Why China Needs India's Transparency

The Indian media engage in no-holds-barred competition, protests are accepted, and even the stock market benefits from multiple points of view

A few months ago the gentleman driving my car between New Delhi and an old fort in Alwar district in Rajasthan had to stop to accommodate a collection of villagers protesting water shortages. It is perhaps a sad commentary on this serious problem—water shortages are endemic to Rajasthan, a desert state bordering Pakistan —that the protest barely registered with me.

But what I found interesting, after being stuck behind a line of bullock carts, buses, trucks, and cycle rickshaws all patiently waiting to move around the protest, was the equanimity with which the protest was received. Everyone was inconvenienced, but there was no "protest" against the protesters. Nor was there any attempt by the political classes against whom the protests were directed to subvert the protesters in any way. A conversation with the driver suggested much local angst was being acted out on the public stage about the corruption that obstructed the quest for a water shortage solution.

Both water shortages and corruption are problems that China shares with India. For example, the World Health Organization reported that 31% of households in China lacked appropriate access to water in 2005, compared to a staggering 81% in India, with even more sobering numbers in rural areas. Indians lack the most basic sanitation facilities, and once free-flowing rivers in China now run dry. But the public's attitude to voicing objection to these problems is different in small Chinese towns similar to those in India's Alwar district.

India System Encourages Airing of Grievances

It is becoming common to assert that protests now occur routinely in China, but this is only relative to the benchmark of their absence in the past. Chinese villagers think twice before protesting any grievance, water-related or otherwise. And protesting all but the most widespread economic corruption remains unfeasible in China. When there is protest it is in response to a legitimate grievance, but is akin to street theater—described thus to me by a Yale-educated lawyer volunteering time in China. The protester does not really expect anything to change, but hopes that his "performance"—poignant and serious—results in some incremental monetary compensation.

Protests, stripped to their essence, are expressions of points of view about underlying issues. The Indian system encourages the airing of alternative points of view, whereas the Chinese one discourages it. This is immediately apparent in physical barriers to information considered "sensitive" in China. Whereas the Rajasthani driver took me to meet someone who could describe the water problem in the hope that I'd contribute to finding a solution, in China I was steered away from villages where equivalent problems were being wrestled with, not by apparatchiks but by well-wishers who were sufficiently versed in the mores of the system to think that I would not be well served by such curiosity. There are also technological barriers, including Internet filters, buttressed by the efforts of several hundred thousand people assigned to police content that the state deems problematic to its interests.

The story is similar for academics. Belgian-born economist Jean Dreze has continually criticized India's dismal record on social indicators. For this, India rewarded him with citizenship in 2002 and he continues to serve on influential national commissions. Contrast this with Perry Link, Princeton professor of East Asian studies, one of several U.S-based academics on a blacklist for harboring views that China's Ministry of Public Security considers unsavory.

Lack of Information Hurts Investors

Of course China is changing. The existence of business-centered media, like Caijing, free to discuss some hitherto unmentionable topics, indicates real and welcome change. But, in the main, some points of view remain unwelcome. On contentious issues, stability trumps everything, and points of view that might compromise stability are unwelcome in public.

So the information environment is one that I'd describe as biased (toward palatable viewpoints for the state, and away from the whole picture) but noise-free (that is, an easily understandable story is told). In India, in contrast, there is a melange of views. Each point of view competes for influence. The media engage in no-holds-barred competition. The observer, Indian or outsider, has an opportunity to piece together the entire picture from multiple points of view. The information environment is the mirror inversion of China's, noisy but unbiased.

This information policy affects businesspeople and investors directly. In Mumbai, competition between the National Stock Exchange and the Bombay Stock Exchange has resulted in a multifold increase in efficiency of the equity markets in India. Stock prices convey, as they do in the developed Western economies, information about the underlying real assets of the company and thereby allow the market to accomplish its core purpose of reallocating money from poorer to better investments.

In China, in contrast, there is little competition between stock markets (e.g. Shanghai and Shenzhen), the government intervenes in equity markets, and equity prices are less informative about underlying risks and opportunities. Publicly available price data therefore have less influence on the decisions of savvy investors. They rely instead on information uncovered through operating in the real sector in China, through back-channels, guanxi (relationships) and the like. Foreign investors often prefer to get China exposure through holdings in companies operating on the mainland but traded on better-run stock exchanges outside the country.

Self-Censorship a Problem in China

It is no surprise, then, that by standard norms of good corporate governance practice, Indian companies do much better than do Chinese. The former have to communicate with shareholders and the media just as do Western companies, and have built up the experience and the internal organizational abilities to do so. The Chinese have a longer way to go in learning to embrace public market participants. Whether one considers arbitrary shakeups in the boardrooms of large Chinese enterprises, sometimes orchestrated by the Chinese leadership, or ham-fisted attempts to buy assets in the West without adequate disclosure to explain their intent, the underlying cause of problems is an inability or unwillingness to communicate.

For outsiders visiting the countries, the spanking new roads and hotels in China justifiably evoke admiration. These are the visible signatures of the economic miracle. But they are less than half of the story. The invisible signatures are the censorship and the even more insidious self-censorship, less than before, but still resilient. Anyone browsing the Web in China today will see two incredibly cute Disney(DIS)-inspired characters in black and blue. I initially mistook these for Fuwa, the dolls that are mascots for Beijing's 2008 Olympic Games. But they are Jing, a male police officer, and Cha, his female colleague; Jing and Cha together spell the Chinese word for police jingcha. They are there to remind Netizens that monitoring is ongoing. What you see is not what you get in China, not yet.

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