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The China Challenge: Can India compete with its formidable neighbor?

By Rituparna Chatterjee Email By Rituparna Chatterjee
June 2011
The China Challenge: Can India compete with its formidable neighbor?

“China is the toughest to beat,” said Saina Nehwal, India’s ace badminton player, just before a match with Lin Wang during the 2009 Badminton World Championship. While Nehwal lost the match to the Chinese player, her apprehension foreshadowed what was to be a complete sweep of the championships by China, whose players went on to win all the major titles—the men’s single, the women’s single, and the men’s and women’s doubles. Nehwal was perhaps echoing the sentiment of many Indian sportspersons who have had to pit their skills against China’s formidable strength as a sporting nation.

Not a contest between equals

Much has been said and written about the rivalry between India and China, the two Asian giants. The Economist described it as the contest of the century. But Nehwal’s remark on China may well apply to more than just a badminton game. With a gross domestic product (GDP) of approximately $5.88 trillion last year, China is the world’s second-largest economy after the U.S. India, which ranks 11th on that list, has a much lower GDP of approximately $1.53 trillion.

In spite of all the rivalry hoopla, the world seems to know India’s limits better than Indians might like to acknowledge. China was entrusted the Olympics, which it turned into the greatest show on Earth. Soon after, India was granted an important but a relatively smaller event in the form of the Commonwealth Games. Throughout the preparations, India made international headlines for the shoddy mess surrounding it—a bridge collapsing, dirty toilets, terrible housing for players, and so on. Yet, in the immediacy of the games, many pockets of the Indian press made it look like a grand success.

India blew its trumpet about its unmanned lunar probe, the Chandrayaan—very much an applaudable feat of course. But meanwhile China quietly sent up astronaut Yang Liwei and became one of the only three countries (besides USA and USSR) to send a human being independently to space.

But in today’s globalized world, more than ever, the metric of power is economic strength. And what can be a bigger show of strength than owning a chunk of the world’s largest economy and its only superpower? China is the largest holder of America’s $14 trillion debt, owning 20 percent of the $4.4 trillion held by foreign governments.

“India’s biggest challenge is that people think of China as the benchmark. But China began growing much before India,” says Martin Jacques, author of When China Rules the World: The End of the Western World and the Birth of a New Global Order. Both these Asian shoots started growing only after their economies opened up. While India started it in 1991, China began way back in 1978 and has the early mover advantage. “India is still more or less primarily a regional player while China is rapidly becoming a global force to reckon with,” says Jacques.

Even in terms of economics and trade, the ‘rivalry’ between the two countries seems exaggerated. Sure they compete—but so do others—mostly in different spheres. China is called the workshop of the world because its strength is manufacturing, while India’s strengths are software, pharmaceuticals and services. In terms of market too, China’s is an export-led model subsidized by the government. Though India’s exports are substantial, its own domestic consumers are its main market. It’s like a rivalry between a cricket player and a soccer player, in other words, a comparison of apples and oranges.  “In terms of an economic race between the two nations, it’s mostly media hype,” says Dr. Penelope B. Prime, a professor of Economics and the Director of the China Research Center at Mercer University in Atlanta.

The competition between the dragon and the tiger holds its roots primarily in history and war. “The legacy of the 1962 Sino-Indian war is still very strong. This is responsible for the rivalry in the public psyche. Also, the mainstream news media in India haven’t quite helped things,” says Srinath Raghavan, a Senior Fellow at the Center for Policy and Research (CPR), an influential think tank in New Delhi.

“China doesn’t feel even remotely threatened by India,” says Christina Larson, a contributing editor at Foreign Policy magazine. Larson, an Atlanta native, has been reporting for the magazine from China since 2007. But then China’s insouciance could be explained by the fact that it won the war of 1962. It is aggressive, powerful and has a history of being on the offensive. For the relatively timid India, the humiliation of having lost that war is just the tip of the iceberg. There is Tibet and the Dalai Lama issue, there is China’s increasingly intimate partnership with Pakistan, there is the water dispute over the Brahmaputra, which originates in Tibet but flows through Bangladesh and India. China has been working on blocking and diverting its water. But most alarming of all is China’s occupation of parts of Kashmir and Arunachal Pradesh claiming and ruling these as its own, and even issuing visas in Kashmir. The region, called Aksai Chin, makes India’s map look chopped. Such geographical amputation would deeply wound any country’s national pride, more so one whose geography stars in its national anthem. Many experts opine that these factors have contributed to the hostility between the countries.

