The Elephant and Dragon move ahead

By Frank-Jürgen Richter

Business Times, July 18, 2015

China is strengthening its transport infrastructure and linking them to new cities,while India is building 100 new smart cities.

We love imagery – for instance, there are lions and kiwi competing in rugby and bulls and bears playing the stock markets. Here I am referring to India and China, and I will contrast and compare to argue that there is no real fear of them becoming entangled or enraged.

They are the most populous nations of the world holding 1.36 billion people (China) and 1.25 billion (India), contributing to Asia’s mass of 4.3 billion – well above Africa with 1.1 billion and dwarfing Europe at 742 million. Yet Europe, and the US at 565 million, frequently shout loudly.

Currently the US has the highest GDP at US$17.4 trillion with the euro area at US$13.4 trillion (the EU is higher at US$18.5 trillion as counted before the present Greek financial crisis), China is next at US$10.4 trillion with India trailing at US$2.1 trillion though not at the bottom of the table. Europe ruled the globe for a long time, then the US became more forceful in the recent technological age, but now Asia (and in particular China) begins to dominate. It is in this new race that India wishes to participate.

Modern trade
India hosted some of the world’s earliest settlements – with stability new inventions arrived – in the written language, mathematics and astronomy, as well as many religions still in vogue today. Trade with China came later, by about 1,500BC, with the domestication of pack animals. The Chinese Silk Road further developed trade, facilitated later by in-shore shipping promoted first by Arabic traders and then by Europeans during the 16th century. Trade was complicated for both nations when India became dominated by the British East India Company and China closed its doors to foreign trade in 1760 – forcing all traders to use a Chinese intermediary at the only open port, Guangzhou.

Of course in modern times most trade freely enters and leaves each nation though often subject to quotas, tariffs and subsidy biases. Now China has six ports in the global top 10. Singapore, Hong Kong, Korea and Dubai have one each (Rotterdam is 11th) while India ranks at 33rd with Mumbai.

As the globe developed after the UK’s Industrial Revolution in the mid-1700s, the relinquishing of colonies created the modern economies. Initially countries in Europe and the US were the wealthiest nations and their peoples demanded more goods be produced efficiently – according to Adam Smith and David Ricardo – where they can be made most cheaply. This gave rise to the Asian labour-dominated economies and the developed world’s firms outsourced and offshored. During this period China lifted many millions out of poverty through its job-creation programmes.

Now Asian labour is becoming more costly: Thus China has become the world’s largest purchaser of industrial robots – machines that can work more accurately than a human and do this for 24/7 without stopping or going on strike. Thus the natural migration of rural workers in both India and China to the cities in search of better wages is fraught with issues. When this developmental phase took place in Europe and the US, it was in an age when muscle power was needed in their factories; now a robot can do the work of many persons and almost anywhere, which is why some firms in Europe and the US are re-shoring, thereby reducing overall costs as their total transport and time cycles for goods can be reduced.

It would appear that China considered migration and the issues it would force many years ago. It instigated massive transport infrastructure development. The sea ports mentioned above, but river ports, roads and railways, were also redeveloped to shift goods in and out of China. There are now 4.45 million km of roads (many fast dual carriageways); 98,000 km of railways (many permitting very high speeds); and 202 civil airports. The latter can act as hubs attracting new manufacturing investments and as focal points of new towns. All infrastructure foci are being enlarged in the 12th Five-Year Guidance to 2015 and they will interlink to the 200 new cities being built in the interior that will “capture” rural migrants, preventing them over-running the already busy coastal economic powerhouses.

India is a fascinating nation and carries many conundrums – why, for instance, has it not invested extensively in its infrastructure (to the extent of Western nations or its neighbour, China)? It is well known that the government has now called for US$1 trillion of investments up till 2017 prioritising three new airports, two ports, an elevated rail corridor in Mumbai and almost 10,000 km of new roads, and further investment in infrastructure is called for by 2020 and beyond. Narendra Modi, Prime Minister of India, has just announced that the country will build 100 new smart cities which seem to follow (though they deny “following”) China: it must be the way forward as their present mega-cities would otherwise become unmanageable and ever unhealthier.

Optimistic outlook
Yet, attractive as it seems, India struggles to attract investors as its rules, regulations and corruption are onerous – it seems quite happy to abide by “the tyranny of petty bureaucracy”, opines Narayana Murthy, founder and past chairman of Infosys. Even so, Indian businesspeople are very optimistic of their future, suggesting that if they maintain the incremental growth and advances of the past 20 years into the next 20 years, they will be at the top edge of the Second World – but not in the first echelon, where I suggest China will be.

The future meetings of President Xi Jinping and Mr Modi will be interesting to observe as they build new trade relations. The Elephant will imperially tramp forward while the Dragon dances adroitly onwards.

The writer is founder and chairman of Horasis, a global visions community.