How China is perceived by India and what's wrong with that?

Many of us increasingly believe in these following five myths about China: 1) China’s authoritarian governance model is primarily responsible for its unprecedented economic rise, 2) China has made impressive economic gains by manipulating global trade and investment rules, stealing IPRs and resorting to unfair subsidies to outsmart competitors, 3) China promotes exports by all kinds of fair and foul means but remains unreceptive to imports, 4) favourable global factors such as emergence of WTO and Information Technology Agreement (ITA) opened up global opportunities for Chinese exports and helped it to become the world’s factory, and 5) China’s been able to create its local tech biggies - Alibaba, Baidu and WeChat by restricting global tech giants such as Amazon, Facebook and Google.

So, India should take the following lessons from China. It should aim for strong governments with overarching powers over its people. We can’t be a dictatorship but we can certainly strengthen the hands of elected governments by giving them clear majorities if we’re really serous about matching China in economic (and military) might. We should, therefore, be cautious about FTAs (that lead to more imports than exports), and shouldn’t be all-welcoming towards FDI and MNCs. We should rather promote domestic (desi) companies over foreign ones.

Most countries including the staunchest supporter of free trade, the US in particular, have now turned protectionist, so there’s not much we can do about exports. Thus, we should focus on our large and growing domestic market. We had a glorious past and unmatched scientific prowess, when we had mastered plastic surgery and developed aircrafts and rockets far ahead of the world. And, we’re destined to have a glorious future when we’d be mightier than China or the US like we once used to be.

Yes, India is a complex democracy with its pulls and pressure unlike China which is one party dictatorship. Thus, the latter doesn’t have to worry about dozens of political parties, interest groups and states pulling in different directions which impede long-term reforms. That explains our slower economic progress vis-a-vis China.

What we forget is that there are many other countries such as Iraq, North Korea, Russia and several African countries that despite being authoritarian have done badly when it comes to bettering the material life of citizens. And, we have several western democracies that have done far better economically.

Back home, BJP has clear majority in Lok Sabha and is now also strong in Rajya Sabha. It’s ruling most of the Indian states. The Prime Minister is in full control of government and the party. Yet, his government is the most defensive when it comes to pushing tougher reforms barring a few exceptions such as insolvency and bankruptcy code. The Congress government led by PV Narshimha Rao or NDA led by AB Vajpayee were far more gutsier. UPA-1 with thinner majority did better economically than UPA-2 with stronger majority. Many Indian states such as West Bengal under Mamata Banerjee or Andhra Pradesh under Jagan Reddy with strong support in state legislatures are not a great success economically. In fact, Jagan Reddy government is adding to regulatory uncertainties and scaring away investors. Modi 2.0 with better majority has delivered us 4.5% amid worsening investment climate. Conclusion: strong governments don't automatically lead to stronger economic growth.

China has not been accused of manipulating trade and investment rules, stealing IPRs and subsidising its businesses, without reason. However, thinking that China has become a US$14 trillion economy by cheating and manipulating is too naive. This is part of American propaganda that we have fallen for, but shouldn’t. If it was that easy India doesn’t have an impressive record on respecting intellectual properties or trade rules. China accounted for 21% (similar to the US) of all patents filed globally compared to 1% for India in 2018. Huawei is one of the most innovative companies globally.

China doesn’t often play by rule book, but so does the US, now trying to close down WTO. The US remains the world’s top agriculture subsidising country, yet Australia, Brazil and New Zealand run the most efficient and profitable agriculture and allied industries. Thus, subsidies alone can’t be the differentiator. 

China is the second largest importer. Its import of goods and services stood at $2.65 trillion against export of $2.75 trillion in 2018. Critics say it mostly imports raw material and industrial inputs that it doesn’t have or can’t competitively produce. That explains India’s substantial trade deficit with China. What critics forget is that India’s raw material protectionism is primarily responsible for increasing import of high-value finished goods and export of low-value raw material, and not necessarily Chinese trade manipulation. 

China has devised Made in China 2025 to promote futuristic industries. In contrast, India’s industrial policy is obsessed with protecting manufacturers of globally over-supplied commodities such as steel, aluminium and synthetic fibres that’s hurting the prospects of more dynamic downstream industries. 

Like China, India too joined WTO and ITA, but it couldn’t capitalise on global export opportunities. India’s tax terror drove out Nokia, and ruined its chance to push electronics exports. Our exports remain sluggish not because of external factors but internal mismanagement. GST was supposed to be a game changing reform but it’s actually causing compliance nightmare for SMEs.

China might have been able to create local imitations of Facebook and Google by banning them. But the US created the originals while being open. India too has created its much admired Unified Payment Interface (UPI) that Google wants the US Fed to replicate, without banning competing payment platforms. Thus, we shouldn’t fall prey to the idea of blocking competition.

It’s a crony propaganda that higher corporate taxes and expensive capital is making Indian businesses inefficient and thus they need protection. Rather, it’s the lack of competition that is making them complacent leading to poor performance both domestically and globally. India Inc is scared by any mention of competition. Take any Indian industry except pharmaceutical or IT, oligopoly is a common feature. That needs to change if we’re serious about $5 trillion GDP by 2024-25.

We don’t need to copy China to be an economic superpower except maybe its long-term focus. And yes, we had a glorious past and we should be proud of that. However, we’ll need to work harder to have a glorious future as competition to the top is intenser now. Even if India is a large economy, its per capita income at $2000 is too low and income inequality too high. That will cap domestic demand, and in turn, its growth prospects. Thus, it doesn’t have a choice but to push exports to grow faster. That calls for urgent internal actions and not hiding behind unfavourable global factors. India's global export share at 1.7% is too low that it should be able to increase its share irrespective of external conditions.

And, an open market and double digit growth is the way to glory, and not shutting our doors to the world. Any takers?

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A shorter version of this op-ed piece was first published by The Times of India here

Image source: 1. https://bwdisrupt.businessworld.in/article/Startup-India-Vs-Startup-China-The-Differences/01-04-2017-115550/

2. Chad Crowe/Times of India