The Dragon & the Tiger

In terms of bulk, the dragon and the tiger are comparable, with the dragon weighing in at 1.3bn people and the tiger at 1.2bn. How do they compare though in raw power and what does this translate into as they cross paths in the global jungle?

I begin with one shocking fact: the only two things that India excels at versus China are filmmaking (1132 vs 406 in 2007) and lower CO2 emissions (1.17 tonnes/person/year vs 3.7)!  Lest I forget, there is also the matter of procreation: Indians do manage to continue producing more babies than the Chinese (birth rates per 1,000 people are 21.7 and 14 respectively). And, of course, the hard cricket ball has spawned the lucrative Indian Premier League, whilst the soft ping-pong ball remains in the amateur league.

Across a whole slew of other economic and social indicators, however, there is simply no comparison between the mighty fire-breathing dragon and the lithe tiger. China’s economy and per capita income is now more than three times the size of India’s. The Chinese government collects ten times more taxes per person than the Indian government does.

 The paltry tax collections results in a fiscal deficit in India of ten per cent of GDP, whilst the Chinese ran a deficit of only 2.2 per cent of GDP in 2009, in spite of a massive stimulus spending programme of US$586bn (15 per cent of GDP) to counter the global economic downturn.  China, the masters of global trade, in 2008 racked up a trade surplus of US$296bn or seven per cent of GDP, whilst India ran a trade deficit of US$134bn or  eight per cent of GDP.

 In the sphere of communications and transport China has 747mn mobile phone users, 164mn cable TV subscribers, 23mn private cars and 192mn annual airline passengers; India has 545mn mobile phone users, 80mn cable TV subscribers, 10.8mn private cars and 41mn air passengers. China has almost three times more practicing doctors than India.

24mn tourists visit China annually, but only 5.4mn go to Incredible India. One could go on and on, but this serves the purpose to illustrate that comparing China to India is actually doing disservice to China. The Chinese dragon simply overpowers the Indian tiger.

On the economic front, China has followed a very clear agenda. It has focused on industrialisation as the vehicle to providing job security and lifting its masses out
of poverty.  In order to ensure that it can produce goods very competitively, China has invested enormous sums of money domestically in ensuring that the requisite infrastructure is built: utilities, roads, railways, ports, airports, communications.

Its large international investments have concentrated on securing raw materials and energy for its industry and in acquiring vast tracts of agricultural land for food security. Manufacturing now represents more than 40 per cent of China’s GDP, and China has become a vast importer of raw materials and an exporter of manufactured products.

India’s trade engagement with China is mirroring this transformation of the Chinese economy: India primarily supplies raw materials to China and imports mainly manufactured products. Indo-Chinese trade has exploded in the past five years, from US$13.3bn in 2005 to US$43.4bn in 2009, and China is now India’s largest trading partner. Unfortunately for India, this growth in trade has been completely one-sided, and India’s trade deficit with China has increased from US$7.2 to US$16bn.  India’s imports from China have grown from US$6.1bn in 2004 to US$29.7bn in 2009.

 The Confederation of Indian Industry (CII) estimates that in 2011, imports from China will reach US$56.5bn and the trade deficit will have ballooned to US$40bn. This does not bode well for India, and especially for its domestic manufacturing sector.

This increasing imbalance in Indo-Chinese trade reflects a deeper problem of economic competitiveness between these two countries. A recent CII report presents that manufacturing across various industries such as steel, power equipment, automotive components and construction equipment is 12-26 per cent more expensive in India than in China.

About 30 per cent of this Chinese competitiveness can be ascribed to subsidies, such as the pricing of power and the lower compliance to social costs, but the majority is due to real economic efficiencies such as lower logistics and finance costs and better productivity. After factoring in ‘pricing power,’ Indian manufacturing is 26-40 per cent more expensive than its Chinese counterparts. This Chinese pricing power is due to a combination of the artificially undervalued yuan, taxation policies and lower capital outlays.

The fundamental problem in India is that there has been a complete lack of understanding of China and a lukewarm policy of engagement. As a child going through primary education in India, I was taught far more about the West than about China. I was unaware, for example, that until about 200 years ago China had been the dominant global economic power for the past two millennia.

 If India is to engage with China, it needs to show greater interest in and understanding of China, starting at the primary school level and continuing in to business and politics. Rather than offering French, German and Spanish as foreign languages, Indian primary schools should be focussing on Mandarin.

 Businesses should be engaged directly with Chinese companies, because it is only through such engagement that India can see beyond the competitive threat of China towards the land of opportunity. At the political level, the Indian government needs to be tougher towards inequalities in the terms of trade and investment that currently underpin a lot of the Chinese advantage.

As an example, China restricts exports of its coking coal, resulting in prices to Indian steel producers of US$400/tonne vs only US$135/tonne in China, thereby leading to cheap Chinese steel flooding into India.  The Indian government needs to implement policy that levels the playing field.

The Year of the Tiger is an opportunity for the Indian tiger to start roaring louder at the Chinese dragon.  Whilst the fire-breath and whiplash tail of the dragon continue to give it an advantage over the tiger, the tiger’s spine-chilling roar could give the dragon reason to pause and re-assess the rules of engagement.