Challenge of China

 


I recently visited China as a part of CII delegation from Maharashtra, lead by Dr. Naushad Forbes. This was my first visit to China, and the basic purpose of my visit was to see for myself what is going on in that country about which so much is spoken and debated within India. My own sense of China before the visit, which was purely based on articles and listening to lectures by knowledgeable people, was that China is a great place, where most of the world is rushing to do business; that China had left India far behind and that we in India have a very slim chance of competing with China in any area that they had decided to enter. The pace at which infrastructure in China has been set up has obviously been something that everyone has written and spoken about. The only area where the Chinese recognised Indian superiority is in Information Technology.

After actually having visited Shanghai and Beijing over a period of five days, my first reaction is that I am not as much in awe of China as I was before I visited the place. This could very well be because the hype in my mind about China was too great, but I do not think that this would entirely explain my feelings. To begin with, I feel more proud to be an Indian after the visit and the fact that I live in a free country. There is no doubt that China has taken remarkable strides in development and has been able to set up infrastructure at an unbelievable pace. There is no doubt that the scale at which the whole world is producing goods in China is breathtaking. Most of the economic indicators in that country are positive and I would imagine that running the Chinese economy would be the delight of any economist of CFO, as most changes could be brought about by simple stroke of a pen without actually factoring in any social impact of decisions one cannot but help notice that people are going about their daily chores in a mechanical manner.

People are still adjusting themselves to the new flashy world of commercialisation and world-class infrastructure. The six-layered flyovers in Shanghai are already overcrowded and drivers are still picking up the finer points of driving etiquette. One cannot miss the commotion at the airports, with people shouting around. It reminded me of a bus station in Gorakhpur.

The remarkable economic changes that we now see in China are not an accident but the result of a planned strategy, which was initiated about 20 years ago. In discussions with senior officials of the Bank of China, they explained that about 20 years back, in the rural areas, they distributed land equally amongst their citizens. Further, they provided financial assistance to people in the rural areas and with land and money the rural population was at least able to live off the land reasonably comfortably. The second major step was to empower the mayors of all the six provinces of China and treat them like CEO’s. The mayors had two key objectives against which their performance would be measured and good performance would be rewarded by elevation of the mayor to the central leadership in Beijing. The two key objectives were increase in FDI and increase in GDP. In a sense, a competitive spirit was introduced amongst the six regions and each CEO would go about attracting investments by providing tax incentives and regulating market access to make conditions attractive for investors. The major role that the central leadership played was to provide basic infrastructure that they needed to make the economy grow. After the currency crisis in South East Asia, the Chinese leadership decided to spend US$ 50 billion a year over a period of four to five years on infrastructure. The Bank of China issued 4-year bonds worth US$ 160 billion and the balance was collected from the provinces and other agencies in China. All this money was meticulously ploughed into infrastructure. The results of which are there for everyone to see. Most of these loans have since been paid up and there is nominal portion that has yet to be paid.

There have been many reports of how the Chinese economy is looking for soft landing or a hard landing or even worse, no landing at all. But as the officials from the Bank of China put it, they really do not care about such speculations because as far as they are concerned the economy is growing well. Inflation is within control and all other economic parameters were positive. The only thing that the Chinese economists are concerned about is the health of the US economy. Bulk of the exports from China is to the United States. In fact Chinese exports to the other markets of the world are negligible. A recession in the US economy would certainly impact the Chinese economy as well.

The senior officials from the Bank of China made the following observations in the context of India, which I think are very relevant and crucial. The first was that the model for development adopted by China and India are different, the one crucial difference being that the Chinese model ensures the benefit of development to a much wider section of population as compared to the Indian model.The second point that they made was that many in India believe that China would be the factory to the world and India could be the research center. This assumption was misplaced. They strongly feel that manufacturing and research go hand in hand and also that manufacturing precedes research and not the other way around. In the past, investments in R & D in India have been more than that in China, but in 2004 the trend has changed.

One salient feature of China that I learnt was that everything in the country is negotiable. One could visit a posh mall and still negotiate prices cross the counter.

 


"The six-layered flyovers in Shanghai are already overcrowded and drivers are still picking up the finer points of driving etiquette".
 



Industry could individually negotiate tax incentives and rates and also market access. The Chinese system, therefore, is not an open market where competitive forces get into play. Instead, it is a market where the best negotiator gets the best deal. I do think that one of the main reasons as to why many corporate houses are rushing to China is not only because the Chinese market itself is large but also because they can work in a controlled environment without too many competitive pressures.

I think that the Chinese have leveraged the power of their own domestic market extremely well. We in India, have a lot to learn in this regard. On various occasions during our visit, the Chinese reminded us that between India and China we constitute bulk of the population of the world and at the end of the day it is people who make the difference. It is people who buy and consume goods and services, it is people who create and make goods and services and it is the strength of the people that both of our countries need to leverage for development.

As I have mentioned before, I do feel much better about our own country now than before I visited China, and the fact that we are a democratic system, I think will help us in the long run. The Chinese have begun to realise that while the economic balance sheet of China would be impulsive, the balance sheet of emotions would be rather week. The pace and manner in which change has happened in China has destroyed age old communities and one gets a feeling that they are desperately trying to break away from the past and leaving behind years of tradition and culture. Almost everything in China has become commercial. Money and only money talks. Loyalty towards an employer, for example, is unheard of.


 
"The pace and manner in which change has happened in China has destroyed

age old communities and one gets a feeling that they are desperately trying to break away from the past and leaving behind years of tradition and culture
".
 

 

     

 

In summary, the learning’s for us as a country, from China are many. The important role of the State in building infrastructure and that too quickly, the introduction of a competitive spirit between administrators, the leveraging of the domestic market, etc., are all areas which we need to study and adapt to India as much as we can. The fact that we would need manufacturing and we cannot be a purely “research center” is also something that needs to be looked into. I would, however go about implementing these changes in India in an open, transparent manner and I would reserve my right to speak out against the system if I do not agree with it. If I were born again today, I would rather be born an Indian than a Chinese, but 50 years from now I do not know how the same question would be answered.


Banmali Agrawal
Courtesy: Communiqué - CII

 

 

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