Chinese and Indian capitalism..Shifting the balance

[OhioChick]

Jan 24th 2008

FIVE years ago, Tarun Khanna, an Indian-born professor at Harvard Business School, grabbed attention with an article in Foreign Policy magazine speculating that India might eventually overtake China. Co-written with Yasheng Huang, a Chinese-American scholar at the Massachusetts Institute of Technology, the article argued that India's economic model offers more freedom to entrepreneurs which could help the country outpace its fellow Asian giant in the longer term.

From a macroeconomic viewpoint, this argument was rather implausible, except in the extremely long term, for China's economy is already three times the size of India's. At the corporate level, though, it made more sense: as its recent unveiling of the world's cheapest car showed, companies such as Tata Motors promise to make the global grade rather faster than their Chinese counterparts.

With his new book Mr Khanna has returned to the topic of entrepreneurship in Asia's emerging giants. But he has dropped the idea of India outpacing China and replaced it with thoughts about the potential for co-operation between the two countries. Their social and economic systems are vastly different, as he shows in admirably detailed but chatty studies of companies and cities in both places. But they have strengths that could be complementary, he thinks, and he argues that foreign multinationals need to start thinking about the countries together rather than separately.

Unfortunately, the book's enthusiasm for Sino-Indian co-operation is rather unconvincing. Trade between the two countries is rising fast, as Mr Khanna points out, but from a very low base: it is only a tenth as large as trade between China and Japan, and a fifth as large as that between China and South Korea. Chinese companies want to learn about Indian software and outsourcing, just as Indian companies want to learn about Chinese manufacturing prowess. But then companies in both countries are also eagerly studying practices and skills in Europe, America and Japan too: there is nothing particularly special about the flow of people and ideas between India and China.

http://www.economist.com/books/displaystory.cfm?story_id=10559551