By Dezan Shira
As it stands, China an advantage over India in six key areas: scale, integration of value chain, research and development capability, productivity, ease of conducting business, and infrastructure.
In terms of scale, China has maintained and will likely continue to hold onto its significant lead. As of 2009, China exported roughly US$1.4 trillion dollars worth of goods, compared to India’s US$200 billion, which means China is in the lead by a multiple of 7. China’s exports have been growing at a faster rate too–21 percent versus India’s 18 percent.
China’s value chain is also very tightly integrated geographically, which limits transaction costs and the time from production to the market, especially in the Yangtze River and Pearl River Delta areas. Moreover, China’s exports are more complex, farther up the value chain, and in higher volume.
And labor productivity in China, although it should be measured against labor cost growth, is steadily increasing (though, India’s productivity is also increasing, albeit at a slower rate).
The World Bank’s doing business index also ranks India more than 50 spots behind China, at 134 versus China’s 79.
And it is no secret that China’s power generation, connectivity, internet penetration are all significantly better and more consistently provided than India’s.
And yet, one must consider that India’s economy is only one-third the size of China’s. India may remind you of China 30 years ago because it is China 30 years ago, and has all of the untapped opportunities to go with it. India will continue its unimpeded rise over the course of this century much as how China has over the past one.
In China, costs are rising on three fronts. The RMB is appreciating against other currencies quickly, which limits China’s position as a low-cost country from which to source. Since 2005, the RMB has appreciated roughly 26 percent against the dollar. Rising labor costs have sent the average cost of a unit of labor up 15 percent per year. Moreover, industries involved in the extraction of commodities or the creation of chemicals–ones that China’s government considers “low value-add”–are on the receiving end of a tightening of tax policy. The government is also pushing firms to restructure their presence from a representative office to a wholly foreign-owned enterprise or other such structures that increase a firm’s tax liability in China.
About the Author
You can read the rest of this article by Teja Yenamandra comparing business in China and India at the China business news site, China-Briefing.com.
You can also learn more in Asia Briefings China business guide.
