FT : China vs. India – The Cold, Hard Facts

In recent years, the rise of China and India has become a salient feature of the global economic landscape. Conferences and books have proliferated with titles such as “China and India Rising” and “Dancing with Giants”.  Although individual contributions have often delineated carefully the differing paths taken by these two populous Asian nations, there has been a general tendency to lump the two countries together in discussions of global economic issues ranging from international trade to climate change.  At one level, this is quite natural.  China and India are the only two countries with more than a billion people. Both are in Asia.  Both have opened up to international trade and capital flows in the past three decades.  Both have demonstrated sustained and enviable economic growth since 1980.  It is true that if current growth rates are maintained, both countries could join the US in the trio of the world’s largest economies by around 2025, measured in purchasing power parity (PPP) prices.  Yet for all its apparent sense, the pervasive bracketing of China and India too often masks critical differences between them and impedes a better understanding of the challenges posed to the world economic order by their economic expansion.

(click for full image)

First, China and India today are at different stages of development. The two countries may have had similar average incomes in the late 1970s.  But their subsequent growth trajectories have changed the situation materially.  India’s 4% average annual growth in per capita gross domestic product since 1980 is commendable and has brought enormous benefits to her population.  However, it pales in comparison with China’s spectacular growth in per capita income of over 8% a year, which has transformed the living standards of her people and made the country a major economic power.  By 2007 average incomes in China were about two and a half times higher than in India, at official exchange rates, and about twice as high in internationally comparable PPP prices.  More importantly, the World Bank estimates that the proportion of people in extreme poverty – defined as those living on $1.25 a day – had fallen to 16% in China by 2005, while it still remained above 40% in India.  With a higher poverty line of $2 a day, the Bank reports three-quarters of India’s population to be poor as compared with 36% in China…..The second major difference between the two nations is the far greater impact of China on the global economy, especially in the present decade.  This is due mainly to two reasons: first, China’s much more aggressive strategy of export-and-foreign-investment-led industrialisation; and second, the extraordinary pace of China’s growth.  Thus, between 2000 and 2007, China’s merchandise exports almost quintupled in value to account for nearly 9% of world exports, while India’s export share increased sedately from 0.7 to 1%.  The increase in the value of China’s exports over the seven years was nearly seven times India’s total exports in 2007.  Despite the rapid growth of India’s information technology-based service exports since 1995, in 2007 China’s total service exports exceeded India’s by 40%.  By 2007 China’s $1,500bn of foreign exchange reserves were about six times India’s and her current account surplus of $370bn was of a different order from India’s modest deficits.  In most years of this decade foreign direct investment inflows into China have been eight to 12 times higher than to India, though the multiple dropped after 2005.  Similarly, China’s primary energy consumption of commercial fuels has doubled since 2000 to about 1.9bn tonnes of oil equivalent.  The increase over the seven years is more than double India’s total primary energy consumption of 410m tonnes of oil equivalent in 2007.  Unsurprisingly, China’s carbon dioxide emissions had soared to 5.6bn tonnes by 2006, compared with 1.3bn tonnes from India.  In per capita terms China’s emissions were almost four times higher than India’s.  With China’s economy three times as large as India’s today and given her disproportionately larger footprint in international trade, capital flows, energy consumption and carbon emissions, China’s potential role in helping solve the major global economic issues of the day is correspondingly greater…..Similarly, on the enduring issue of global imbalances, India, with her modest current account deficits and high share of private consumption, can do little to ameliorate this problem.  China, in contrast, can play a much bigger part by stimulating greater consumption and undertaking significant currency appreciation to contain and reduce her massive current account surpluses…..

What of the future?  Many believe that on current trends India will achieve China’s present economic scale in about 15 years.  Perhaps.  But by then, it is not unreasonable to expect that the Chinese economy may also have expanded threefold.  The main point is that China’s explosive growth has not only dominated the global economic scene over the past decade; there is a strong likelihood that it will do so for the decade ahead as well.  Put differently, there is really only one new economic giant in town.  The other potential giant, India, is still a relative stripling.  Thus far her growth in trade, capital flows, energy consumption and emissions has been at a steady, moderate pace.  Ten or 15 years on, the story may be different.  In an important sense, the sequential rise of China and India has made things easier for the global economic community.  The strains of accommodating one giant at a time have have been substantial but broadly manageable.  Had both these populous Asian countries embarked on growth of 8-10 per cent a year at roughly the same time, it could have been far more challenging for the international economic order – and perhaps more dangerous.

