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Another dimension is the political environment. Using the stability plank, both countries have relatively stable political environment although China has a single party Rule (Communist Party) compared to India coalition politics. China remains major political risk for Investors given its complex and integrated political environment. Government officials are also the members of the ruling Communist party at local/provincial level. This leads to tight rope walking balancing the national, immediate needs with challenges of modernization. The 'Class of 77'- the first group of students after the Cultural Revolution to gain entry to Universities based on merit rather than political or family connections are now at the helm of affairs in the political set up of China. No wonder, the new generation leadership is more open to Western ideas and less bound by Chairman Mau-Tse-Tung and Deng Xioping doctrine as they guide China into the WTO fold-a universal trading system regardless of boundaries and restrictions.

World Business Environment Survey 2000
(Note: The lower the score the better)

Source: The World Bank, 2002
(URL: http://www.marubeni.co.jp/research/index/0212/index.html)

India, where comprehensive economic reforms were introduced only in 1991 (ten years after China's open door policy), creates expectations of similar potential. The Government through its 'single window system' relating to foreign investments aims to cut down bureaucratic hurdles. The relaxation of rules has definitely encouraged more inflow of FDI ($850 million in 2002 against $ 250 million in 1992). Coca Cola was able to get permission for a 100% wholly owned subsidiary in a week and Motorola received clearance in flat 2 days. Other Companies include Daimler-Benz, Procter & Gamble and Whirlpool. Nevertheless, the Indian Government new approach is helping a great deal to attract MNCs to make a critical choice: India or China. In addition to the sops for MNCs, other attractions that entice MNCs to India are a) a large number of highly educated people, especially in critically short supply areas- medicine, engineering and software b) widespread English speaking Indians (200 million)- more tuned to Anglo-Saxon culture due to strong ties with Europeans c) Low wages /salaries, which are often 10-30 % of similar type of jobs in the West d) Tolerant and accommodating society especially to outsiders- an intrinsic part of its culture.

India presents a unique statistics in the world economy. Currently, India has only 0.6 % of the world's trade, 1.4% of the world's GDP, 2.2 % of the landmass but 17% of the world population! With China garnering all the recent economic headlines (2nd largest FDI in the world -2002), India has seemingly been pushed to the economic sidelines. Hofstede's cultural dimension suggests that the two Asian giants are relatively close to each other except in the 'Long term' aspect. Both nations share common problems and to a great extent similar 'Attractiveness' yet China remains the darling of the global economic community. The difference perhaps lies in "Better Governance".

World Economic Freedom Index 2003
(Note: The lower the score the better)

Source: The Heritage Foundation, November 2002
(URL: http://www.marubeni.co.jp/research/index/0212/index.html)

Indians excel outside India! This is perhaps that Governance is better outside. A recent study showed that 2.6 to 2.7 % of India's educated had moved to other shores compared to 0.1 to 0.2% of Chinese brain drain. Another advantage China enjoys is it has better infrastructure and overall regulatory environment. These are key factors in attracting strategic investment, which India sorely needs to develop the traditional side of its economy. (India is heavily service oriented whereas China more reliant on manufacturing). Although India has lost its position to China in the global distribution of FDI, which cannot be explained by gaps in infrastructure alone. Possibly, China has leveraged its earlier start in the investment attraction (it opened its economy in 11 years before India). Another factor is the inclusion of Hongkong…… Real FDI comes from surrounding nations (Taiwan, Korea…) + Chinese diaspora.

The bulk of overseas Chinese investment comes from the diaspora that live in an arc of Pacific Rim. The overseas Chinese factory owners faced with rising labour costs and tough Government regulations, especially Taiwan, Hong Kong and Singapore, shifted their toys, wigs and textiles assembly lines to mainland China whose economy was opening up in late 1980s. This possibly explains the present Chinese export machine. It's centered on making and shipping light manufactured goods because that's the type of business overseas Chinese businessmen knew best. It may have also led to Beijing's remarkable dependence on the US market- that was the market overseas Chinese knew best.

The economic character of the overseas Indian is radically different. There are roughly three chunks of the Indian diaspora who have strong economic links with the homeland: the Persian Gulf expatriate workers, the largely Gujarati-Sikh-Sindhi trading diaspora in Africa, Canada and Europe and, finally, the middle-class professionals who live mostly in Great Britain and North America. Note the lack of a group with broad manufacturing experience. India missed the Industrial revolution and with it the ability to mass -produce. What they did manage to maintain was the urge to learn and teach. Within a dominant Hindu culture, Indians worship knowledge. They are superb communicators, being excellent linguists and having a tradition of learning English early on- reminiscent of Anglo-Saxon culture.

In the present Internet age, the political system and the economy will be out of synchronization if both are not based on principles of complete freedom (a balance between power distance and collectivism). In this respect, India has an advantage in the long term as it's a democracy (like West) with complete freedom of thought and expression. China, sooner or later, will face an uphill task as its political system is based on 'benelovalent dictatorship' whereas real economic value lies in a knowledge/communication based economy. Knowledge commands a higher premium than mass production. The most obvious example has been the overseas Indians' role in IT and academics.

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*Contributed by -
Sauvik Banerjee, Anusha Makka and Ratnesh Kumar
MBA
Leeds University Business School, UK.