“The fact that China refuses to sit down to negotiate shared water access further enhances the likelihood of political, if not military conflict,” says Elizabeth Economy, a Senior Fellow and Director of Asia Studies at the Council on Foreign Relations (CFR), a foreign-policy think tank.

“India and China are bound to compete in various areas but I hope we don’t compete in the outdated sphere of influence,” says Pavan Kumar Varma, an eminent Indian diplomat with the Indian Foreign Services and author of several books, including The Great Indian Middle Class and Being Indian.

But China is not taking any chances. Sharing cultural similarities with some of the Southeast Asian regions as it does, China has tremendous soft power in the region. Thanks to its active wooing of countries in the region, its power is slowly spreading to the subcontinent. There is its increasingly intimate relationship with Pakistan—complete with nuclear deals—causing both India and the U.S. alarm. But its most strategic long-term move is its ambitious high-speed rail project across Asia and the Middle East. This project will not only earn China credit for creating jobs in some of the poorer regions like Laos, Vietnam, Cambodia, Mongolia, and Iran, but it will also allow the Chinese military and security forces steady access and control throughout the region.

India’s presence in the region—outside of the subcontinent—is not nearly as strong. “India is now paying the price for not having focused on building stronger relations in its surrounding geographical region,” says Dr. Jagdish Sheth, a professor of Marketing at Emory University’s Goizueta Business School, and author of Chindia Rising. There are vibrant Indian communities in countries like Singapore, Maldives, Malaysia, and so on. After all, both Tamil and Mandarin are among Singapore’s national languages, but China seems to have leaped up to utilize it to build strong diplomatic bridges.

India has a stronger network with its international diaspora in the U.S., UK and Canada, especially the Indian-American community. This along with it democracy and an English-speaking culture, makes India a natural ally to America. Indeed, a solid relationship with America seems to be more important to India than its relations to its immediate neighbors.

From the American perspective too India seems like a more amiable partner. The fact that bin Laden was hiding in Pakistan, along with Pakistan’s deepening partnership with China, is bound to strain U.S.-Pakistan relations. Sure, their mutual dependencies will continue so long as Pakistan remains a hotbed for terrorist groups. As to China, the U.S. may be paranoid over the communist country’s growing economic and military prowess along with its disregard for human rights.

And yet, it would be juvenile to assume that these factors would increase India’s importance for the U.S. over China. “The U.S.-China bilateral relationship is substantial and growing,” says CFR’s Economy. The two countries meet fairly often, there is an active Chinese lobby in the United States and a significant interest among Americans in learning Mandarin and spending time in China. “Comparatively, the relationship between the U.S. and India may be less fraught, but it is not as well-developed,” says Economy.

Many experts see it as a mistake for India to put so much emphasis on its bilateral relationship with the U.S., at the cost of its other geopolitical relationships—more so when the latter’s relative global prominence is fading. Instead, India is advised to be less timid and show more self-confidence and leadership in the region, like China has. As Jacques says, “India needs to get out of its bunker mentality.”

Lessons from China

If India is to stand up to the China challenge, it had better pick up some lessons from its successful neighbor fast.

It is no secret that the biggest reason for China’s quick success is its government. The government has nurtured Chinese businesses like a parent nurturing a child, giving them subsidies, hand-holding them and controlling them. “The Chinese decided in 1978 that everything is subordinate to economic growth. This is something India needs to learn from China. Because that’s how China grew; it combated domestic poverty and inequality,” says Jacques.

Segments of India, on the other hand, have gotten richer in spite of its government, primarily because of their resilience. They battle government-related inefficiencies and miles of messy red tape every day and thrive in spite of the exceptionally corrupt Indian government’s incompetence. Not everybody is an Ambani though. Many Indian entrepreneurs struggle against chains of bribery and corruption to simply do their job. Not surprisingly, India ranks shamefully low at 134 out of 183 countries on the World Bank’s Ease of Doing Business Index.