Reference : http://www.ft.com/cms/s/0/381e3a1e-7bd7-11de-9772-00144feabdc0.html

FT : India Plans Massive Power Infrastructure Upgrade

On an arid expanse of coastline on India’s western coast, near Pakistan, the giant smokestacks of what will soon become one of the world’s largest power plant complexes loom from the scrubland.  Inside the bright blue steel and concrete construction, Chinese workers from the contractors supplying the boilers, turbines, generators and other equipment bustle alongside their Indian counterparts as they rush to meet the project’s ambitious deadlines.  Adani Power plans to bring on line one each of the plant’s projected four 330MW units every three months and one each of five 660MW units every four months, until the entire 4,620MW capacity comes online in the next few years.  The Chinese-style scale and pace of construction of the plant and the surrounding Mundra Port and Special Economic Zone, which includes a container and bulk cargo port, is the kind of infrastructure initiative many say is long overdue in India.  “The speed [of development] is not picking up to what is required, whether it be power or airports or railways,” says Gautam Adani, Adani Group’s chairman and one of the wealthiest businessmen based in the state of Gujarat, in an interview with the Financial Times.  “Certain sectors have done well, such as telecoms, but in the rest … there is still a wide gap between the demand and the supply side.”  Investors will soon have the opportunity to vote on whether the Adani approach to infrastructure construction makes sense.  The company, in which 3i of the UK has invested about $250m, is seeking to raise as much as $600m in an initial public offering.  The IPO will be the first in India of any size since rival Reliance Power raised $3bn in the country’s largest listing yet, in January 2008.  If the offering is successful, India’s rush to raise new equity to finance big-ticket infrastructure pro­jects, which was all but ­stymied by the global financial crisis, will be reborn with vigour.  “It is a very important project,” says Bhargav Buddhadev, an analyst at Noble Group.  “India has to put in several such projects if it is to become a power-surplus country.” 

Adani first settled on the idea of building a port at Mundra in the mid-1990s.  The windswept wasteland had two big advantages: it is one of the best natural deep draught ports on India’s west coast and is scarcely populated, making it easier to develop.  The port is the centrepiece of the 14,000-acre planned special economic zone for heavy industries, with operation of the four berths divided between Dubai’s DP World and Adani.  In the year ended March 2009 the port shifted 35m tonnes of bulk cargo, such as coal, as well as containers, steel pipes, cars and other goods.  This is forecast to increase by almost a third this year to 45mt and by 2013 to 100mt a year.  In the longer term, the port is expected to become a vast facility, with 50 berths and the capacity to import 50m tonnes of coal a year for Adani’s power plant and another 4,000MW facility being built there by the Tata Group.

Mr Adani is hoping to duplicate Mundra at several locations elsewhere in the country, especially on the less developed east coast.  Adani Power is also developing another power plant serving Maharashtra, the highly industrialised state that contains Mumbai.  “Our target by 2020 is a minimum 20,000MW,” Mr Adani says.  This would require $25bn-$30bn of investment over the next seven to 10 years.  But analysts caution that Mr Adani’s vision comes with its own risks.  Much of the coal is being supplied through the parent company, Adani Enterprises, exposing investors in the downstream projects to related party transactions.  The company is also sourcing a lot of its coal from Indonesia, a politically volatile country.  The presence of blue-chip investors such as 3i, however, will provide comfort for foreign institutions.

Reference : http://www.ft.com/cms/s/0/66d28f84-76e8-11de-b23c-00144feabdc0

Mukesh Ambani’s Palace In The Sky

Mukesh Ambani, India’s wealthiest resident (and the world’s fifth richest person), is building a 60-story vertical palace in Mumbai, complete with a helipad, swimming pool and space to park about 170 cars.  Ambani, chairman of Reliance Industries, is reportedly spending $2 billion (Rs. 4,000 crores) for the home in posh south Mumbai (situated in posh Altamount Road).   That would make it vie for the title of the most expensive home in the world.  Ambani bought the 49,000-square-foot plot in 2002, and the home was designed by Chicago’s eminent skilled designer Perkins and Will.  The tower, complete with three floors of gardens and two floors of pools, will rise to 570 feet, or the height of a 60-story residential building, but will have only 27 floors.  The top four floors, with a panoramic view of the city and the Arabian Sea beyond, are expected to be for Ambani, his wife Nita, mother Kokilaben and the couple’s three kids.  Around 600 staff will reportedly be employed at the house to wait on India’s first industrial family.  Two others floors will be exclusively for guests and a mini-theater.  The Ambanis aren’t answering questions on the house, to be named after the mythical island Antilla.  In a city cramped for space but not yet spotted with skyscrapers, the Ambanis’ idea has found favor with leading Mumbai-based architect Hafeez Contractor.  “This is a right way to build a private house in a congested city.  A man like him in any other city would have 10 to 15 acres of land to himself.  In a congested city, he wants to go high up and enjoy the view; the whole city becomes his open space,” Contractor says.  The architect didn’t know of any other home as opulent but said that India’s wealth transformation was apparent in the way clients wanted larger homes and opted for bigger imported cars, egged on by liberalizing trade and tax policies.  “Ambani’s choice will make high-rises more acceptable,” says Contractor.  “I’ve been advocating high-rises that are environmentally friendly, since you occupy less space on the ground that can be used for gardens.”

