The Dragon's Way Or The Tiger's?

A spirited debate over the merits of directed vs. democratic economies

China and India. Given their sheer scale, rapid growth, and increasing political heft, they often get lumped together in discussions of the future of the global economy. Yet they represent radically different development models: India is a boisterous democracy, while China is a single-party, command-and-control state. Which system is better at managing a complex economy, cultivating innovation, and delivering a prosperous future?

That question triggered animated debate at BusinessWeek's 10th annual CEO Forum in Beijing on Nov. 1-3. The event drew more than 700 global executives as well as senior government officials from China, India, and beyond. The conference explored critical themes such as Asian corporate competitiveness, the rise of the region's marketing brands, and the disruptive impact of new digital media such as blogs and social networking Web sites. The India-China rivalry, though, remained just below the surface in almost every discussion both on the dais and in the hallways.

VOICES OF DISSENT

Ronnie C. Chan, chairman of Hong Kong's Hang Lung Properties Ltd., riled up Indian executives by suggesting that China's system gives it an edge over India, where opponents of economic reform have a strong voice. "A democracy changes its mind all the time," Chan said. That drew an immediate retort from Ajit Gulabchand, chairman of Hindustan Construction Co. "When you look at market economies, which are the richest?" he asked. "They are democracies."

In an interview with BusinessWeek Editor-in-Chief Stephen J. Adler, former U.S. Federal Reserve Chairman Paul A. Volcker said China's political system and its attendant corporate and political corruption might cause trouble. "At some point, economic freedom ultimately clashes with a highly controlled political apparatus," he said. Still, Volcker conceded that the mainland's current system has managed to foster high-speed growth, and he predicted the yuan would eventually emerge as the dominant currency in Asia.

For now, both systems seem capable of producing companies that will make their mark on the world stage. China Mobile Ltd. (CHL ), for instance, has nearly 300 million subscribers and a $177 billion market capitalization, making it the most highly valued telecom company in the world. It has made two acquisitions in Hong Kong and aims to bag more quarry abroad, especially in the Middle East, Asia, and Latin America. "Our target is to become a world-class company," said China Mobile Chairman Wang Jianzhou. With the likes of China Mobile, telecom gear maker Huawei Technologies, and India's Tata Steel on the prowl for acquisitions overseas, China and India "are reshaping the global economy," said Yuwa Hedrick-Wong, an economic adviser with MasterCard International.

Can these two giants get along? Their rivalry is bound to intensify as India moves more into low-wage manufacturing, a Chinese specialty. Both must create 15 million new jobs every year just to keep their young people employed. China and India "are going to be competing for manufacturing jobs," said Professor Fan Gang, director of China's National Institute of Economic Research. While the economic competition may ultimately benefit both sides, he noted that "India's blue-collar wages are about half of China's." In other words, rapidly prospering China could find itself being undercut by lower-wage India.

By Brian Bremner

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