, whereas China commemorates its holiday with military might. In fact, October 1 is no longer that different from July 4… In China, it is not the modernization of the People’s Liberation Army that drives the economy—the private sector is the engine of economic expansion . With economic development, rising levels of income per capita, cars and retail tend to herald the coming of consumer mass markets… The Chinese dream is about prosperity and the shopping malls of Singapore and Hong Kong. And that says a lot about Beijing’s future.
Today, Oct 1, 2007, is the date of the Chinese National Holiday. The National Day is celebrated throughout mainland China, Hong Kong, and Macau with a variety of government-organized festivities, including fireworks and concerts. In India, tomorrow, October 2 is the annual holiday of Gandhi Jayanti as a grateful nation pays it’s heartfelt tribute to the Father Of Nation, Mahatma Gandhi on his birthday.
In many ways, for all of us, these are auspicious days, rife with new opportunity.
All of us at the India, China & America (ICA) Institute understand that our goal of increasing both the cultural and business level of interaction among, India, China and America, wouldn’t be possible without contributions from thought leaders around the world. Chindia Biz will give these thought leaders an opportunity to air their views, creating a prime information resource both business strategists and policy makers can use to improve their understanding of the two Asian economic juggernauts, India and China.
CHINDIA BIZ will be hosting a number of information articles and opinion pieces from contributors around the world. We hope you will not only take the time to visit, but also consider contributing to the information you will find here. Simply email chindiabiz@icainstitute.org, with your questions or contributions.
Also consider signing up for the ICA Insitute’s weekly newsletter at www.icainstitute.org. It delivers both summary and detailed information, about developments in India & China that affect commerce. It is a must read for those organizations either already doing business in Chindia or contemplating being there.
While you are at it, look into the ICA Institute’s virtual seminar (Webinar) series, Tap Into Chindia. This free series of monthly webinars kicked off September 25, 2007 with Dr. Sheth’s program, Rise of Chindia: The Next Largest Consumer Markets. We are now taking website registrations for the next in the series, Adapting Business Practices for India & China, October 23, 2007, featuring globalization author and business strategist, Dr. Camille Shuster.
There are a number of special projects also on the way, so stay tuned to www.icainstitute.org.
Again, welcome to Chindia Biz and thank you for coming. We hope to see and hear from you often.
Robert P. Cady
Director of Development
India, China & America Institute.
rpcady@icainstitute.org
On Monday, October 1, 2007, the India, China & America Institute will begin hosting its first blog.
The ICA Institute, founded by Dr. Jagdish Sheth, is a non-profit institute with the vision of providing a sustainable, non-governmental platform to identify and drive synergies among India, China and America in the areas of emerging markets, commercial growth and alignment of policies for the benefit of a vast number of people.
This blog, Chindia Biz, is one of the many ways the ICA Institute seeks to promote knowledge creation and the delivery of knowledge-based services for the benefit of the global community.
On this blog you will find regular updates from thought leaders on the following topics:
- How to guidance
- Scholarly/Business analysis of
current headlines - Points of interest
- Illustrative business
experiences - Insightful
questions - Trends
- Podcasts
Please plan to visit regularly and set up an RSS feed from our site to yours (find the RSS link on the left sidebar).