China has set a clear goal of being an innovative country by as early as 2020. To get there it is updating its universities to match the best in the world and wooing Chinese and other immigrant entrepreneurs to come to China. Among other things, it has set up 150 business parks specifically for returning talent. Comparatively, every NRI returnee has tales of troubles to tell. If the privileged suffer so much, then just imagine the awful plight of India’s impoverished multitudes.

The Chinese government has been rightfully maligned for its spotty record on human rights. But one must give credit where it’s due. Beyond nurturing business, China has also been busy fixing problems like gender inequalities, poverty, illiteracy, and inadequacies in infrastructure and health care. The Chinese government is also known for its record efficiency. It has ensured an impressive 94 percent adult literacy—similar to the rates in developed nations. If education equals empowerment, India is lagging far behind, with only about 62.8 percent of its adults being literate.

The Chinese government has also been providing better standards of sanitation and health facilities. It is on its way to developing green toilets where sawdust is used to flush urine, and all the deposits are treated and recycled into manure. Meanwhile in India, basic toilets are a privilege, resulting in an array of urinary tract infections and other illnesses. Poor women suffer the worst of it. Hundreds of thousands of them walk long desolate distances in the wee hours of the night to queue up to whatever inhuman facility is available, risking danger in the form of sexual assaults by men on the prowl at such lonely hours.

Last year, China ranked 89 on the United Nations Development Programme’s Human Development Index (HDI). It had moved up two spots in three years. For all its glittering growth rates, India has remained at 119th, along with poorer countries like Laos. Even war-ravaged nations like Syria and its relatively not-so-rich neighbors like Sri Lanka are ahead of it.

“China might lack the vibrant culture and open political discourse of democratic India but its leaders remain committed to the ideal of rectifying economic and social imbalances within their country,” says Economy. “In spite of its Planning Commission, India, unlike China, lacks a long-term vision of where the country as a whole will be,” says Sheth.

“India’s greatest strength is its democracy. Of course it can be further strengthened but this democracy along with a free press still is a ventilating system for Indians and their ailments irrespective of their socio-economic status,” says Varma. His point certainly holds some merit, but India’s democracy has been compromised by a broadly corrupt political environment.

A grayish smog hangs over much of urban India today. Caused by pollution gone amok, it continues to grow dense daily. Metaphorically, this murky cloud represents an equally murky fog of corruption and strife that envelops the nation. This has led to regional Maoist and Naxalite uprisings in areas of the country that are plagued by economic inequalities. Meanwhile, close to half a million debt-driven Indian farmers have committed suicide since 1995, primarily due to utter poverty and helplessness caused by selfish government policies. In fact, at least one farmer commits suicide in India every 12 hours.

Irrespective of who is in power in India, the Indian government’s priorities are pretty skewed. Traditionally, India has been an agrarian economy and continues to employ over 50 percent of the country’s population. Yet, it took Indian ministers over 20 years to visit the villages where farmers had killed themselves. Comparatively, when the Bombay Stock Exchange crashed a couple of years ago, the finance minister had flown to the city within hours to console sensitive millionaires.

India needs to truly uphold its democracy. If it wants to establish itself as a global power, the Indian government needs to fix itself and its policies. In other words, India’s corrupt politicians must act, at least a little, for the country and the people they represent rather than for themselves.

Together we can

“The real challenge for both of these countries is to build a relationship not based on rivalry but on collaboration. These are after all, the most important powers in Asia today,” says Raghavan. Varma agrees: “The dividends are great for both countries if they collaborate.” Just like European countries that fought for years are now basking in the symbiotic glory of unification by coming together to form the European Union.

China happens to be India’s largest trading partner. Economically speaking, if China’s mega manufacturing were to be clubbed with India’s ability for services, the result could stupefy the world. “Also, China, being an excellent manufacturer, needs raw materials, which India—being a major commodities player—could export to it,” says Jacques, pointing to another more feasible way of collaboration.

There are thaws here and there in the icy Indo-China relationships, primarily in trade. Economic gains can overpower military conflict. The two countries are expected to do $ 60 billion in trade this year, which The Economist says is over 230 times the total in 1990. They put up a united front on carbon emission cut-offs being imposed on them by Western countries. “Interestingly both India and China share a reluctance to impose or enforce sanctions on other countries,” says  Economy. She points out how Myanmar, Sudan and Iran have all provided fertile investment ground for both Indian and Chinese companies.

