Oriental liaison

India and China are both ancient civilizations with historical links. In

terms of soft skills, India has always had an edge over China. The Chinese on

the other hand, were always more practical —they invented paper, printing,

gunpowder, and were the first to sail against the wind. More recently, both

countries became modern republics around the middle of the last century. While

China adapted a totalitarian communist system, it started liberalizing in 1979

under Deng Xiao Ping. On the other hand India, despite being a democracy began

to liberalize its economy in 1991. Prior to that both had similar per capita

income levels of around $ 200.

Since then, the nimble Chinese dragon has outperformed the ambling Indian

elephant in all economic spheres except software. Thus, China’s GDP has grown

at a rate of 10% per annum over the last 20 years in comparison with the 6% in

the case of India. China has quadrupled its GDP over the last 20 years, while in

India’s case, GDP has only more than doubled over the same time span. China’s

per capita income today stands at $ 780 in comparison with around $ 500 for

India and given the fact that China’s population is 1.3 times India’s, its

GDP has crossed the one trillion dollar mark which is double that of India’s.

In terms of international trade, China has crossed the level of $ half a

trillion in comparison with India’s $ 85 billion. China enjoys a 3.4% share of

world trade, while India is targeting 1% in the year 2007.

In terms of e-readiness, a recent survey commissioned by a leading US

multinational, placed China at the fifth position out of a list of 38 countries.

India was a lowly 37. This despite our much touted success in the field of IT.

The reasons-- China has an installed base of over 150 land lines and 130 million

mobile phones and has overtaken the US in quantitative terms as far as mobiles

are concerned. The same is true of PC penetration.

The Chinese strategy has been to develop world class infrastructure,

especially in its coastal regions. In fact on his recent visit to India, the

Chinese Prime Minister Zhu Rongji indicated that inquiries by his business

delegation revealed that prices of most durable consumer goods including IT

products in India is 3-4 times higher than in China. He also acknowledged India’s

lead in software and in fact suggested that the two countries should exploit

each other’s strengths. The Chinese software opportunity is currently

estimated at around US$ 6-7 billion and is likely to grow rapidly especially

with China becoming a WTO member and the resultant emphasis on IPR protection.

Given the structure of the Chinese economy, Indian software companies need to

position themselves to capture this vertical space and in fact, utilize it to

move up the value chain in other global markets. ‘Embedded’ software and

VLSI design present similar opportunities, especially, as China develops as a

major hub for manufacturing integrated circuits. While Chinese software exports

are less than US$ 500 million, their production of electronics hardware

(including IT) is a huge US$ 120 billion, of which almost 40% is exported and

half of which goes to the US. In terms of software, India enjoys a lead of 4-5

years in terms of technology, exports, quality certification and manpower.

Today, India and China would be driving the global market for decades to

come. Both countries also represent large potential markets for each other’s

goods and services. While China has made significant advances in infrastructure

and manufacturing, India has an edge in terms of intellectual capital for the

future knowledge economy.

If China with its hardware prowess a la Legend Computers and India with its

considerable skills in software, were to collaborate in promoting open systems

like Linux they could pose a serious threat to the Microsofts and Compaqss of

the world. Similarly, the collaborative potential in biotechnology, the use of

bioinformatics for drug discovery as well as in energy and environment is

compelling. India could also provide significant support to China in the

development of its institutional infrastructure in areas like finance, law,

civil service or higher education. The argument for a more serious engagement

between the two countries is indeed self evident.

The author is senior fellow, TERI, and former adviser, ministry of

information technology.