Business   

Negatives that can slow down China's growth momentum

Both democracy and demographics favour India in the long run

Vijay Govindarajan

IT IS common nowadays for people to compare India and China with respect to their prospects in the decades to come, and one has often heard of India's advantages, especially democracy and the rule of law and a large English-knowing skilled workforce.

But the dimensions and facets of the issue are much greater than what is obvious on the surface, going by the views expressed by Vijay Govindarajan, Professor of International Business and Founder Director of the William F. Achtmeyer Center for Global Leadership at the Tuck School of Business at Dartmouth College, U.S.

Talking to The Hindu, Dr. Govindarajan, a well-known business strategist, said India represents a chaotic surface of a stable democracy, while China is a case of stability on surface and chaos at the foundation.

A demographic handicap

Among the many negatives in China that are not much discussed, he cites the mandatory one-child policy, which, on the one hand, leads to concealment of births in rural China, where families long for a second child when the first child happens to be a girl. He estimates that China's official population figure is around 200 million less than the actual figure. The sex ratio in China, at 117:100, is clearly loaded against women.

On the other hand, where Chinese parents do obey the law, there is the tendency for them to pamper their only child and in that process make the child hardly fit for a work ethic required in a highly competitive economy.

India's advantages

Similarly, with official regulation of migration to the cities, millions of people crowd the cities in search of jobs without the knowledge of the authorities. China's agriculture is getting "hollowed out,'' while in India, innovative methods suited to native conditions like e-choupal of ITC Ltd. are being developed, he adds.

Also, according to the professor, both democracy and demographics favour India rather than China. Indians' "inherent'' entrepreneurship, combined with the conducive atmosphere for new ideas -- and consequently innovation in problem-solving — resulting from its culture of debate and a free press will contribute to economic growth. This only deepens and stabilises democracy.

Also, 50 per cent of India's population is under 20 years of age. People in this age group are growing in an environment where the benefits of economic liberalisation, openness, freedom of ideas, innovation and competition have been evident and they are likely to face the future with confidence.

In China, in contrast, according to Dr. Govindarajan, the average age of the population is 34 (against 25 for India). There will be fewer people available to take care of the elderly, while the Chinese State, facing strains from mismanagement of its fiscal policies, will face an additional strain on this account.

While China's labour productivity is at a reasonable level, its capital productivity is low. In the Shanghai Stock Exchange, where the bulk of the businesses listed is Chinese-owned, the index has fallen by 50 per cent in five years, while the nation's economic growth has increased by 50 per cent in the same period, This shows that the wealth creation process has been the work of foreign investors and multinational companies rather than native enterprises.

Widening disparities

Another acknowledged problem that China faces is the widening disparity between the eastern region and the rest of China and increase in inequalities.

The better off sections on their part will press for freedom to use their economic clout and all this means that the incompatibility between China's political system and economic system is leading to another Tiananmien Square "that is waiting to happen,'' Prof. Govindarajan says.

And when this happens, the MNCs will leave the country in droves. U.S. President George Bush's recent visit to India, in its economic content, he feels, was not meant to build India for "containing'' a Chinese threat but to ensure that U.S. consumers (who import goods from China) and investors do not put all their eggs in one basket.

R. GOPALAKRISHNAN

in Chennai

Printer friendly page  
Send this article to Friends by E-Mail

Stories in this Section

Double standards over FDI in developed countries
India, Japan to benefit from tax pact
Negatives that can slow down China's growth momentum
Changes in procedural law: Budget 2006
FDI focus on manufacturing
Subject-specific news trackers
Award for Tourism India Publications
Coconut farmers advised to take up group farming
Port trust to build world-class cruise terminal

Copyright © 2006, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu