Expert Roundtable 3 India and China: Partners?
This summer, BusinessWeek brought together 13 of the smartest people we could find for an online roundtable on the past, present, and future of China and India (). On each of eight days, we posted a new question. Economics Editor Peter Coy moderated the discussion. The experts communicated both with us and with each other on everything from geopolitics to generation gaps. Now we're sharing the discussion with you -- and invite you to offer your comments. Please note that not all 13 participated every day, and comments have been edited for style and clarity.
Are India and China rivals for world markets and resources, or will they tend to be business partners?
China and India are natural business partners to each other and to every one else in the world. Any country in the world that neglects China and India does so at their economic peril. India has caught the growth bug -- and they caught it from China. It is obvious to all observers that China's economy and society are dramatically better off than in the past, and that there are benefits of this to the society as a whole and to the governing parties.
To the extent they compete for resources, fine. Each will use these resources to some economic end that will make us all better off.
Yes, China and India are competitors but also natural business partners. The complementarities between the two, e.g., China's competitiveness in computer hardware and India's competitiveness in software and IT services drive rapidly growing reciprocal trade and investment which is likely to outpace global averages in the years to come.
This is also a reminder to the rest of us not to apply a narrow bilateral lens to recent economic and geopolitical developments but rather prepare for the coming global realignment.
China and India are ideal business partners more so than competitors. I agree with Oded that the two are complementary. China has the hardware and production capability and India the software and technology edge. If these strengths can be combined by more bilateral cooperation and mutual investments, it will increase competitiveness of both countries. China and India also have a lot of similarities so they can share experience and knowledge. Both have great diversity in income between the rich and the poor, the have and the have-nots. Both have a big rural population who are still living at subsistent level. Both are big countries with multiple dialects, climates, regional cuisines, and tastes.
In China, we find Indian expertise is often more applicable than that from developed western worlds. This may be why we see a lot of Indian planners who do well in China. They tend to have a better grasp of the complex market dynamics. China entrepreneurs and businesses are also very interested in selling to and sourcing from India. Haier for example, has a big presence and organization in India. From both the macro perspective and talent perspective, India and China can benefit by working closely as partners
I do not think China and India are "natural" business partners. There is a social memory in India that [inspires a] lingering trace of caution about China. It goes back to the perplexing military move China made against India during the Nehru days. What perplexes two generations of Indians is why and how Chinese leadership decided to surprise India. It shook up a whole nation that was espousing "non-alignment." In 1962, in a sense, Indians were shaken up from a state of innocence.
This followed a long spell during which, though conflict did not take place, there was continued suspicion of geopolitical motives. China has always militarily supported Pakistan and India gave shelter to the Tibetan cause. As a result, the climate for cooperation has always been overshadowed by clouds of non-understanding. Only in the last few years have a few Indian businesses gone ahead and started exploring China and Chinese merchandise has started getting into India.
I would call two countries "natural partners" only when there is wider people-to-people contact and comfort. Both nations have a long way to go to achieve that. But, the reason for establishing such a relationship has long existed -- the problem is the [climate] has not. The future seems to point toward a time when we may see the two coming together.
The answer has to be yes. India and China could be business partners, surely! Let's look at it on three levels: historical, entrepreneurial, and economic compatibility.
Historically India and China have a number of similarities. Both are ancient civilizations, have led the world as its richest point in civilization at different times – only to fall down in the second half of the second millennium. Both kickstarted their re-entry into modernity in the middle of the last century.
India and China accounted for more than 50% of world gross domestic product in the 18th century and to my mind, there is no doubt this will be repeated. Trade synergies will emerge over the next few years as India and China continue to exert their muscle.
From an entrepreneurial standpoint, Indian businessmen and corporations are already looking at China and at cooperation at the enterprise level. A large number of business leaders and corporations have already established a base in China and are looking to grow and leverage the advantages that China offers. There is a natural "partnership" between the Indian spirit of entrepreneurship and the Chinese desire to create wealth, and their socio-cultural similarities will make this partnership easier.
Economic compatibilities exist with Indian companies in the IT, pharmaceutical, and auto-component manufacturing industries already setting up plants in China. And China could look at India among other markets for glass, ceramics, electronic components, plastics, and other materials. There are definite synergies around India's software and China's hardware capabilities -- and both countries need look not only at joining forces and increasing their strength in the global economy but at the captive market of 2.5billion consumers they share.
Both governments need to look at their natural economic compatibility and their growing influence on the world economy and use this advantage to create a sustainable economy and start the process of creating wealth for the needy that still exist in both countries.
A somewhat tangential observation, not a direct response to the question posed: Out there in the everyday bustle of the bazaar there doesn't seem to be a "China" and "India" in any monolithic sense. An example: This last week shops in Mumbai have been besieged by demand for a Funskool toy called "Bay Blade," which is out of stock. Some retailers are now selling a Chinese-made look-alike at a premium. Mumbai shopkeepers, their unseen suppliers in China, and several link-agents in between are making money. Meanwhile Funskool India is presumably losing out.
