What China could learn from India's slow and quiet rise
In an article published in 2003 called "Can India overtake China?" Tarun Khanna of Harvard Business School and I argued that India's domestic corporate sector - strengthened by the country's rule of law, its democratic processes and relatively healthy financial system - was a source of substantial competitive advantage over China. At that time, the notion that India might be more competitive than China was greeted with wide derision.
Two years later, India appears to have permanently broken out of its leisurely "Hindu rate of growth"- an annual gross domestic product increase of about 2 to 3 per cent - and its performance is beginning to approach the east Asian level. From April to June 2005, India's GDP grew at 8.1 per cent, compared with 7.6 per cent in the same period the year before. More impressively, India is achieving this result with just half of China's level of domestic investment in new factories and equipment, and only 10 per cent of China's foreign direct investment. While China's GDP growth in the last two years remained high, in 2003 and 2004 it was investing close to 50 per cent of its GDP in domestic plant and equipment - roughly equivalent to India's entire GDP. That is higher than any other country, exceeding even China's own exalted levels in the era of central planning. The evidence is as clear as ever: China's growth stems from massive accumulation of resources, while India's growth comes from increasing efficiency.
The microeconomic evidence also casts India in a better light. While India's stock market has soared in recent years, the opposite has happened in China. In 2001, the Shanghai Stock Market index reached 2,200 points; by 2005, half the wealth had been wiped out. In April 2005, the Shanghai index stood at 1,135 points. This sharp deterioration occurred against a backdrop of GDP growth exceeding 9 per cent a year. It is difficult to find another country with this strange combination of superb macroeconomic performance and dismal microeconomic performance. It is a matter of time before the two patterns converge.
Why, then, is India gaining strength? Economists and analysts have habitually derided India's inability to attract FDI. This single-minded obsession with FDI is as strange as it is harmful. Academic studies have not produced convincing evidence that FDI is the best path to economic development compared with responsible economic policies, investment in education and sound legal and financial institutions. In fact, one can easily think of counter examples. Brazil was a darling of foreign investors in the 1960s but ultimately let them down. Japan, Korea and Taiwan received little FDI in the 1960s and 1970s but became among the world's most successful economies.
An economic litmus test is not whether a country can attract a lot of FDI but whether it has a business environment that nurtures entrepreneurship, supports healthy competition and is relatively free of heavy-handed political intervention. In this regard, India has done a better job than China. From India emerged a group of world-class companies ranging from Infosys in software, Ranbaxy in pharmaceuticals, Bajaj Auto in automobile components and Mahindra in car assembly. This did not happen by accident.
Although it has many flaws, India's financial system did not discriminate against small private companies the way the Chinese financial system did. Infosys benefited from this system. It was founded by seven entrepreneurs with few political connections who nevertheless managed, without significant hard assets, to obtain capital from Indian banks and the stock ???-market in the early 1990s. It is unimaginable that a Chinese bank would lend to a Chinese equivalent of an Infosys.
With few exceptions, the world-class manufacturing facilities for which China is famous are products of FDI, not of indigenous Chinese companies. Yes, "Made in China" labels are still more ubiquitous than "Made in India" ones; but what is made in China is not necessarily made by China. Soon, "Made in India" will be synonymous with "Made by India" and Indians will not just get the wage benefits of globalisation but will also keep the profits - unlike so many cases in China.
Pessimism about India has often been proved wrong. Take, for example, the view that India lacks Chinese-level infrastructure and thereforecannot compete with China. This is another "China myth" - that thecountry grew thanks largely to its heavy investment in infrastructure. This is a fundamentally flawed reading of its growth story. In the 1980s,China had poor infrastructure but turned in a superb economic performance. China built its infrastructure after - rather than before - many years of economic growth and accumulation of financial resources. The "China miracle" happened not because it had glittering skyscrapers and modern highways but because bold economicliberalisation and institutional reforms - especially agricultural reforms inthe early 1980s - created competition and nurtured private entrepreneurship.
For both China and India, there is a hidden downside in the obsession with world-class infrastructure. As developing countries, if they invest more in infrastructure, they invest less in other things. Typically, basic education, especially in rural areas, falls victim to massive investment projects which produce tangible and immediate results. China made a costly mistake in the 1990s: it created many world-class facilities but badly under-invested in education. Chinese researchers reveal that a staggering percentage of rural children could not finish secondary education and many rural primary schools closed. due to lack of funds. India, meanwhile, has quietly but persistently improved its ???-educational provisions, especially in the rural areas. For sustainable ???-economic development, the quality and quantity of human capital will matter far more than those of physical capital. India seems to have the right policy priorities and if China does not invest in rural education soon, it may lose its true competitive edge over India - a well-educated, skilled workforce that drives manufacturing ???-success.
Unless China embarks on bold institutional reforms, India may very well outperform it in the next 20 years. But, hopefully, the biggest beneficiary of the rise of India will be China itself. It will be forced to examine the imperfections of its own economic model and to abandon its sense of complacency acquired in the 1990s. China was light years ahead of India in economic liberalisation in the 1980s. Today it lags behind in critical aspects, such as reform that would permit more foreign investment and domestic private entry in the financial sector. The time to act is now.
