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WORLD

India and China: Rivals or fellow 'tigers'?

By Marianne Bray
CNN

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China's Shanghai is a sophisticated and cosmopolitan city.

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MUMBAI, India (CNN) -- The leaders of Mumbai have been pushing to emulate China's glittering commercial capital of Shanghai.

They reasoned the cities had many similarities. Shanghai and Mumbai provided the major ports for aspiring nations with more than 1 billion people apiece; they were key financial hubs and they were ready to take off as global cities leading the way in the 21st century.

But their fortunes have diverged. Since 1987, Shanghai has morphed into a futuristic city, with space-age skyscrapers lining the newly developed business area of Pudong, a zone that also hosts an international airport that opened in 1999.

The "Paris of the East" has the world's first magnetic levitation train that carries travelers 30 kilometers (19 miles) in seven minutes and a Metro system that has four lines and will have another eight by 2010.

The city of 17 million people is also home to one of the world's busiest ports; a ring road expressway and industrial parks. All of this was achieved at a cost of $40 billion, funded by a massive surge of foreign investment and the government.

Fly over to the coastal city of Mumbai, also home to around 17 million people, and you see one of the world's most populous metropolitan areas crumbling under its own weight.

Asia's largest slums sit not far from the fringes of the main runway, and along almost every road and rail track in the city that looks out over the Arabian Sea. On July 26, a 37-inch (94-centimeter) deluge in 24 hours that some residents called an act of God was compounded by unchecked development and decrepit infrastructure, closing the commercial capital down, and killing 406 people in the city alone.

The roads in Mumbai are so bad, and often so full of potholes, that a 16-kilometer journey can take 1.5 hours. There is no underground railway and an outdated rent control act means that many colonial buildings look as if they haven't been touched since the British left more than 50 years ago. In late August a four-story building toppled in a manner of minutes.

The future of "India's New York" appeared so bad that a 2003 report by the management consultant firm McKinsey and Co. said if action wasn't taken now "it is in grave danger of collapsing completely."

The authors of the report, which was supported by business lobby Bombay First, urged the government to spend $40 billion during the next 10 years to make it a world-class city.

"Mumbai is woefully behind the times," says Akshaya Kumar, head of Colliers International for India.

"It is 30 years behind what the city needs. It needs a huge political will and investment along with a magic wand."

India 13 years behind

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A plane flies over the Mithi River, flanked on either side by slums, as it lands at Mumbai airport.

The stories of Mumbai and Shanghai stand as a potent example of the marked differences between Asia's tiger powerhouses as the two embrace very different models in their race to become global superpowers.

Across the nation as a whole, India's economic development is 13 years behind China, according to a report written by Morgan Stanley in 2004, and if they both keep growing at the same rate, India may never surpass its Asian rival.

"I see difficulties in India overtaking China. It's difficult to see what time it will overtake China," says Chetan Ahya, India economist for Morgan Stanley.

"The gap has only widened in the immediate years. In 1980, China and India were comparable on data."

In 1982, China's GDP per person was $275, marginally lower than India's $280, according to the Morgan Stanley report. But by 2003, China had jumped to $1,086, twice that of India.

And "the Chinese will grow rich more quickly than the people of India," according to a paper released by Deutsche Bank this year.

"Per-capita income will reach $11,000. Even more than today, China will be the world's manufacturing workshop," the Deutsche Bank report said.

China's share in global trade is 5.2 percent -- nearly six times that of India's 0.9 percent.

China spends more than eight times what India does on infrastructure, while the cost of infrastructure in India is 50 percent to 100 percent higher, the Morgan Stanley report said.

As much as 60 percent of electricity generated in India gets no revenue, while China's highway network is seven times larger than India's, most of it funded from road maintenance fees, vehicle purchase fees and other government revenue sources.

Indian ports are still inefficient, with the cost of moving cargo significantly higher than the global average, because of low productivity, insufficient infrastructure and customs delays, economists say.

It takes two to three weeks to ship to the United States from China, compared to six to 12 weeks from India.

Indian forte

True, India has some advantages -- it has a strong technology and service industry, a relatively efficient capital market with a long history of banks, a strong private sector and legal framework, a younger workforce, a growing population, and a great university system.

India's capital market and strong entrepreneurial culture mean that companies tend to have a higher return on equity than China, the ultimate driver of profitability, and so attract higher prices, experts in the field say.

But red tape, corruption, tough labor laws and bureaucracy all deter investment, leaving a woeful infrastructure and a lackluster primary education system.

And India's coalition government, with its Communist allies, has stopped the privatization of key industries.

"China is trying to get as many people on board, moving up on their own feet; we are not able to do that," Ahya said.

"We are creating an exclusive growth environment that benefits some people but not the poor. While there is some multiplier effect, the pace is still slow."

'Chindia' a force

China, through its hybrid communist-capitalist model, has been able to legislate development, becoming a manufacturing giant with solid primary schools and infrastructure that lures foreign investment, economists say. Still it struggles with a weak financial system and inefficient capital system.

The country's one-child policy could be China's greatest problem, according to the Deutsche Bank report, as it slows population growth and leads to a shortage of women.

But in the short term, economists say it is best not to look at these two nations as rivals. Together, they are the most important economic force in the world, so much so that some analysts say they complement each other, and could be called "Chindia."

For two decades their economies have been growing twice as fast as the rest of the world, and they now account for 40 percent of the world's working age population and 18 percent of the global economy, on the basis of purchasing power parity.

Morgan Stanley says that on this basis, a decade from now China's consumers will have more buying power than their American counterparts, and Indians will have more than the Japanese.

International companies will be able to get their hardware made in China and power it with software and circuitry designed in India.

There's no doubt that the two will become the biggest consumer markets, with a vast number of investors, producers and users of energy and other commodities.

"The case for taking a view on India or China may arise in five to 10 years but, in the meantime, we believe that today it is India and China," the Morgan Stanley report concludes.

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