Around 6.5 million of Mumbai’s estimated 15 million residents live in slums.  Social commentator and author Jerry Pinto says extravaganzas have always been expected from India’s rich.  “What always startles visitors to India is the contrast between abject poverty and ostentatious displays of wealth. … But there’s no active resentment [among the poor], otherwise there would have been class wars years ago,” Pinto pointed out.  In a city where there are slums right outside some of the most expensive homes, Pinto says people will continue to see “expensive imported cars splash mud on potbellied street children.  That’s the signature of this country; it’s not going away soon.”  And assuredly, once Mukesh Ambani’s house with its multiple pools, gym and gardens is ready, thousands will flock to the surrounding streets for a glimpse of how the rich live.

References :
http://www.forbes.com/2007/06/02/india-mumbai-palace-faces-markets-cx_rd_0602ambani.html
http://www.luxemag.org/real-estate/mukesh-ambani-house.html

FT : India’s Second Tier Cities

Interesting numbers -

(click for full image)

Only a handful of India’s 28 states are powering the country’s high rates of economic growth and these offer investors some of the worst regulatory environments, a study by an Oxford-based research company has shown.  Tamil Nadu, Karnataka, Maharashtra, Delhi and Gujarat came out top in a ranking of the most attractive Indian states for foreign companies by Oxford Analytica, a consulting firm that draws on the academic expertise of leading universities.  In spite of their success in attracting foreign investment, these states also emerged as some of the costliest places to do business, with choked legal systems, high taxes and power shortages.  “The cost of land and labour, particularly skilled labour, is considerably higher than in the rest of India.  States with extensive business operations, such as Gujarat, Delhi and Maharashtra, have the most backlogged courts in the country, the study said.  Maharashtra, home of Mumbai, India’s financial capital, recorded the worst score for its regulatory environment…..

The study, called “India Deconstructed” and measuring the performance of 28 states and two union territories, showed the clear advantage of the industrialised, export-orientated southern and western states.  While the top five industrialised states propelled the economy, more numerous rural states were seeing scant benefit from India’s growing prosperity.  The study’s authors expressed concern about a vast rural hinterland characterised by low income, low growth and little investment.  Most of India’s 1.2bn population lives in the countryside and derives its livelihood from the land.  “India’s economic development is being driven by a handful of the large industrial states, with the benefits being slow to filter through to the rural states,” they said.  Reaching economic growth rates of 9% had been one of the ruling Congress party’s greatest achievements before the global financial crisis scythed it down to about 6% this year.  But the country’s policymakers are worried about growing inequalities across the country between the booming urban centres and the tens of millions of rural poor.  A state such as Bihar, with a population of 90m people, mostly employed in an agrarian economy, has seen almost no large private-sector investments over the past five years and suffers some of the worst social and health indicators in the world.  Manmohan Singh, India’s prime minister, and his new finance minister Pranab Mukherjee, have both been careful to prioritise “inclusive growth” alongside proposed economic reforms to modernise the economy, eagerly awaited by foreign investors.  India’s southernmost state, Tamil Nadu, emerged at the top of Oxford Analytica’s ranking as the best place to do business for a foreign company.

Reference : http://www.ft.com/cms/s/0/56171d84-4b75-11de-b827-00144feabdc0.html

BBC Business Daily : Comparing Chinese/SEA Economies With India’s

Business Daily program today.  The Goldman Sachs’ analyst sounds absoultely crazy with his way-over-the-top optimism on China.  David Roche, though, is a star.  His views, on the role of democracy and free markets in building long term growth, are spot-on.

(click for audio which runs 8m 26s)

Mr. Roche explains why Asian countries (excluding India) have a huge uphill climb ahead in creating a true consumer-led economy.  “I think Asia will get relatively richer…..One of the challenges is that it is no accident that all the rich countries of the world are also democracies…..No Asian economy really has developed the institutions – democratic or otherwise – to achieve that purpose…..I exclude India which is a different type of economy, in some ways more Anglo-Saxon, more service oriented…..Export, manufacturing oriented economies have to show that they are capable of creating the middle-class, consumer-driven society which can actually give them sustainable growth which is created at home.  To do that politically, you have to tolerate the middles classes, their individualism, their claims to property rights, their claim to independent judiciary and their claim ultimately to a democratic system.  That is one hell of a challenge for countries which claim they have found an Asian way by doing the opposite…..