India, China Compared at BW CEO Forum

Two emerging economic powers, two very different machines. Will the future be an "arc of prosperity" or a jobs battleground?

When it comes to both China and India, the superlatives come fast and furious. Each one is a fast-track developing economy with vast potential for the decades ahead.

India is the fabled back office and outsourcing hub of the global economy and a vibrant if sometimes dysfunctional democracy. China, meanwhile, is a manufacturing and export phenomenon with a command-and-control political culture. Together the countries represent about 40% of the global population, both are growing at or near double-digit levels and "thus are reshaping the global economy in their own images," suggests Yuwa Hedrick-Wong, an economic advisor with MasterCard International Asia Pacific.

Right now, companies from each of these economically ascendant 21st century societies travel in different realms of the global economy. That's starting to change, and one of the more intriguing questions bandied about at the BusinessWeek CEO Forum in Beijing that kicked off Nov. 1 is just how soon their economic rivalry will start to intensify.

Both societies have enormous populations and need to absorb 10 million to 15 million new workers each year. India's outsourcing sector, dominated by the likes of Infosys (INFY) and Wipro (WIP), probably can't carry that burden alone.

A New Hierarchy

So India is trying mightily to attract foreign direct investment in basic industries such as steel and auto manufacturing. And cash-rich companies such as Tata Steel (TATAFM), which just bagged British steelmaker Corus (CGA), are shopping for corporate assets abroad to build up global scale (see, 10/9/06, "India Companies: Shopping Abroad").

In the years ahead, both countries "are going to be competing for manufacturing jobs," suggests Professor Fan Gang, director of the National Institute of Economic Research in China. While the economic competition will ultimately benefit both sides, he points out that "India's blue-collar wages are about one-half of China's." In other words, rapidly prospering China could ironically find itself being undercut by the low-wage environment of India.

Of course, one of the biggest raps against India has been its woefully underdeveloped infrastructure—airport capacity, highway networks, and rail—that make doing business in India somewhat of a struggle. Ajit Gulabchand, chairman and managing director of Hindustan Construction, thinks New Delhi is finally getting serious about closing the infrastructure gap with China.

In the last two years, the amount of infrastructure spending as a percentage of GDP has hit 4.5% (double decade-ago levels) and by the end of the decade it will be 9% to 10%. As a result, "You are going to get a surge in the manufacturing sector," he envisions.

Crossing an "Ideological Barrier"

One of the more interesting debates among global executives is which political model is best-suited to high-speed economic growth: India's freewheeling democracy or the top-down, authoritarian approach of China? Ronnie Chan, chairman of Hong Kong-based Hang Lung Properties, thinks China's embrace of market capitalism married to a focused, powerful and centralized government gives it an edge.

"The biggest problem for China during the last 26 years of development has been to cross an ideological barrier" from socialism to capitalism, albeit with unique Chinese characteristics, Chan argues. "The toughest part is over," he says, adding that "A democracy changes its mind all the time." Translation: Powerful vested interests in India could roll back economic reforms if they felt threatened enough. Hindustan's Gulabchand sharply disagrees with that assessment. "When you look at market economies, which are the richest?" he asks. "They are democracies."

Smaller economies in Southeast Asia such as Thailand, Malaysia, and Singapore hope fervently that these two emerging giants remain on good diplomatic terms as their economic rivalry intensifies. Having two regional and powerful growth engines such as India and China in Asia will create an "arc of prosperity that will benefit all of us," says Surin Pitsuwan, a former Thailand Minister of Foreign Affairs.

That's the hope at least. Whether it turns out that way will be one of the more fascinating stories to watch in the decade ahead. This debate is far from over.

Before it's here, it's on the Bloomberg Terminal.