Competitive threat to commercial opportunity
When Zhu Rongji, China's former premier, visited India almost two years ago, the country was awash with paranoia about the competitive threat from Chinese businesses. Stories abounded of cut-price imports - from batteries to umbrellas - that could bankrupt their Indian competitors.
Somewhat undiplomatically, Mr Zhu said the goods he had seen in Mumbai's department stores were at least a third pricier than their Chinese equivalents. India, which had only just removed quantitative restrictions on imports, braced itself to be taken to the cleaners.
It hasn't happened yet. In the past two years trade between India and China has more than doubled and is forecast to hit $7.5bn by the end of this year. India is expected to record a surplus of at least $1bn. Indian businesses now see the terrifying Chinese dragon as their most exciting commercial opportunity.
"Nobody fears the Chinese market any more - everybody just wants a piece of it," said K.K. Modi, head of the Modi Group, a manufacturing company that exports speciality chemicals to China's leather industry.
Mr Modi is one of many Indian executives seeking to boost their presence in China. The same is true of India's information technology businesses - perhaps the only sector (with the possible exception of pharmaceuticals) where India is undoubtedly ahead of its faster-growing neighbour.
Fifteen Indian IT companies now have a presence in China. Last year India's IT exports were almost $10bn compared with just $1.5bn from China. But 40 per cent of China's IT exports involved Indian IT companies based in China, according to a report by consultants Gartner. In contrast, China's overall exports last year were $318bn compared with India's $60bn.
"Software is an area where India is five to seven years ahead," said Mohan Das Pai, chief financial officer of Infosys, an Indian IT company that has won contracts in China's financial sector. "China lacks facility with English and experienced project managers. But China will catch up very fast."
The same cannot be said of Indian companies when it comes to China's core competence - assembly and basic manufacturing. So far few Chinese companies have set up plants in India, but several have recently begun to look for opportunities. Piyush Bahl, head of the Confederation of Indian Industry's new office in Shanghai, said he has visited 18 cities in the three weeks since he took up his post, fielding serious enquiries from more than 20 potential Chinese investors in India.
But there are significant barriers to entry. Not only are Chinese factory workers paid less than their Indian counterparts, they are also more productive.
India retains rigid labour laws that make it almost impossible to fire an employee or to hire contract labour. That is one reason India attracts roughly a tenth the amount of foreign direct investment as China.
In a recent report, McKinsey, the consultancy, estimated that on average an Indian worker makes three shoes a day compared with 11 produced by his Chinese counterpart. It found a similar productivity gap for T-shirts and ceiling fans. India's tiresome red tape is a further deterrent.
"If you add in the Indian bureaucracy it can be very difficult to make your way," said Ma Jiali, India expert at a Chinese think-tank. "Not to mention the need to take them out to dinner and give them presents - there are so many layers."
McKinsey also debunked the widespread notion in India that Chinese companies benefited from export subsidies, artificially low capital costs, and produced shoddy goods. It said the size of China's domestic market gave local companies decisive economies of scale over their Indian counterparts. For example, China sells 35m colour televisions a year, compared with 6m in India.
"Whatever you look at - whether it is washing machines or per capita consumption of polyesters - China's market is three or four times the size of India's," said Anil Ambani, managing director of Reliance, India's largest company, which makes petrochemicals but is also moving into telecommunications.
But Reliance, which alone accounted for 5 per cent of India's total exports last year, is also an example of where India can compete with China. In areas where manufacturing requires high-technology inputs, India is even exporting to China.
Bharat Forge, an auto-components maker based in Pune, north of Mumbai, last year exported $40m worth of car parts to China. Sales to China are set to rocket. The company's advantage derives from its intensive use of IT. "All our manufacturing is highly computerised," said Baba Kalyani, chief executive. "Our key advantage is that we find it much easier to hire IT and engineering graduates than our Chinese competitors."
Indeed, some Chinese companies, such as Huawei, a Chinese telecoms equipment maker, have also seized on India's potential in high-tech research and production. Huawei recently said it would invest $100m to develop software at its plant in Bangalore.
India's large pool of graduates is also an advantage in other sectors, such as medicine. The United Nations buys more than half of its vaccines from the Serum Institute of India, a private company in Pune, for its innoculation programmes worldwide. In contrast, much of China's domestic vaccine production is considered substandard.
Yet India's lead in research and development cannot make up for China's overwhelming superiority in mass producing goods for export. China's manufacturing success is a far more effective way of spreading wealth to the masses than India's IT model. Almost 100m Chinese are employed in manufacturing compared with 9m Indians. Roughly 1m Indians are employed in IT.
Whether it is China's cheaper and more reliable power supply, its higher rate of literacy, or the more rapid turnaround time at its ports, China remains an incalculably better environment for most types of manufacturing than India. New Delhi is slowly waking up to this. There are plans, for example, to set up special economic zones where labour restrictions would be waived.
But India is coming late to the party. And many are frustrated that it is still taking too long. "When politicians talk of 'calibrated' reforms, what they really mean is they aren't doing very much," said Mr Ambani. "India cannot afford to have a calibrated reform process."
从中国企业威胁论到中国商机
当中国前总理朱
