Différences entre la Chine et l'Inde

Where investing: In China or in India?

Introduction

China and India are the only two countries with more than a billion of inhabitants. These giants have their own dynamic, with growth rates three to four times higher than European ones during the last decade. With two cultures totally different from the occidental environment. Even if there is some occidentalization in biggest cities, these countries preserve their cultural identity and history. However what’s happening in these countries is unique and fascinating for the investors, and it offers huge opportunities that need to be grasped. Surprisingly China and India are really different with assets and weaknesses at the opposite. There choices for developing the countries are different and despite their neighborhood and respective weight they choose to ignore each other. It’s not easy for an investor to choose between these countries.

What are the reasons and opportunities for an investment in China or India?

We will show different elements of comparison between China and India which would help an investor to choose a country more than another. We will first study the main differences between the governments in China and India then we will focus on politics about savings in investments in these two countries. We will then study the “silicon valleys” in China and India and their main characteristics. And finally focus on the rise of middle classes and the next challenges for these two countries.

General situation, background analysis

Politically

In China, an autocratic system without elections works with a political and administrative locking from the communists. Egalitarianism is supposed to be the basics of this society and institutional system even if new gaps and differences have been created with the quick economical progress of the last 20 years. The business environment is usually open and easy to understand, with efficient infrastructures benefitting from large investments every year. Foreign entrepreneurs usually receive a warm welcome with more than 80 billion dollars of foreign direct investments per year in China.

In India, the democratic system is restrained by the cast system, a too complicated bureaucracy and a system totally unequal with no real possibilities to rise from one situation to another. According to the last studies of the Asian Development Bank, 75% of the population (800 million) is under the absolute poverty line. Running a company in India is still quite difficult even if it becomes better every year with new regulations and mentalities evolving. The total control of the state over enterprises has been the rule for more than 40 years after the independence in 1949. The congress party of Pandit Nehru developed a sort of local socialism. With closed borders and a heavy bureaucratic system, running a company involves a lot of red tape, especially when it comes to the license rules called “License Raj”. Even if the license raj has officially been abolished in 1991 (by Manmohan Singh who was the financial minister) it is still difficult to take benefit from the system, which is heavy and slowly evolving.

The Party in Power - the old Congress party constantly led by the descendants of Nehru – has to reform in depth the business rules. Infrastructures remain desperately obsolete, even though it was recently decided to engage a lot of work to renovate roads and other airports. However this is problematic as India lacks the money necessary to these changes in a country where exports represent a little more than 10% of GDP (while it represents more than 37% in China). However, flows of foreign direct investment are rising every year, and this shows that things are moving in the country increasingly opening itself to abroad.

Economically

A financial paradox puts the two countries in opposite situations. There is plenty of capital, and savings and investment in China, but a return on capital for investors remains modest, without much financial market. India is on this point, in a better position, with returns on capital of much better quality, even if the available capital is much lower than in China. The Bombay Stock Exchange is a "real good" example for those of Shanghai and Shenzhen.

The choices of economic policies are also at the opposite, even if they are implicit rather than explicit. "All industrial" choice of China makes the industry representing more than 48% of the GDP. In India it represents only 28% of the GDP (with a GDP 3 times lower than the Chinese one). In contrast, the services sector represents around 55% of India's GDP. However reducing the overview by calling China as the "world factory" and India as the “office of the world" is of course artificial.

Growth and system of government

For twenty years from now on, India and China have started to think differently. 1984 is the year of the assassination of Indira Gandhi and the premises of an evolution of economic socialism of Nehru. This is also the year of Deng Xiaoping's speech about the increase of Chinese national income by four times in fifteen years, followed by major reforms offering a new point of view and sometimes contradicting the Maoist thinking. Since then, the Chinese GDP grew by 10% on average, while the Indian GDP grew by 7%, with more annual variations in India (a year with a good monsoon can have two points of additional growth).

Are the political regime, institutional traditions and cultural inequalities between citizens decisive for economic progress? The link between growth, democracy and capitalism has been demonstrated as deceptive, from Joseph Schumpeter ("Capitalism, Socialism and Democracy," 1943) to Benjamin Barber ("Jihad vs.. McWorld," 1995). Barber even said, "Capitalism does not need democracy and does not lead it."

For China, the Communist Party keeps monopolizing all powers. It rules with a strong political authority based on an implicit social contract that produces high growth. This is the meaning of the slogan of Deng Xiaoping in 1992, the "social market economy" where the word "socialist" stands before “market” (what all Chinese understand immediately). It’s a way of saying that you can practice free enterprise and enrich yourself as far as you

...