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Ideological mountain to climb for China-India business

India's democratically elected Prime Minister Narendra Modi viewed Shanghai's gleaming skyscrapers at the weekend in search of pointers for his economy, but China believes its one-party state is a key reason for its growth miracle.

[SHANGHAI] India's democratically elected Prime Minister Narendra Modi viewed Shanghai's gleaming skyscrapers at the weekend in search of pointers for his economy, but China believes its one-party state is a key reason for its growth miracle.

China began moving away from its closed-off, Maoist command economy in 1978, recruiting market forces under Deng Xiaoping's "reform and opening up" banner to power its rise to the world's number two economy.

State infrastructure investment and favourable treatment for foreign companies have made Shanghai the planet's largest port, a gateway to the world for Chinese goods.

"Shanghai is indeed among the Chinese cities with the most advanced economies," Shanghai Vice Mayor Zhou Bo proudly told Mr Modi.

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In 1980, as China was embarking on change, the Asian giants' GDPs were almost identical, according to the World Bank - with India a fraction ahead on US$189.6 billion at current prices, compared to US$189.4 billion for its northern neighbour.

Since then different paths have been followed either side of the Himalayas and by 2013, China's GDP was almost five times higher, $9.24 trillion compared with $1.88 trillion.

Wen Fude, director of Sichuan University's Institute of South Asian Studies, said Beijing has moved more decisively on economic reform than New Delhi.

"China first threw open the door (to foreign investment), then dealt with the legal basis," he told AFP. "Every time India opens the door, it's just a small crack."

Now India is seeking Chinese help in the areas in which it is strong: building high-speed rail lines and power plants, as well as setting up the manufacturing bases that made China the workshop of the world.

"We have to learn from you," Mr Modi told a Shanghai business forum, citing China's foreign investment environment, infrastructure creation and export-led development model.

Economically, nationalist Modi is seen as a liberalising reformer whose home state Gujarat boomed under his rule, and his election last year raised enthusiastic hopes among foreign investors.


But, for their part, Chinese officials and analysts hold up their country's one-party state among the reasons for its success. Under "socialism with Chinese characteristics", the authoritarian government is able to ram through projects it considers a priority.

"It's worth India learning from China's ways of governing the country, the way the Chinese government does things... and paying attention to people's livelihoods," said Lin Minwang, a professor at China Foreign Affairs University.

In a compact with its people, the Communist Party has delivered decades of rapid economic growth and improved living standards in return for acceptance of its rule, crushing what it views as dissent.

Prof Lin believes that India's labour unions have too much power, while its government has undue difficulties expropriating land.

"India enjoys democracy, but maybe at this stage it's not too suitable," he told AFP, echoing a common belief of Chinese officials about their country.

China's Communist party fears an independent labour movement could threaten its grip on power, so it allows only one, government-linked trade union. Local authorities often drive people off their property with little compensation, helping free up land for development.


Mr Modi pointed out the areas in which his country excels.

"You are the 'factory of the world', whereas we are the 'back office of the world'," he said. "You give thrust on production of hardware, while India focuses on software and services."

Most of the more than 20 business deals announced during Mr Modi's visit involved Chinese financing for Indian companies in infrastructure projects, but nimble private Chinese firms such as smartphone maker Xiaomi also see India as a potential consumer market.

"India is the only country that has a population of over a billion aside from China," its founder Lei Jun was quoted as saying last month. "Its economy is taking off." The International Monetary Fund forecasts India's economy to expand 7.5 per cent this year, well ahead of China's 6.8 per cent.

Chinese officials stress the similarities between the two countries: both are developing countries with large populations.

But they have other parallels too: endemic corruption and overbearing state regulators.

In an op-ed in the Global Times newspaper this week, Mao Hongtao, a former manager of China First Metallurgical Group's Indian operations, lamented the problems he experienced with visas, business registration, taxation and efficiency.

"It is as though you are taking a bag of gold to the other side of the river bank to invest in and develop business, but the bridge you have to cross is a floating bridge," Mr Mao wrote.

"You feel insecure while walking on the floating bridge and it is difficult to reach the other side given the uncertainty." Few foreign investors in China would fail to recognise such sentiments.

Even so, China's commerce minister Gao Hucheng urged India to improve its business environment, before citing Deng Xiaoping: "The real Asia-Pacific Century or Asia Century must wait for China, India and other neighbouring countries to develop, then it will arrive."