Misconceptions hamper Sino-India cooperation

By Liang Haiming Source:Global Times Published: 2017/8/2 22:08:39

Illustration: Peter C. Espina/GT

Thanks to its ongoing economic reform and demographic dividend, India has become one of the most attractive investment destinations in the world. The prevailing view in international academic circles is that India will likely replace China as the new "world's factory," which will be beneficial for China, India and even the world as a whole.

There is also a growing interest in India among Chinese companies, but many remain hesitant about investing in India due to concerns over its reform program and potential political risk.

The biggest concern is whether Indian Prime Minister Narendra Modi can pull off his aggressive economic reforms. Since taking office in May 2014, his government has announced many reforms, including the relaxation of foreign investment rules, demonetization and the introduction of the Goods and Services Tax.

These reforms have impressed the international community, but issues such as weak infrastructure facilities, low literacy rates and diverse cultures will make reform no easy task. In particular, India's multi-party political system may also restrain its longer-term economic growth. Thus, the Modi government must break down the bureaucratic barriers that undermine its economic competitiveness or it will be hard for the Indian economy to achieve new vitality.

What Chinese companies especially worry about is India's suspicion toward China. Although the China-proposed "Belt and Road" (B&R) initiative advocates peace, development, connectivity and inclusiveness, many opinion makers in India, including the media and even some officials, see the initiative as a policy for China to "contain" India and curb its development.

Chinese companies with plans to invest in India, especially small and medium-sized ones, should carefully deliberate how much risk India's suspicion will mean for their investment, unless the geopolitical dispute between the two countries is resolved and India abandons its "dragon versus elephant" mindset.

Chinese people mainly learn about India's economic development via media reports, so they often get a limited understanding of the country.

Specifically, the rich group in India is much bigger than many imagine. Many Chinese people think that India is a highly populated poor country characterized by diverse cultures, with frequent power cuts and a weak industrial base that is far inferior to China's. That picture is true, to some extent, but it's only a partial picture. According to the 2017 ranking of the world's richest people by the Hurun Report, India has 100 billionaires, the fourth-highest number of super rich in the world.

For another thing, India is pursuing a development model different from China's, but it also has a chance to succeed. China's development model was to develop labor-intensive industries first, while India opted to skip that stage and directly develop knowledge-intensive industries. It chose to replace labor-intensive work with high-value services and products before achieving modernization.

Compared with China's government-led market development model, India's federal government is slow to reach decisions. Yet, India's development model allows innovative entrepreneurs to change the market from the bottom up. Companies that grow big in the domestic market can go out to compete in the world and become driving forces for the country's economic growth. As the market can offset flaws in governance, India's entrepreneurship can compensate for its political deficiencies.

Third, China's economic growth relied a lot on investment and exports in the past, and it seems that India has started to take a similar approach. Modi once said that India needs a new economic growth model based on export-oriented manufacturing and infrastructure construction, so as to shift its service-dominated economy to one with large-scale deployment of labor and capital.

In addition to learning from the media, Chinese companies with plans to invest in India need to have a better understanding of the country from more sources, which may provide more data points for their investment decisions.

The author is chairman and chief economist of the China Silk Road iValley Research Institute. bizopinion@globaltimes.com.cn

Posted in: EXPERT ASSESSMENT

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