Today?s column is going to be the beginning of hopefully a mini-series. Given the magnitude of the subject, it can hardly be otherwise. The achievements of our great northern neighbour have for us long been both mystery and bugbear. Under Mao, the most defining aspect of China?s policy choice was its idiosyncratic nature ? whether the Great Leap Forward or the Cultural Revolution ? notable principally for the havoc they wreaked. Till the 1980s, other than the bitterness of the humiliating defeat of 1962, Indians ? policy makers, commentators and businesspeople ? always have had the comfort of feeling that in any Sino-Indian comparison, we came out the better off.
But once the great transformation instigated in 1978 by the uncompromising pragmatism of Deng Xiaoping began to yield outcomes, first noticed outside in the mid-1980s, of double-digit economic growth, booming exports and large-scale migration of industry from Hong Kong and Taiwan to mainland China, things changed forever.
China in the short span of little over a decade, having reclaimed herself from the madness of the Cultural Revolution and the Gang of Four, was to put to shame our accumulated achievements of four decades of uninterrupted high-thinking and well-meaning economic planning and regulation. Unchecked power had not governed here in India. No madness had ever seized our polity; millions did not perish as a result of its policies, and political leaders were at most dropped from the Cabinet ? not committed to hard labour, as Deng had. Even if some of our controls were eccentric, it was a mild contagion compared to what the Chinese had to endure.
Notwithstanding our watershed reforms of 1991 and the growth response that liberalisation triggered, in every metric of economic performance, India has continued to lag behind China. Growth rates, exports, imports, foreign direct investment (FDI) ? name it, and as the years passed the differences rose to orders of magnitude. In 2002, China?s external trade (exports plus imports) at over $600 billion was 4.8 per cent of global trade, six times as large as India?s (share 0.8 per cent). We consume 30 million tonnes of steel every year; the Chinese do 250 million tonnes. Ditto for cement, basic chemicals, mobile phones, what have you.
But as recently as 2000 there was one thing where Indian consumption levels compared ? namely passenger cars. But all that is now history. In the first nine months alone of 2003, sales of passenger cars in China have crossed 1.4 million units, a 70 per cent increase over last year. The Middle Kingdom has become the third largest national car market after USA and Japan. Taxes on cars in China are not particularly lower than they are in India and despite several price cuts over the past year, retail prices for comparable models do not, prima facie, seem to be lower than they are for India. If anything, they appear to be higher. And in 2002, Chinese automobile companies had a combined gross margin of Renminbi (Rmb) 43 billion on a sales volume of Rmb 151 billion ? a nice operating margin of 28.5 per cent. Oh, and you have to wait for up to one year for your car.
Over the previous weekend, a conference titled ?India-China: A Tale of Two Giants? was held at the instance of the IMF. Many interesting things were discussed and one picked up useful bits of information and some insight, particularly on the sidelines. Not though the story about cars related above. It was interesting to learn that China had progressively reduced import tariffs through her quarter century of reforms. Nicholas Lardy pointed out that by 2001 when China gained entry into the WTO, her average tariffs were down to 15 per cent and argued that the rapid growth of imports (up this year by 40 per cent) has been crucial to China?s spectacular growth experience. Of course, the renminbi was devalued by more than 80 per cent, but the rupee is also down 75 per cent since 1980.
But then too there are some very odd differences in outcomes. Between the capitalism created by the power structure that calls itself a Communist Party, and the one that is quite bourgeois in its construct. In weeks ahead, we shall deal with some of the oddities in this yet unfinished tale.
The author is economic advisor to ICRA (Investment Information and Credit Rating Agency)