Wednesday, August 24, 2005 Alarm and Disarray on Rise in China

Certain snippets of news heard/watched/read today in various media, print and visual. China's population set to be overtaken by India. China scambling to deal with the problems of banned carsinogen used. Hong Kong unhappy with the above and setting up stricter laws and checks to deal with it.

And now this.

And so I posed a question to my mom and I asked her that given the current situation and the above facts, where would you choose to invest? China or India? Her answer was India without even missing a beat and the reasons she gave were remarkably similar to my, in sentiment if not phrasing.

What do Investors want? The most obvious answer would be that given a certain risk level, the highest returns on that given risk. And thus assuming that you had to invest over the short, medium and long term in the above two countries, the gut feel (and the smart money once the FDI numbers start coming in) would be I think on India.

Putting aside the fact that there are more English speakers in India than in China, or the fact that British colonial rule has created a culture that's more aligned with the 'West' than the rather prickly one that China has, I think it really boils down to an issue of trust i.e. who would you trust more given the quality and quantity of political culture and institutions in terms of accountability and transparency?

Let's not scoff at democracy. It's still the most responsive (some would argue too responsive) to the needs and desires of the people. The ballot box in India works. Nothing more so than the manner in which the highly favour BJP were kicked out and Congress elected in BECAUSE the majority of the urban and rural poor felt that the India Shining idea was a sham and that the BJP were not making life better for the majority of people. Of course, it helps that Congress is a legitimate and worthy opposition party.

Contrast this to China where the social contract seems to be breaking apart. According to the public security minister, Reuters was told of the 74,000 mass incidents (demonstrations and riots) that occurred in 2004, up by more than 27% from 2003, and in stark contrast to the 10,000 that occured a decade ago. There's a reason why people react violently and start massing in numbers and that's when it is felt that there's little accountability by the officials and when it is also felt that they have no way of making their grievances felt and acted upon effectively.

When one culture is based on the rule of law, more so at least than the other, where corruption is institutionalised and the maxim that the emperor is far away (such that the officials can come out and play) still remains very prevelant, it wouldn't take a rocket scientist to figure out that ceteris peribus, all things being equal, the first culture will be able to leverage on that advantage.

I've read Gordan Chang's book, "The Coming Collapse of China" and I personally think it's premised too much on annecdotal evidence and it really overstates the case (especially his dire prediction that the Party that was born from blood will only be able to end that way). However, his puts his finger on the pulse of the faultlines of China. Growing income inequity, the party responding with slogans and words, having lost not only its revolutionary credentials but its spirit as well. The anger of the rural poor and the ubran migrant workers. Anger felt elsewhere being fed against the party. But even assuming that China manages to tide all these problems, without more fundamental reforms, the coming decade might belong to her, but the decade after will be inheirited by India.




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