India vs. China: Who will win the race to the future?

India vs. China: Who will win the race to the future?

 

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India and China have been rivals for over a 1,000 years. In the old days, their rivalry overflowed into the rest of Asia, which was named appropriately as Indochina. Both countries were technology and cultural leaders in the past. They exported both ideas and products to the world.

Just prior to Western dominance, during 1650-1750, India and China contributed over 65% of the global economy. China produced fine silks, porcelain,iron products, tea, gunpowder and many things that were desired by other civilizations. India produced cotton, spices and precious stones. With the rise of the West, both their economies were destroyed. At the low point around 1914, India and China jointly were reduced to about 15% of the global economy.

Now both countries are on the rise again. China has become the second largest economy

(after the USA) and India has become the sixth largest economy. What is interesting to note that the numbers are even more favorable when adjusted for purchasing power parity (PPP). China comes in at No. 1, USA is at No. 2 and India at No. 3. China’s rise is based on the country being the manufacturing powerhouse and India’s success has been based on its lead in computer software and information technology.

 

Today, China and India are following totally different paths and the race will become even more interesting in the future. China is a centrally planned economy based on Confucian discipline, whereas India is more of a free market economy based on numerous fits and starts.

At the present time, both countries have about the same population of 1.3 billion people each. The average Chinese per capita GDP adjusted for PPP is about two times that of an average person in India. Before this PPP adjustment, the average Chinese GDP per capita is 4.5 times that of a person in India. The average Chinese person is in middle class whereas the average Indian still remains poor.

Moving forward, how these countries employ their resources is going to determine who will take the lead. In the past several decades, China was the fastest growing economy, growing at nearly 10%. While China’s growth has slowed, India has become the fastest growing major economy.

China’s strategy is to use its vast surplus capital to build massive infrastructure projects. An example of this strategy at work is the One Belt, One Road (OBOR) initiative to build a new silk route to spur trade with countries from China to the West. An investment of over 100 billion is expected for this project. These shares are now being trade in the US stock market under the symbol OBOR. They may make an interesting long-term investment.

India’s strategy is to modernize the economy by using its strength in Information technology. The recent demonetization, followed by electronic payments is one example. Another is the introduction of a single GST to simplify movement of goods across the country. Despite the hiccups with the implementation, all these projects are moving the country into the modern electronic era. Also,India also has a much younger labor force, which could be an advantage in the long run.

Who will win the race into the future? Will it be China’s massive capital spending approach or will it be India’s implementation of technology? I believe that neither approach will carry the day. The race will be won by the country that can be the global creative and innovation leader.

From the late 1970’s, China has benefitted from the technology transferred to it by the Western countries in their quest to seek lower manufacturing costs. With rising costs in Japan and the Asian Tiger countries, manufacturing in China was a natural choice. With free technology and great discipline, the Chinese have made enormous prosperity and economic growth.

China is an ethnically homogenous country with a lot of pride about its past prominence. However, China also has cultural barriers against innovation. In the Confucian tradition, the emphasis was on becoming a civil servant, rather than a business person. China had a complex system of examinations to become a civil servant. The apex of success was in rising up the ladder in the State bureaucracy. The question is how can the Chinese move from being a copier of Western technology to become an innovator again.?

 

India has a giant human resource of technicians and engineers. However, the education system in India is too rigid and does not reward creativity. At a very early age, young people have to make career choices that are hard to change. Often times, these choices are imposed by well-meaning parents without regard to the talents and interests of the individuals. Most parents are risk averse in making career choices for their children. Students get to the top by following the rules and working within the system and not by challenging it. The education system combined by the heterogeneous ethnicity, deprive Indians of the National pride that is essential to be global leaders.There remains a long shadow of the British colonial rule.

The large majority of the computer work performed in India is low-end technical work and not high-end creative work. Also, because of the large period of colonial rule and the heterogeneity of the Indian people, there seems to be a lack of confidence and pride that Indians can lead on the global scene. (China was never subjected to colonial rule the way India was subjugated.)

The Indians, who are fortunate to escape the rigid system in India, seem to quickly develop the pride and confidence to innovate and lead.Their peers in India still lack that confidence. Clearly, the ability and potential are there. Can these be injected at the systemic level?

 

China or India: the one that can develop internal innovation leadership and not live on external technology handouts will inevitably win the race to the future.

 

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