Perhaps the partnerships and competition will take shape not so much between nation-states but between entrepreneurs of differing scale, speed, and savvy.
There is a body of evidence that supports a "gravity" theory of trade between any pair of countries. This means that trade volumes are directly correlated to the combined size of the economies and inversely to the distance between them. By this yardstick, China and India have enormous potential for trade and current volumes are just a fraction of that potential. Of course, when we get down to the level of specific commodities and services, the picture may get a little blurred.
China's and India's comparative advantages in manufacturing overlap significantly; at this point, China has achieved greater competitiveness in most, if not all, of the overlapping sectors. Language barriers make trade in services a lot more difficult than it has been for India with the U.S. and other English-speaking countries.
Nevertheless, from a macro perspective, the combined size of the economies and their relative proximity do make them "natural partners" and their economic diplomacy must take this into account.
I do not think India and China are "natural" business partners. The needs of the two countries are different. However statistics show growing trade and a favorable trade balance for India! Given India's increasing services trade and China's trade in manufactured goods there is an asymmetry here. But each one is trying to move in the other direction -- India toward manufactured goods and China toward services. So there will some conflict here till a balance is found. Till then both will focus on their natural directions. That seems to be more natural for the next decade.
As I see it there is a difference between whether India and China are NATURAL business partners and whether they will TEND TO BE business partners in the coming years.
I beg to differ from the polarized positions that see the two either as natural business partners or as not. I doubt if there is a set of factors that we can put together to measure any two countries or two peoples as natural business partners. The arguments put forward so far to support one view or the other are mainly pick-and-choose type of emphases that do not necessarily share the same variables.
The U.S. and China have a huge trade volume. Are the two peoples therefore natural business partners? The EU as a whole has now surpassed both the U.S. and Japan in terms of trade with China, and continues to grow. Are Europeans and Chinese natural business partners?
In fact, if we measure by the intensity of economic activities, China would be a natural business partner with everyone now. But that was not the case 30 years ago. Some factors of history, language, religion, geographic proximity, culture, and political system may play a role, but business partnerships in today's world are primarily socially acquired, humanly constructed, market-regulated, profitability-driven and historically conditioned. In this sense, it is not whether India and China are NATURAL business partners but rather under what conditions they can BECOME business partners.
Looking at the development stages of the two countries and the international environment surrounding them, India and China are and will continue to be both competitors and business partners in the foreseeable future. It is quite obvious that the two are competing for low-end manufacturing jobs that tend to flow from higher-wage places to lower ones in a globalizing marketplace. When more FDI goes to China, the rest of the world will get less. Even when the wage-level is similar, many other factors come into play. So far, China has proven to be very innovative in certain manufacturing sectors, outperforming others not just by cheap labor cost but also by efficient management from materials supply to production to distribution to international marketing. But India is catching up fast.
It is also clear that when rapid growth is projected for the economies of these two giants over the next few decades, they will have to compete for energy and other natural resources. On a per capita basis, both countries are energy and resource poor, and there are already indications that high energy prices are hurting both. Whereas China may absorb some of these high costs from its $600 billion and growing foreign reserves, the same cannot be said about India. Beijing and New Delhi have certainly recognized that and so some initiatives, especially from India, have been taken to strengthen India-China (plus Japan and South Korea) cooperation in the energy area. They hope is to form a buyers' bloc to have some influence over OPEC policy and the international oil market.
Although the Chinese rhetoric about "South-South cooperation" used to have a strong political tone, it is now more about real business partnerships based on market and profit calculations. The majority of Chinese enterprises are totally market driven and they do cut-throat capitalistic operations with a ruthless attitude. So whenever they find it complementary with Indian enterprises, they will be ready to do business as they do with others. And there are many opportunities emerging.
A China-India business partnership can [result in] a particular competitive advantage over the U.S. and other industrialized countries that have high labor cost. That could be a particular challenge for the rest of the world in the years to come. So a mixture of competition and cooperation in all areas will be the likely pattern of India-China relations.
Corporate vice-president for strategy, HCL Technologies
Chief operating officer, MindTree Consulting
U.S. and India
Activist and author
Managing partner, New Horizon Investments
Group chairman & CEO, Grey Global Group
Chief economist, Crisil Ltd. debt-rating agency
Associate professor and associate chair
Department of Political Science, University of Alberta Canada
Research Manager, Media Communication Group, Microsoft Research Asia
Chairman, Boston Consulting Group (India)
Professor of management and human resources, Ohio State University Fisher College of Business
CEO, Deloitte, Asia-Pacific Region
Donald H. Straszheim
Chairman & CEO, Straszheim Global Advisors
Associate professor, School of International Studies
Director, Center for International Political Economy, Peking University