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.