All the buzz about losers if Google Inc leaves China ignores a potential winner: India. In any China-versus-India contest, 2009 belonged to China. Its 10.7% growth in the fourth quarter blew the doors off the 6.5% India may have experienced. It will be the toast of the town in Davos, Switzerland, this week at the annual meeting of the World Economic Forum.
Chinas old economy is clearly booming, and investors havent made a lot of money betting against it. Why, then, would Chinas leaders imperil their future prospects as 2010 gets under way Thats what they may do by letting Google, the Information Ages biggest name, walk away. I would look going forward for new investment increasingly to go somewhere elseprobably India, Brazil and other big markets, said William Reinsch, president, National Foreign Trade Council in Washington.
Googles announcement that it is considering leaving China amid misgivings about censoring the Internet wont change everything on its own. Chinas top-down economy is thriving, while Indias is bureaucratic, inefficient and notoriously corrupt.
Yet India has a track record of innovation and a stable of internationally competitive companies that China doesnt. India also has far superior laws on intellectual property and corporate governance. And Chinas willingness to blow off Google plays to Indias relative advantage in these areas.
China should be concerned about the most influential Internet tool bypassing its $4.3 trillion economy and 1.3 billion peopleand the spectre of other Silicon Valley giants following suit. Executives at multinational companies who dragged their feet on diversifying investments away from China may now expedite the process.
At issue is the next phase of Chinas development. Too much attention is on ideas of the last century: keeping labour cheap, holding down the currency, picking and subsidising national champions and favouring exports for growth. Chinas spat with Google underlines how the Communist Party relies on the strategies of yesterday, not tomorrow. Its a proxy for how the past and future are colliding.
Perhaps China will prove that it can leapfrog over years of domestic company buildingas with Lenovo Group Ltds purchase of International Business Machines Corps personal-computer business. China does, after all, have $2.4 trillion of currency reserves to deploy around the globe.
Ideas, not sweat
The odds dont favour it, though. Letting Google leave may dull the long-term benefits of the trillions of yuan that China is throwing at the economy. It limits the participation of entrepreneurs in an age where ideas and impulses mean more than sweat on factory floors. It also makes it less likely that massive stimulus efforts lead to the kind of self-sustaining, indigenous economy that China needs.
The question is where China wants to be in five or ten years. The world is now driven by knowledge flows, making it vital to stay attuned to the latest developments in any field. Only then can innovators ride the latest waves in international business and finance and create the hundreds of millions of jobs needed to raise living standards.
Here, my thoughts are with Indias billionaires. They must be rubbing their hands together in glee as Chinas leaders make an expensive miscalculation. According to a 2008 Forbes poll, India may have the most billionaires by 2017.
Chinas ultra-wealthy are growing in numbers. Its better, though, for ones billions to come from new ideas than from bubbles in the Chinese stock market, which rose 80% last year. What China lacks is a growing roster of homegrown knowledge-based and technology outfits creating jobs, pushing the country up the value chain and inspiring young people to become the next Bill Gates.
Nandan Nilekani, the co-founder of Bangalore-based Infosys Technologies Ltd, is often called Indias answer to Microsoft Corps co-founder. When asked about the secret of Indias success in technology, Nilekani points to a free press and a rabid embrace of information flows. In other words, if India censored cyberspace, companies such as Infosys or Wipro Ltd wouldnt be what they are today.
Benefits of growth
India scores low on global efficiency scales, infrastructure is dodgy and bottlenecks to investment are many. It lags in reducing poverty. Thats where billionaires such as Nilekani re-enter our story.
Millions of rural poor people claim that corrupt officials steal their paltry wages, withdrawing money from post office accounts without providing proof of identity. India turned to Infosys to devise a fraud-proof deterrent.
A year from now, Nilekani will roll out the worlds biggest biometric database to enable Indias 1.2 billion people, half of whom lack access to financial services, to open an ICICI Bank Ltd account or sign up for a Vodafone Group Plc mobile phone.
Its not the Three Gorges Dam or the Shanghai skyline, yet Indias technology billionaires are helping the government devise new strategies and spread the benefits of growth. China, for all its advantages, could use more of that dynamic. Waving goodbye to Google wont help.