In the following article I want to describe the ideologies that define the two powerhouses in Asia - China and India and what differentiates them from each other economically.To understand the differences one must start with the perceptions that exist of the two countries by the intellectuals in the west. Since the cold war, there has been an added emphasis placed on China and the powers that be in the west Nixon thought of China as a balancing power against the soviets and visited them, the Indians however were left ignored. Now, with the advent of India as a nuclear power the west is now looking at India to balance the nuclear scale with China.

India is a democracy and China is not this creates a ripple effect in almost every other aspect of economic activity. To understand the differences in priorities one can compare the famines that affected the two countries: China in 1981 and India in 1979 India never had to take a single sack of grain from any country while China had to get grain from various countries, this after the fact that many scholars in the west had already proclaimed that China was well on the path of economic growth. The two countries have taken very different approaches to economic growth: China has focussed on Manufacturing as the key to its growth and India has placed an emphasis on Services.

The Hare: The Chinese government aides and directs economic activity more than the Indian government does. It invests heavily in physical infrastructure and decides which companies receive government funding and listings on local stock markets. Physical infrastructure such as roads are seen by many as being the veins that interlink the land mass to the ports. China is far ahead in terms of infrastructure development than India and thus manufacturing in China flourishes given the latest just-in-time delivery models practiced by the west to which Chinese companies primarily deliver products. China has also welcomed foreign direct investment. The large amount of FDI has now become a substitute for domestic entrepreneurship. If one was to look at the goods that we utilize everyday that are made in China, a very small percentage of the products are actually designed in China locally. During an address recently the Premier Wan Jiabao singled out areas of concern which included an overabundance of fixed assets investment, an imbalanced investment structure and tight supply of coal, electricity and oil, and the country’s transportation capability. Chinas vulnerable banking system is under even more pressure as its investments in non-performing state owned assets have not generated any returns.

The Tortoise: The Indian government’s lower level of intervention in capital markets and its decision not to regulate industries that lack tangible assets (software, biotech, Media) have created room for entrepreneurs. Entrepreneurial activity is fuelled both by family-owned enterprises and by new players. Family owned businesses draw on the investment from family ties and utilize their networks and new entrants have come about from being exposed to cutting edge technologies in other markets such as the US. In biotechnology, however, companies such as Ranbaxy & Biocon emerged from pure entrepreneurial effort, as did Infosys Technologies, Wipro and TCS in software.

Similarly, hundreds of smaller versions of companies such as Infosys and Wipro Technologies have absolutely no government links, unlike so many of China’s successful companies. Indias capital markets operate with greater efficiency than China’s. They are also much more transparent. Companies can raise the money they need when they need it with relative ease. India’s legal system, while slow due to its load, is much more advanced and is able to settle sophisticated and complex cases. Its banking system has relatively few nonperforming assets. Its democracy and media are functional and vital, which provides a safety net for the sporadic changes that modern day economic growth brings. India has religious hardliners, secessionist movements and bitter rural poverty but the voters know they can throw the non-performers out, and regularly do (as evident from the latest elections). Another Chinese premier proclaimed that the economy would have collapsed if not for state intervention; this state spending has taken Beijings debt to record levels.

The tangible evidence that we see in news-reports every alternate day speaks of hundreds of Chinese immigrants stuffed into cargo containers arriving in ports in the West asphyxiated and malnourished does this indicate that all is well in that nation I would say NO!

The official figures that come out of both countries are inaccurate but in the case of China, no foreign body or organization is allowed access to data which obviously seems cooked, for example, the government statistics show that the use of electricity has reduced now, I am not an economist, but I would argue that electricity use should increase when the economy is booming??

The path that India has chosen at-least for now seems to be working and the political thinkers in India have shown tact by looking at the larger picture, at economic prosperity in the long term and economic growth for ALL its citizens not just the ruling elite. For China as we progress into another decade its political ideology will be more intertwined with its economic decision making and it must change in order to remain the leader in Asia.

The tortoise with its slow and methodical pace will overtake the hare!

It is just a matter of time.