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"For a happier, more stable and civilized future, each of us must develop a sincere, warm-hearted feeling of brotherhood and sisterhood."

The tiger next door

August 29, 2010

Alexandra Seno
The Globe and Mail
August 27, 2010

On paper, China and India appear to have plenty
in common. Each country has a population of more
than one billion; they share long stretches of
border that sweep across the Himalayas; and their
economies have both expanded at a breakneck pace
since the 1990s. In today’s global investment
jargon, they’re the two largest BRIC countries
(the group of fast-growing nations that also
includes Brazil and Russia), and they’re
sometimes abbreviated together as “Chindia.” So,
it would seem to be a no-brainer that China and
India should be trading and investing a lot with each other.

Don’t bet on that happening any time soon. And
beware of any global money manager, consultant or
other promoter who tells you that there are vast
synergies and profits to be realized from
expanded trade between Asia’s two largest
economic tigers. As societies, China and India
are almost complete strangers. The two countries
do surprisingly little trade with each other, and
there are few compelling business reasons for
either to invest a lot of time and money in forging stronger ties.

Much of the awkwardness between the two is based
on attitudes, particularly stereotypes that many
Chinese have about Indians. Those stereotypes
were underscored in a study released in China in
April, conducted by the Beijing-based Horizon
Research Consultancy Group, a market research and
polling organization. “Few Chinese know that
India is a rising economic power," said Horizon
CEO Yuan Yue. Just 1.9% of Chinese survey
respondents said India is the most powerful BRIC
country, compared with 70.3% for China, 20% for
Russia and 7.1% for Brazil. Many Chinese believe
that India is still a backward country with
hordes of “homeless poor people,” the report said.

Views of China among Indians are more
sophisticated, and more positive. "Indians think
that China is a rising power that will surpass
the U.S.,” said Yuan. And 43% of Indians view
China as a partner, compared with 23% who say the country is an enemy.

If you look at the modest trade between the two
countries, however, there aren’t a great deal of
exciting opportunities for business leaders in
either one. India ranks No. 10 on China’s list of
trading partners, with Singapore and Malaysia in
the slots immediately above it. Total trade
between India and China amounted to $52 billion
(all currency in U.S. dollars) in 2008, just a
fraction of the $425 billion in business China
did with the European Union, and the $333 billion
China did with the United States.

India’s trade deficit with China has also swelled
in recent years, reaching $11.2 billion in 2008.
True, China is India’s largest trading partner,
but India hasn’t built up promising export
markets there. India ships mostly commodities and
low-value-added raw materials to China—including
ores, cotton and copper—and imports higher-end
products such as machinery and electronics.

Personal and political links between the two
countries aren’t very strong, either. Yes, it is
common to see some visitors from the Indian
subcontinent in southern Chinese cities such as
Hong Kong and Guangzhou, where there are historic
Indian trading communities, but not in the rest
of China. Wealthy citizens in both countries are
more likely to look to the U.S. or Europe, rather
than each other, to seek new business
opportunities or get an education. Diplomatic
relations between India and China are still
chilled by past tensions—India granted the Dalai
Lama asylum in 1959 after he fled Tibet, and
India and China fought a border war in 1962 that killed more than 1,000 troops.

If you look beyond the huge population and high
GDP growth rate in each country, you’ll also find
key differences in economic structure. Both
countries have large, entrenched domestic
conglomerates and brands that do not want for
capital, but many of India’s biggest businesses,
such as Tata Group and IT outsourcing giant
Wipro, are family-run, whereas the politicians
and bureaucrats in Beijing are the ultimate authority in China.

The road ahead looks quite different in India and
China, too. In the latest issue of global
consulting firm McKinsey & Co.’s quarterly
journal, published in July, consultants Richard
Dobbs and Shirish Sankhe look at the rapid
urbanization in both countries. They argue that
central planners in Beijing have embraced that
urbanization, while “India is still waking up to
its urban reality." On average, China spends $116
per capita annually on urban infrastructure,
while India—one of the world’s most chaotic democracies—spends just $17.

Over all, Dobbs and Sankhe say, continued growth
and fundamental shifts in both countries "will
have significant consequences for the world
economy and offer exciting new opportunities for
investors." Just don’t count on those investors
in India to be Chinese, or the ones in China to
be Indian. If business leaders in either country
look for foreign partners, they want them to help
access the rest of the world, not just the developing market next door.
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