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The promise of Chindia

The promise of Chindia
Roopen Roy
India is an emerging global power. It has announced a “Look East” policy. But is her sight still set only on the West? Is it a case of Looking London and Talking Tokyo? You cannot “Look East” without engaging with China. Among the so-called BRIC countries only China and India are neighbours. In most conversations, we tend to compare the performance of India with China and portray China as a natural adversary. Indian economists and policy makers play to the gallery by predicting that the destiny of the Indian tortoise is to beat the Chinese hare.  But we will miss the plot if we ignore the opportunities of aligning the complementary competencies of the two nations in a cooperative construct.

I am not quite sure who coined the term Chindia. It was either Jairam Ramesh or Tarun Khanna. But the portmanteau captures a powerful idea whose time has come. Chindia has a GDP of $ 6.7 trillion (China $5.3 trillion and India 1.4 trillion).  Larry Summers (the former President of Harvard University and now the economic adviser to President Obama) famously said a few years ago that the phenomenon of 2.2 billion Chindians joining the global workforce and the global market was the most significant event in the last thousand years of human history after the Italian Renaissance and the Industrial Revolution.
Both countries can achieve success individually. But then can do greater things together. China and India have several problems in common. China still has huge disparities in development. Coastal areas ,with ports and urban agglomerations, have grown rapidly on the back of exports and manufacturing. Rural areas in central and western parts of the country have languished. In India,  the divide between India and Bharat is wide. India has developed on the back of services and manufacturing. Bharat  is mired in a stagnating farm sector . The “divide” in both countries, threatens the sustainability of growth. Left unhealed, it will be a source of social unrest and instability. The two giant economies have an opportunity to focus on improvement in farm productivity and cooperate in strategies and measures of lifting their people from poverty.

In both countries, a huge amount of wealth is unproductively locked in state owned companies. They are called State Owned Enterprises (SOEs) in China and Public Sector Undertakings (PSUs) in India. Both countries have successful islands of SOEs and PSUs amidst a vast ocean of inefficient units. The key to success is to free them from bureaucratic control, instil in them accountability and make them result oriented. In China, the philosophy of encouraging the cat that “catches mice” regardless of its colour is an important signal. In India, the Navaratna experiment is on the verge of creating globally competitive companies. Both countries can share experiences on how to reform the government sector, trim fat and make SOEs/PSUs more efficient –sometimes by cutting them loose from the death clasp of bureaucracy through a thoughtful privatization process.

China has scaled up its infrastructure ahead of the curve. Many of the largest ports, airports, roads, power plants, townships and cities built in the world in recent years ---have been constructed in China.  They have created large construction capacities to build rapidly. It is unlikely that they will continue to build infrastructure at their current hectic pace. Some experts believe that China has already created excess capacity. India needs to scale-up its infrastructure rapidly. There is no reason why only Western contractors will work on Indian infrastructure projects. China and India should cooperate in a mutually beneficial way. 

As we grow aggressively, pollution is a problem both countries must face head-on. Research and adoption of affordable, clean technologies are obvious low-hanging fruits to pick. In the arena of soft infrastructure, innovations in the delivery of education, investments in human capital and skill development are critical to economic development. Attacking the common problems together will yield a rich harvest. 

Both countries are parking billions of dollars of foreign currency reserves in US long-term debts. Today the US owes $3 trillion to the rest of the world .Its $400 billion fiscal deficits are currently being funded by creditor countries like China, Japan, OPEC countries and India. Chindia must ensure that the value of their dollar assets are not eroded by temptations in the US to “print” digital money.

India has emerged as a “services hub” and as a global IT giant. China is the uncontested champ in manufacturing. If the entrepreneurs of the two countries craft intelligent joint ventures and alliances they could ignite open, frugal innovations to produce products with extraordinary price/performance curves. Huawei is a good example. It is a telecom equipment manufacturer from China and has an R&D establishment in India employing Indian software engineers. Xu Zhijun, President of global R&D, Huawei recently commented “Ten years back, we established this R&D center in India in the hope that the deliverables and components developed here could support Huawei’s globalization efforts. Our dream has been realized as all the operating systems in all the products for almost all of Huawei’s network equipments are developed here in the Indian R&D center. During the 10 years of its operations, Huawei India R&D center has demonstrated its unique value to the parent company as a pioneer in  software engineering and agile methodology”.

Indian IT companies are doing equally well in China. China has a growing software industry and India is working its way to being a global leader in manufacturing in chosen sectors. That said, if a way can be found to combine the hardware manufacturing prowess of China with the software power of India, then great innovations can happen in the sweet spot where technology, entertainment, media and telecommunications converge.