“We do have a friendship with China, and both countries are taking measures that go beyond dialogue,” says Varma, pointing to Chinese Premier Wen Jiabao’s India visit last December, when a $100 billion trade target by 2015 was set. But apart from economic engagement, there was little other progress. By clubbing his historic India visit with a trip to Pakistan, Jiabao reflected once again that China would continue to do as it pleased, regardless of the diplomatic sentiments of others—in this case, India.

The ice will truly crack only when the root causes, which in this case are border issues, are resolved. Since China is the aggressor, the responsibility really lies on its shoulders. This should not be as difficult as it seems. China doesn’t really need Arunachal Pradesh’s landmass or resources, except for bullying privileges. Most importantly, it has had border quarrels with almost each of its neighbors in the past, but has resolved these with Russia, Mongolia, Myanmar and Vietnam.

Border issues can be a drain. “(They) are terribly taxing. They excite the media and the people and distract from the real thing: growth. Lazy politicians will always use border issues as an excuse to distract from real work,” says Jacques.

The real rival

The good news is that most important matters like its own development are in India’s control. Like in a game of golf, India needs to realize that its biggest competition is not China, but itself. Only by overcoming its own faults can it stay in the tournament, and maybe eventually even win it.

“China is a suggestion of what the possibilities are for India,” says Jacques. Many believe that if India can overcome its own flaws—primarily poverty, inequality, HDI components and infrastructure—it can easily overtake its formidable neighbor. “China has certainly grown very rapidly but whether its growth is sustainable or not is another issue. India’s growth on the other hand could be more sustainable courtesy its booming domestic consumption market. If India can combat its own challenges, it could do very well, and perhaps even exceed China,” says Prime.

Indeed, a recent bunch of economic reports are already predicting that India could soon start overtaking China’s GDP growth. Factors like India’s booming domestic demand and the focus of its businesses and string of startups to specifically address these as well as India’s proficiency in English are key contributors, of course. But the biggest reason is that India’s youth comprises a mega chunk of its population. This is an enormous and unbeatable economic advantage because it implies a bigger workforce and consequently heightened productivity and fewer dependents (children and the aged) to provide for.

China has already reaped this tremendous benefit earlier on. Along with government pampering and an earlier economic liberalization, an army of young Chinese workers helped China get to where it is today. But now its working population is beginning to age and decline. And China’s one-child policy, which was meant to control its inflating population, has backfired, causing far fewer young additions to its now aging population. The United Nations estimates that China’s dependency ratio (that is the number of working-age people supporting children and senior citizens) will increase from 39.1 percent last year to 45.8 percent in 2025. Comparatively, India’s age dependency ratio will improve quite a bit, from 55.6 percent last year to 47.2 percent in 2025.  Further on, in the next 10 years India alone could add to as much as 26 percent of the total rise in the entire working population of the world.

To leverage its demographic dividend advantage over China, India needs to first fix its demographic. For instance, India’s famed knowledge economy of doctors, professors, engineers, bankers, academicians, experts and so on employs only 2.23 million, a mere fraction of its 750-million plus working population. This is because only 12 percent Indians actually enter higher education.

It is clear that the fate of India lies in the hands of its incredibly incompetent and catastrophically corrupt politicians. Whether it is through the recent anti-corruption activism of India’s masses or simply a realization of their duty, Indian politicians, it seems, are at least starting to wake up. The current UPA government has set aside $60 billon to undertake a series of reforms in India’s primary education. Consequently, the number of school dropouts dipped sharply from 18 million in 2000 to 5.6 million in 2005. Similarly, India’s serpentine tax laws and red tape too, two of the biggest hurdles in doing business in India, are in the process of being reformed.

The clock is ticking and there are still miles and miles to go.

In the fable of the race between the hare and the tortoise, the slow and steady tortoise emerged as the surprising winner. Nehwal may have lost to a Chinese player in a sporting match. India though, can clearly combat an unsporting challenge by China, but only if it plays by the slow-and-steady formula of the honest tortoise.


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