ON ARRIVAL AT Pudong International Airport, visitors are whisked efficiently through its shiny concourse and off to one of the city's many five-star hotels via a brand new highway. It is hard not to be impressed when you check into the Grand Hyatt Shanghai, billed as the world's highest hotel. It is located on floors 53 to 87 of the 88-storey Jin Mao Tower in Pudong, built on land that less than a decade ago was almost all paddy fields.
Mumbai offers a contrasting experience. Housed in a decades-old building with peeling paintwork and administered by dishevelled and apologetic-looking officials, the Chhatrapati Shivaji International Airport is as difficult to negotiate as its name is for westerners to pronounce. Tackle it successfully and the next ordeal is the potholed and traffic-swamped road system to downtown Mumbai. It is difficult to escape the impression that not much has changed since the British left almost 60 years ago.
Is it all symbolic of the economic status of the world's two most populous nations? Perhaps.
No contest
"China has arrived," says Chetan Ahya, economist with Morgan Stanley in Mumbai. "Everyone knows that. Is India going to be the next China? There are two key issues. One is the demographics in India, which are not as beneficial as in China. The second is the political situation, which means that the needs of the poor must be addressed at the same time."
India shares some crucial features with its eastern neighbour. It has a population in excess of a billion, a significant yet poor agrarian economy and a well-educated and relatively untapped workforce. India has long been touted as the next China miracle in the making. On the face of it, though, India has some way to go before it can be seen as even a pretender to China's economic crown.
In 1982, China's per capita nominal dollar GDP was $275 and India's was $280. Since then, according to Morgan Stanley's arithmetic, China's real GDP has grown an average of 9.7% every year and India's has increased at a more pedestrian 5.7%. The result was that by 2003 China's GDP was already 2.5 times the size of India's. Per capita income, at $1,086, was double India's. To rub salt in the wound, China has thrashed India in exports, with a 5.2% share of global goods and services that is six times larger than India's 0.9%.
With that kind of a lead, it would be tempting to conclude that the race is over. Arguably, though, this is not a race at all.
"It should be regarded as India and China rather than India versus China," says Suresh Senapaty, corporate executive and vice-president finance at outsourcing and IT services specialist Wipro in Bangalore. "We each have strategic advantages. The track record says that China is ahead because they started in 1978 whereas India only started in 1991."
Global economist Stephen Roach of Morgan Stanley in New York echoes Senapaty's thoughts in a recent article entitled India's Awakening. He writes: "Over the past several years my Asian travels have become increasingly China-centric. It quickly became apparent to me [from a recent visit to India] that China and India should not be treated as an 'either/or' trade off for Asian development. I am more struck by the possibility that the real answer may be both China and India."
Underlying this assertion is the fact that India and China have embarked on diametrically opposed economic development paths that have suited their particular economic and, more important, socio-political structures. As a result of these very different policies, their economies are more complementary than competitive.
"India has been a democratic country for over 50 years," says Senapaty. "Look at the growth, the transparency and interplay. You have to carry the masses with you. So the process [of change] becomes gradual rather than accelerated. India started in '91 with reform of the capital markets, legal and financial systems rather than [pursuing] export-led growth."
China, on the other hand, adopted the typical east Asian economic model so favoured by such countries as Japan, Korea and Taiwan. With massive investment in infrastructure to support spectacular growth in manufacturing, exploiting a large low-cost labour pool and driving exports, China has raced up the economic growth ladder.
The chief financial officer of one Chinese technology manufacturer puts the scale of China's achievement in context. "When they first started [here] 10 years ago, it was all screwdrivers and soldering irons. There was no design at all," he says. "They just copied and bolted things together. What's happening now is that the local manufacturers are quickly doing their own system engineering. Next they'll have product design and branding."
Infrastructure
The result is that the two economies have developed thus far quite differently.
"India is a bottom-up story, not top down," says TV Mohandas Pai, board member and chief financial officer at Infosys in Bangalore, like Wipro an industry leader in outsourcing and IT services. He says: "When you land here you won't see great infrastructure like China. When you visit Indian companies, however, you'll see great management teams, superior financial knowledge and productivity in labour and capital."
China has been able to invest heavily in its infrastructure by virtue of its high savings ratio, some 40% of GDP, and a government-directed lending binge. China has also attracted the lion's share of foreign direct investment – $53 billion in 2002-2003 – most of which has been invested in manufacturing projects that have spawned the infrastructure spend.
In contrast, India's domestic savings ratio is 25% and in 2003 it attracted just $4 billion of FDI. India's lower savings ratio and lack of FDI have left its creaking infrastructure way behind China's and have hampered its development as a low-cost manufacturing centre.
Poor though its infrastructure undoubtedly is, India's legal and financial systems are clearly well ahead of China's and these, coupled with Indians' solid English language skills and education system, have enabled India to excel in the provision of services, most conspicuously, IT services and outsourcing [see separate article].