Join our Mailing List

"I believe that to meet the challenges of our times, human beings will have to develop a greater sense of universal responsibility. It is the foundation for world peace."

An Uncertain China

April 28, 2009

Chris Devonshire-Ellis
April 27, 2009

As the world shifts its political positions and
emerging countries flex new found muscles in the
aftermath of the global financial crisis, how has
China reacted to the situation? As always when it
comes to this enigmatic nation, the signs are
mixed, and are not consistent. It is also
becoming apparent, at least, that U.S.-China
comparisons are not really valid. Should a
comparison be made with any country, surely it
would have to be with India. Not only are the two
nations neighbors, they also have massive
populations, emerging domestic markets, and until
recently, shared religious values. On the other
hand, there is mutual mistrust, still simmering
border disputes, and completely separate
political systems. The similarities and
differences between the two are far more aligned
than those between China and America.

China’s position over India remains odd. Disputes
caused long ago, before India became independent,
and before the Communist Party was even
established in China, continue to worry both
nations like an itching scab. The Great Game
between Russia and Britain, and the use of Tibet
as a buffer state to separate the two
superpowers, has resulted ultimately in a Tibet
under communist rule for the first time, a border
war between China and India in 1962, and several
border disputes, which although both sides
recently “agreed to disagree” about, have recently flared up again.

China’s use of its veto at the Asian Development
Bank to deny India, for the first time ever, a
loan for the development of Arunachal Pradesh,
was purely a political issue, and nothing to do
with finance or development. China has never
controlled the region, yet used its veto to deny
India the funds to develop an area close to its
border, and upon which China has claims. This is
neither consistent, nor particularly statesmanlike.

Elsewhere, China’s issues appear to stem from the
difficulties the country now faces in managing
itself as a one party state. Make no mistake,
this is not an easy thing to do, and to remain
benign, committed to development, economic
progress and integration with the global
community while utilizing such a system has never
been attempted before. People forget; while China
may appear to have been stable over the past
three decades, the Chinese social experiment
still remains unproven. Cracks can and do appear
– with unemployment rising, graduates leaving,
and local corruption fuelling peoples anger, the
masses can quickly get out of control. This
remains a problem with a one party state, where
locals cannot just vote an unpopular or corrupt
official out of office, and whose party apparatus
largely protects those who sin.

This remains in stark contrast to India, where
national elections are currently being held under
relative peace, security, and transparency. Over
670 million people are voting, while newspapers
from all political views promote their candidates
and are dismissive of others. The system used is
courtesy of Infosys, is electronic and provides,
according to Infosys founder, Nandan Nilekani,
“faster settlement than most Western stock
exchanges.” China meanwhile is stuck in a system
that is patriarchal, yet not answerable to the
people at the same time. It’s these internal
conflicts that provide China with its own fault
lines. They are likely to get worse. China’s
population is aging, and this will bring greater
stress on a social system that does still not
cover all its citizens nationally. As people age,
social welfare costs increase, workers salaries
have to rise to cater for their aging
responsibilities for families at home. The stress
levels on the Chinese government under such a
system are huge, and not entirely understood. The
fact remains, that as an experiment in managing
over a billion people, without permitting them
the right to vote or rule of law to challenge the
system, China is taking a huge risk. It’s never been done before.

India on the other hand, has a young population,
and with no state mandated population control in
place, is going to be producing much of the
world’s low cost labor for decades to come.
Younger populations have long been recognized as
primary drivers for growth and consumption, and
India’s is overtaking China’s right now in this
regard. It will be India’s population that begins
to drive the global economy, just at the same time that China is slowing down.

India’s democracy, while shambolic at times, is a
system that can be absorbed by the population,
and largely is. Corrupt officials, if caught,
face intense media scrutiny, and are accountable
to their voters. If serious offenses are
committed, government officials can go to jail.
While that is also true of China, the procedure
is a closed session process – after all, it’s the
party apparatus that is on trial, not just the
errant official. Newspapers are barred from
reporting, and judges are ‘advised’ not to hear
cases. That is not stability. Neither is it sustainable.

In short, while I weigh up the pro’s and con’s of
both China and India, it is the rise of both
economies that is the real global question.
Perhaps controversially, I would state that it is
India that is winning the game. China to me – and
I lived there for 16 years – is erratic,
uncertain, and has reached a glass ceiling in its
development. I think it will struggle to get over
without extensive changes to the government
apparatus. Take for example Chinese companies
investing overseas. Apart from state-owned
enterprises securing energy and other vital
resources for the nation, Chinese companies are
not free to invest abroad. They must still seek
permission from the government. This impinges
upon the ability for China to grow and develop
its own breed of truly global entrepreneurs
capable of selling "brand China." This is in
direct contrast to India, whose businessmen – and
businesses – are developing into global
behemoths. Formula One is a good example. While
China made the headlines in hosting an annual
race in Shanghai, it was India who put together a
team, racing under national colors and exposing
itself to all 17 races instead of just the one.

None of the scenarios I mention are reasons to
abandon China. In fact, I believe the domestic
opportunities to sell to the Chinese market are
improving. But when it comes to strategy, the
dreadful term “Chindia” doesn’t fit the bill.
Both China and India need separate attention, and
understanding as to their differences and
developments. Longer term however, China in my
mind looks uncertain in its apparently new-found
role as a focal point of the global engine for
trade. Fingers are being pointed, questions
asked, and it is not used to this. Meanwhile,
India continues to develop and looks more
confident on the international stage. I will
continue to invest and develop business in China.
But longer term, I am also putting my money and
investing in India. A China-only strategy, when
it comes to global development, is no longer enough.
CTC National Office 1425 René-Lévesque Blvd West, 3rd Floor, Montréal, Québec, Canada, H3G 1T7
T: (514) 487-0665
Developed by plank