The writer, associate professor of International Management at MIT Sloan School of Management, is author of Selling China (Cambridge University Press, 2003 and Chinese edition, 2005)
中国能向印度学什么？
在2003年发表的题为《印度能否赶超中国？》的文章里，哈佛商学院的韩太云(Tarun Khanna)和我指出，印度的国内企业部门是超越中国的重大竞争优势来源，因为印度的法治、民主程序和相对健康的金融体系，增强了该部门的实力。当时，印度可能比中国更有竞争力的观点遭到了诸多嘲弄。
两年后，印度似乎已彻底摆脱了其不慌不忙的“印度增长速度”，即2%到3%左右的国内生产总值(GDP)年增长速度，其经济表现正开始接近东亚的水平。从2005年4月至6月，印度的GDP增长了8.1%，而上年同期的增长为7.6%。更令人惊叹的是，印度建新厂和设备的国内投资只及中国的一半水平，外国直接投资也只有中国的10%，却取得了这一成就。过去两年，尽管中国的GDP维持了高增长，但在2003年和2004年，中国将近50%的GDP投资到了国内的工厂和设备上，差不多与印度的整个GDP相当。这一比例超过任何其它国家，甚至超过了中国在中央计划经济年代里自己夸大的水平。证据明显依旧：中国的增长源自庞大的资源积聚，而印度的增长则来自不断提高的效率。
微观经济学证据也能更清楚地说明印度的情况。印度股市近年来猛涨，而中国的情况则截然相反。2001年，上证指数达2200点，而到2005年时，一半的财富都蒸发掉了。2005年4月，上证指数为1135点。一边是股市急剧下滑，一边是GDP年增长超过9%。很难再找出一个这样的国家，卓越的宏观经济表现和惨淡的微观经济表现奇怪地交织在一起。这两种模式的融合是个时间问题。
那么，为什么印度在变强呢？经济学家和分析师往往都嘲笑印度没有能力吸引外国直接投资。这种对外国直接投资的偏执既奇怪又有害。学术研究没有得出让人信服的证据，说明外国直接投资与负责的经济政策、教育投资、健全的法制和金融制度相比，是经济发展的最佳道路。事实上，人们很容易就能想到反例。60年代的巴西是外国投资者的宠儿，但巴西最终辜负了他们的期望。在60年代和70年代，日本、韩国和台湾得到的外国直接投资很少，但却成为了世界上最成功的经济体。
经济试金石并非在于一国能否吸引到大量外国直接投资，而在于该国是否有培养创业、支持健康竞争，以及相对免受粗暴政治干预的商业环境。在这方面，印度比中国做得出色。印度出现了一批世界级企业，包括软件业的信息系统公司(Infosys)、制药业的兰伯西制药(Ranbaxy)、汽车零部件业的巴夏汽车公司(Bajaj Auto)，以及汽车装配业的Mahindra。它们的出现绝非偶然。
尽管印度的金融体系有许多缺陷，但它却不像中国的金融体系那样歧视小型私人企业。信息系统公司就受益于这一体系。该公司由7名创业家创办，他们都没多少政治方面的社会关系，90年代初，在没有硬资产的情况下，他们成功地从印度的银行与股票市场获得了资金。无法想象一家中国银行，会贷款给类似信息系统公司的中国企业。
中国赖以成名的世界级制造企业，几乎毫无例外全是外国直接投资的产物，而非中国本土公司的产物。没错，“中国制造”的标签，仍然比“印度制造”的标签更为普遍，但在中国制造并不一定是由中国制造。用不了多久，“印度制造”将成为“由印度制造”的同义词，印度人不仅会从全球化中获得工资收益，还会把利润也留在手里，这可与中国的诸多情况不同。
对印度的悲观常常都被证明是错误的。比如，人们认为，印度的基础设施达不到中国的水平，因此无法与中国竞争。这又是一个“中国神话”，认为该国的经济增长，很大程度上要归功于对基础设施的大笔投资。这是对中国经济增长的根本性错误解读。80年代时，中国的基础设施很糟糕，但经济表现极为出色。中国是在经过多年的经济增长和财力资源积累之后，才建设了它的基础设施，而不是在这之前。“中国奇迹”的产生，并非因为它有耀眼的摩天大楼和现代化的高速公路，而是因为大胆的经济自由化与制度改革(尤其是80年代初的农业改革)带来了竞争，并培育了私人创业家。
对中国和印度来说，醉心于建造世界级基础设施的背后，都隐藏着一个缺点。作为发展中国家，如果对基础设施投入更多，对其它方面的投入则会减少。典型情况就是基础教育(尤其是农村地区的基础教育)沦为大规模投资项目的牺牲品，这些大规模投资能立即产生实实在在的结果。中国在90年代犯了一个代价高昂的错误，它建造了许多世界级的设施，但教育投资严重不足。中国的研究人员透露，无法念完中学的农村儿童比例大得惊人。与此同时，印度则一直默默地持续增加教育投入，尤其是在农村地区。对可持续的经济发展而言，人力资本的质量与数量，远比实物资本的质量与数量来得重要。看来印度的政策重心是正确的，如果中国不马上对农村教育进行投资，就可能会丧失相比印度的真正竞争优势，也就是教育良好的熟练工人，正是这些人推动着制造业的成功。
除非中国着手进行大胆的制度改革，否则印度在今后20年的表现也许会大大超过中国。但如果运气好的话，印度崛起的最大受益者将是中国。中国将被迫反省自身经济模式的缺点，并戒除90年代时染上的自满情绪。80年代时，中国在经济自由化方面遥遥领先于印度。如今，它在若干关键的方面落后了，比如允许更多外国投资和国内私人资金进入金融部门的改革。现在是行动的时候了。
