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Tuesday, Jan. 4, 2011

Indian elephant too slow for the Chinese dragon


Special to The Japan Times

HONG KONG — The visit by Chinese Premier Wen Jiabao to Delhi in December underlined the importance and immense diversity between the world's two once-and-future superpowers.

Neighbors China and India, home to 35 percent of the planet's population, are the great hope for future global growth while potentially posing great peril that could plunder and destroy the Earth's fragile resources.

Wen arrived with great fanfare, as if trying to prove that anything that the United States, France or Britain could do, China could do better and bigger. All four countries have paid court to India in recent weeks looking for business deals. President Barack Obama took 215 business leaders; Nicolas Sarkozy led more than 60; and David Cameron was accompanied by 40 British business executives. Premier Wen took 400 executives, including bosses from Shanghai Electric, SinoSteel and telecoms firms ZTE and Huawei.

When Wen left after a packed three days, China and India had signed 50 deals for power, steel, wind energy, telecommunications as well as food and marine products, altogether worth about $16 billion, much bigger than the $10 billion worth that Obama and his business leaders left with. The two neighbors also agreed to increase their trade from $60 billion to $100 billion by 2015.

So the wrapping paper on the talks was appropriately festive. But if you get beyond the bonhomie and the blahblah of the official speeches and the communique, the two countries failed to come to grips with real issues dividing them, which could undermine their promise of better ties.

China and India were both victims of colonialism in past centuries. When they regained their freedom, both China and India retreated into effective economic isolationism in different ways. China physically closed the door on the outside world with disastrous economic results until Deng Xiaoping opened it in 1978. India was always open but in pursuing economic autarchy, it condemned itself to the "Hindu rate of growth," barely above the rate of population increase.

India did not follow Deng's opening of the door to the outside world. It was not until the then Finance Minister Manmohan Singh found himself with only enough money in the kitty to pay for two weeks of essential imports in the early 1990s that India somewhat reluctantly began opening up its economy.

Singh in those early days asked if a nationalized industry was profitable, why shouldn't the people be allowed to share in the profits. It was a reasonable question, relevant today when it has been belatedly revealed that the Indian exchequer and people have been cheated of between $40 billion and $50 billion because the former telecommunications minister sold mobile telephone licenses too cheaply.

The fatal flaw in the logic that a nanny state knew best how to direct the details of the economy was that the many underpaid underlings saw their opportunities for making money out of the proliferation of permits required to start a business, employ people, get power and water supplies, have access to finance, let alone to fail and close a business or sack people.

India's "permit raj" played into the hands of corrupt officials and the big industrial groups that knew how to manipulate them to prevent competitors from entering the market.

In spite of recent often reluctant liberalization, India remains a difficult place to do business, according to the World Bank Group's annual report Doing Business 2011. It languishes in 134th position out of 183 economies ranked — up by a single place in a year.

China is in 79th place, down one from the 2010 study. Both India and China score poorly on the aspects of starting a business — India in 165th position, and China in 151st — and dealing with construction permits — where India comes 177th and China 181st.

They also diverge significantly in the importance of trade to their economies. China is a trillion-dollar exporting giant that took over from Germany as the world's biggest exporter in 2009, with exports of $1.2 trillion, 9.6 percent of global exports and a trade surplus of almost $200 billion. (As an importer, China lags the U.S. by a considerable distance, just over $1 trillion in 2009 against the $1.6 trillion imported by the U.S.) India is in lowly 21st place of the world league with only $136 billion exports in 2009, 1.3 percent of global exports and a trade deficit of $114 billion.

Trade between China and India has increased by leaps and bounds and will top $60 billion for 2010, making China India's biggest trading partner. China has made big inroads into India's consumer markets for all sorts of goods from shoes to toys, electronics and computers. In 2010, China exported a subway train to India. India has not had anything like the same success in selling to China because its long-protected manufacturers cannot turn out goods cheaply enough.

Iron ore alone makes up about half of India's exports, and the rest consist mostly of basic commodities. Delhi has long complained that China doesn't play fair in terms of market access, and has launched a string of anti-dumping cases against Beijing in the World Trade Organization. Indian companies also complain that China only opens the door reluctantly when they try to set up operation. Consequently, Beijing's surplus in trade with India will probably reach $24 billion in 2010.

Wen promised that China takes the trade imbalance with India "seriously" and promised better access for Indian producers in promising areas like pharmaceuticals, agriculture and IT. Cynics, however, claim that the Chinese promises are not commitments and were only made after India agreed to relax its barriers against China's banks.

Leading Indian commentators noted that little had been achieved on big political issues, such as Delhi's wish for a seat on the U.N. Security Council, its worries about China's plans for dams on the Himalayan and Tibetan rivers (agricultural and energy lifelines) and terrorism sponsored in Pakistan.

The Deccan Herald complained that in spite of the "strong personal chemistry" between Wen and Singh, the two leaders "engaged in parallel monologues with the Chinese leader more keen to talk about banalities."

China's premier flew on to Pakistan, a country with only 15 percent of India's population and trade with China worth $6.8 billion, and there wrapped up deals for $35 billion. He also praised Pakistan's brave stand against terrorism and promised strategic partnership and economic cooperation — all of which have made Indians wonder how much Wen's warm words for them are really worth.

Kevin Rafferty, formerly in charge of the Financial Times' coverage of Asia, is editor in chief of PlainWords Media.


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