Friday, July 25, 2008

businessweek: india beats china over longterm

Businessweek's William Nobrega argues that India will surpass China over the longterm because authoritarian governments always get out of the gate fast but falter late, while democracies build momentum as they slog onward.

He makes an interesting case. For instance, he points out:
"Since the 1980s, the Chinese government has focused on developing an export-driven economy supported by an artificially undervalued currency. Foreign direct investment was encouraged while domestic consumption was limited. Massive infrastructure projects were initiated, fueled by a growing trade surplus, with cities sprouting up in the hinterlands like some mythical phoenix. For years, the Chinese economy benefited from these policies with double-digit gross domestic product growth, vast foreign currency reserves, and ever increasing capital inflows.

But now the economic and social distortions have begun to appear with rising inflation rates, numerous asset bubbles, looming overcapacity, and rampant institutionalized corruption. The Chinese government finds itself in a quandary. If the government allows its currency to rapidly appreciate to reduce inflation it will drive down exports and fuel unemployment. If it fails to quell inflation, social unrest will quickly unfold."

But when it comes to the reasons that he cites for India's impending triumph over China, I'm not so sure that he knows what he's talking about. Here he goes:

Reason #1 - Property Rights

"As India becomes urbanized many families will choose to sell or borrow against their land so that they can start businesses, buy apartments, or provide education opportunities for their children. India is at the beginning of a gradual migration that is being driven by the development of high-end manufacturing and other sunrise industries that will require a vast pool of semiskilled and skilled labor. This migration will create an increasingly urban India that is expected to attract more than 200 million rural inhabitants to urban centers by 2025, primarily in what are known as secondary or "B & C" cities.

This transition will facilitate the sale of land holdings by an estimated 30 million farmers and 170 million other individuals indirectly tied to the agricultural sector. The sale of these holdings is expected to generate more than $1 trillion in capital by 2025. This capital will have a multiplier effect on the Indian economy that could exceed $3 trillion. The development of the mortgage-backed security and asset-backed security markets, driven by financial institutions like Citigroup (C), will create the liquidity required to free up this capital."

Meanwhile, in China he says:

"China, by contrast, has no rural property rights. China's 750 million rural residents who lease land are at the mercy of the local and regional government as to what compensation they will receive, if any, when they are forced from the land as a result of development, infrastructure improvements, etc. Additionally they have no right to borrow against their lease, and as such they have no assets. In fact, the Chinese government's official figures state that more than 200,000 hectares of rural land are taken from rural residents every year with little or no compensation."
The result is not unexpected, with over 87,000 mass incidents (or riots) reported in 2005, a 50% increase from 2003. Many provincial governments in China have begun to use plainclothes policemen to beat, intimidate, or otherwise subdue any peasant that dares to oppose these land grabs."

Can anyone say Nandigram?

1 comment:

Michelle Zhou said...

China and India have lot of opportunities for collaboration in many fruitful endeavors.

Let's learn Chinese! We can study Chinese online for free at